Accounting and Financial Reporting Considerations Related to the Current Macroeconomic and Geopolitical Environment
Introduction
Today’s consumers and companies face numerous challenges
associated with the current macroeconomic and geopolitical environment. Reports
of continuing global supply-chain disruptions and labor shortages dominate the
news and are top of mind for many financial executives.
On the basis of Deloitte’s recent Q3 2022 CFO Signals survey, some of the most common
issues affecting CFOs include internal matters, such as employee retention,
employee working arrangements, and cost management, as well as external concerns
such as inflation, stagflation, and geopolitical tensions.
Certain of these challenges started during the COVID-19 pandemic, which gave rise
to new operational and financial difficulties, often with unique accounting and
financial reporting implications (see Deloitte’s Financial Reporting Alert,
“Financial Reporting Considerations Related to COVID-19 and an Economic
Downturn”). For example, as a result of significant global
supply-chain disruptions and labor shortages brought on by the pandemic, many
product and employment costs increased (see Figure 1 below). Global central
banks have also been raising interest rates in an attempt to temper the impact
of historically high inflation rates (see Figure 2 below).
Figure 1: U.S. CPI and Employment Cost
Index
Figure 2: U.S. Federal Funds Effective
Rate
Inflation remains high, notwithstanding tightening monetary
policies by global central banks. Further, while current unemployment levels
have reached historical lows, relative employee productivity has decreased. Many
companies also continue to struggle domestically with labor shortages and have
been focusing on the importance of employee talent acquisition and
retention.
While companies must deal with the impact of inflation and
scarce labor markets, there have been signs of improvement. As noted in
Deloitte’s “United States Economic Forecast,” certain
prices (notably of oil, gas, and food) are beginning to decline, consumer
spending remains high, and companies do not generally appear to be affected by
rising interest rates (which, as noted in the above chart, are still
historically low) given the amount of cash they accumulated during the pandemic.
Further, even as equity prices have cooled off from the surge in 2021, public
companies may continue to regard equity financing as an attractive source of
capital.
Companies may also want to focus on preparing for the recovery
that will follow a recession or downturn, which many economists believe will
come sooner than expected. Even if the U.S. economy is not (and may never be) in
a recession given the definitions of that term in the United States, the impacts
of the downturn are clear, and U.S. companies may need to deal with the
challenging accounting and financial reporting implications of both the
macroeconomic conditions and the actions they take to combat those conditions
and prepare for a recovery. Such implications may also be challenging for U.S.
companies with global operations in countries whose macroeconomic conditions are
more or less severe than those in the United States.
Further, U.S. companies may be affected by geopolitical crises
occurring abroad, such as the continuing Russia-Ukraine war and associated trade
restrictions (see Deloitte’s Financial Reporting Alert, “Financial Reporting Considerations
Arising From the Russia-Ukraine War,” for more information), as
well as the strained relationship between China and the West. These situations
may lead to continued changes in foreign investment, the shifting of supply
chains, and disruptions in the availability of resources. Furthermore, companies
with operations in the European Union that are in energy-intensive industries
are likely to have experienced significant cost increases in gas prices, partly
because European Union countries have faced a cutoff of gas from Russia.
Meanwhile, they continue to seek alternative sources from other countries.
Although other Deloitte publications have addressed various impacts of the
macroeconomic downturn and the geopolitical situation, the discussion below
provides current guidance on key financial reporting, accounting, and internal
control matters for companies to consider.
SEC Reporting and Disclosure Considerations
Registrants must consider the impacts of the current
macroeconomic and geopolitical conditions on their required disclosures and
public filings. Recent guidance issued by the SEC has included CF Disclosure Guidance (DG) Topic
9 and DG Topic
9A (in response to the pandemic) and a sample letter discussing
disclosure considerations (in response to the Russia-Ukraine War). While the
guidance in those documents was prompted by specific events, it continues to
apply in today’s economic and geopolitical environment. It also provides a
framework for registrants to use in thinking through their disclosures. Such
framework emphasizes the need for companies to provide information about their
financial and operating status, as well as their expectations for the future, in
a timely manner. That need was reiterated by the International Organization of
Securities Commissions in a November 14, 2022, public statement, which also includes
considerations for a registrant’s auditors and audit committees.
