SEC Chief Accountant Paul Munter recently released a public statement that has drawn the attention of the legal community. In his comment, Munter expressed increased concerns about both management’s and auditors’ risk assessment processes. He made it clear that the risk assessment tasks of these entities should not be undermined.
The statement released by Munter may bear significant implications. It suggests an expectation for a higher level of disclosure regarding risks that could impact a company’s internal control over financial reporting (“ICFR”). Legal professionals, especially those engaged in our biggest corporations and law firms, should pay heed to this development as it may point to what we should anticipate in the near future.
This engagement by Munter arrives amidst various discussions, criticisms, and evaluations of the current system’s ability to provide reliable risk information. There have even been debates recently centered on the optimal risk disclosure requirements, with an aim to balance the need for transparent information without overwhelming stakeholders or disclosing sensitive competitive information.
Munter’s public statement and the subsequent reactions it elicited add to the larger narrative surrounding the company’s accountability in risk management processes. Whether these processes are adequately disclosed and if disparate risk management strategies across different organizations can be reconciled are concepts that continue to be under scrutiny.
For the broader legal community, the emphasis on the delivery of an effective risk assessment process, and enhanced transparency thereof, suggests a shift towards greater disclosure around ICFR risks, potentially affecting a wide array of corporate legal strategies and standards.
It’s clear that Munter’s focus on risk assessment is a development that warrants active, serious consideration, so as to understand its potential impact and the eventual implications for financial reporting and disclosures. The original statement, and further information, can be found on JDSupra.