SEC Meets with Audit Firms to Discuss China, Emerging Markets Risk

The SEC released a statement on its continued dialogue with large U.S. audit firms regarding audit quality in China and other emerging markets. The SEC said its latest meetings addressed various issues, including benchmarking and the anticipated and potential effects of the coronavirus.  In a January 30, 2020 statement, Chairman Jay Clayton noted that SEC staff would monitor, and to the extent appropriate, provide guidance and other assistance to market participants regarding disclosures related to effects of the coronavirus.  In the SEC’s recent meeting with leaders of major audit firms officials discussed potential exposure of companies to the effects of the coronavirus and the impact that exposure could have on financial disclosures and audit quality, including, for example, audit firm access to information and company personnel.  “This remains a dynamic situation where the effects on any particular company may be difficult to assess or predict, because actual effects may depend on factors beyond the control and knowledge of issuers,” according to the SEC’s statement. The SEC said that how issuers plan and respond to the events as they unfold can be material to an investment decision. “We urge issuers to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.” The SEC said its staff will determine whether to provide additional guidance and relief as appropriate for affected parties.