Management’s Discussion and Analysis
The Management’s Discussion and Analysis (MD&A) section of a registrant’s
filing supplements the financial statements by providing information about
the registrant’s financial condition, results of operations, and liquidity.
A registrant should discuss in MD&A the economic and geopolitical
environment and the material quantitative and qualitative impact it may have
on its business. For example, the discussion could address potential issues
such as changes in consumer behavior, including an unusual increase or
decrease in demand, store or facility closures, changes in customer traffic,
increased competition for raw materials, higher costs due to inflation,
labor shortages, supply-chain disruptions, production delays or limitations,
risk of loss on significant contracts, liquidity challenges or debt covenant
issues, increasing interest rates, regulatory risks, the impact of foreign
currency, or the impact on human capital.
In addition to discussing the impact on historical results, registrants are
also expected to disclose any known trends, events, or uncertainties that
have had or that are reasonably likely to have a material impact on their
financial condition, results of operations, or liquidity. These
forward-looking disclosures are especially critical in connection with the
current conditions and associated economic uncertainty. Such disclosures can
give investors an “early warning” about risks such as (1) when and under
what conditions charges may be incurred in the future and the potential
magnitude of such charges, (2) when revenue growth or profit margins may not
be sustainable because of underlying economic conditions, or (3) when the
registrant may be unable to comply with debt covenants or have other
liquidity issues. Further, a registrant’s liquidity may be significantly
affected because its access to cash through debt or equity markets could
prove challenging in light of the recent volatility in the capital markets
and the rising interest rate environment. In MD&A disclosures about
liquidity, registrants should discuss their working capital or other cash
flow needs, anticipated changes in the amount and timing of cash generated
from operations, the availability of other sources of cash along with
potential limitations associated with accessing such sources, and the
possible ramifications of their inability to meet their short- or long-term
liquidity needs.
Management should also consider providing early-warning disclosures in
connection with accounting areas in which significant judgment is required,
such as contingencies, valuation allowances, or potential impairments. These
account-specific disclosures are frequently included as part of the critical
accounting estimates section of MD&A. Given the economic and
geopolitical conditions and uncertainty associated with them, there is
likely to be an increase in the level of judgment entities need to apply in
estimating future results and the potential range of reasonably likely
outcomes. Registrants should therefore consider expanding their disclosures
about (1) the key assumptions used in their most significant estimates and
(2) the sensitivity of such estimates to changes that could reasonably occur
as events continue to develop. Such disclosures should be continually
evaluated and updated, particularly if material changes have been made to
key assumptions and estimates.
Risk Factors
Registrants must disclose information about the most significant risks that
apply to their company or its securities. In light of the evolving
macroeconomic and geopolitical environment, registrants should continually
evaluate whether they need to update their risk factor disclosures to add
specificity about the direct and indirect impacts such conditions may have
on their business. If the conditions are framed in an existing risk factor
disclosure as a potential or hypothetical condition, registrants should
update the disclosure to clarify that the risk is no longer hypothetical and
provide more specificity about the actual and potential impacts of the
conditions. In addition, registrants should consider (1) adding or updating
risk factors to address the heightened risk of cybersecurity attacks
resulting from geopolitical conditions and (2) describing the steps they
have taken to mitigate those risks.
Note that on March 9, 2022, the SEC issued a proposed
rule on cybersecurity disclosures that would require
registrants to provide enhanced disclosures about “cybersecurity incidents
and cybersecurity risk management, strategy, and governance.” See Deloitte’s
March 16, 2022, Heads Up for more information.
Form 8-K Considerations
A registrant commonly uses Form 8-K to give investors more timely information
about its financial and operating status. The form can also be used to
provide updates to investors on the current and potential future impact that
the economic and geopolitical environment may have on the registrant’s
business. Further, a registrant may have to file a Form 8-K to disclose
material dispositions of assets and any related pro forma information (Item
2.01), liquidity events that result in the violation of debt covenants or
that accelerate or increase any obligations (Item 2.04), costs to be
incurred in connection with any exit or disposal activities (Item 2.05), or
material impairment charges (Item 2.06).
Non-GAAP Measures, Metrics, and KPIs
Registrants may also consider reflecting various impacts of the economic and
geopolitical conditions in their non-GAAP measures, metrics, and key
performance indicators (KPIs). The primary requirements for disclosing
non-GAAP information are related to prominence, reconciliation, clear
labeling, and usefulness and purpose. In addition, registrants’ disclosures
about metrics and KPIs may need to include (1) a clear definition of the
metric and how it is calculated, (2) a statement indicating the reasons why
the metric provides useful information to investors, (3) a statement
indicating how management uses the metric in managing or monitoring the
performance of the business, (4) a description of any key estimates,
assumptions, and limitations (e.g., whether the metric is a “hard” amount or
an estimate), and (5) presentation of the metric within a balanced
discussion.
Further, when evaluating whether an adjustment related to certain economic
and geopolitical conditions is appropriate in a non-GAAP measure, a
registrant should consider several factors including, but not limited to,
whether the adjustment is:
-
Directly related to such conditions or to the associated economic uncertainty.
-
Incremental to normal operations and nonrecurring (i.e., it is not expected to become the “new normal”).
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Objectively quantifiable, as opposed to an estimate or projection.
A registrant must use judgment when evaluating whether an adjustment is
consistent with these factors. However, we believe that a non-GAAP measure
of performance that eliminates normal recurring cash operating expenses
would generally not be appropriate.
Any new adjustments or changes to non-GAAP measures related to the current
economic environment should be clearly labeled, and changes to such measures
should be transparently disclosed. In addition, if new adjustments to
non-GAAP measures are added as a result of the current environment, an
entity should ensure that its disclosure controls and procedures address the
assessment and approval of the revised non-GAAP measures, including the
consistency of presentation between periods and transparent disclosures
about any changes. Similar considerations apply to changes to, or newly
introduced, metrics and KPIs.
See Deloitte’s Roadmap Non-GAAP Financial Measures and
Metrics for more information about SEC requirements
and interpretations related to such measures and metrics. In addition, see
Deloitte’s Roadmap SEC Comment Letter Considerations,
Including Industry Insights for current trends in SEC
comments.
Financial Reporting, Accounting, and Internal Control Considerations
An economic downturn may have a broad impact on an entity’s financial reporting
or it may be limited to certain accounts, transactions, or disclosures. As a
result of current conditions, future uncertainty, or both, entities may also
face significant challenges associated with forecasting. Such challenges may be
compounded by historically high inflation and global supply-chain issues.
Specific accounts that may be affected by forecasting are addressed in the
discussion below, along with other relevant considerations. Companies should
also review Deloitte’s Financial Reporting Alert,
“Financial Reporting Considerations Related to Inflation, Supply Chain
Disruptions, and Labor Shortages,” for additional details
associated with these challenges.
Impairment of Nonfinancial Assets (Including Goodwill)
Overview
Historically, as economic conditions deteriorate, the chance of events
that trigger impairments (e.g., a worsening market for an asset, a
change in the way an entity uses an asset, operating losses, or
excessive costs) increases accordingly. This correlation was recently
evidenced by the uptick in impairments attributable to the pandemic
starting in 2020 and has continued throughout the downturn, as
represented in blue in Figure 3.
Figure 3: Impairments of Nonfinancial Assets of Registrants With
Market Capitalizations Over $1 Billion
Entities should carefully assess the impairment considerations outlined
below. Specifically, the current economic environment or changes in an
entity’s business or legal environment (such as a deterioration in
general economic conditions, fluctuations in foreign exchange rates, or
increases in operating costs that have a negative effect on earnings and
cash flows) may lead to “triggering events” that result in a requirement
to test for impairment on an interim basis or may significantly affect
the measurement of an asset’s value. Further, central banks are
increasing interest rates, which may result in higher discount rates
and, in turn, lower fair values and more impairments when entities use
the discounted cash flows valuation method. Even if nonfinancial assets
are not impaired, an entity should also consider the need to provide
financial statement disclosures about the risks and uncertainties
associated with its operations and how such risks and uncertainties may
affect its accounting estimates.
Inventory
Under U.S. GAAP, most inventory must be measured at the lower of its cost
or (1) market value (for inventory measured by using the last in, first
out method or the retail inventory method) or (2) net realizable value
(for all other inventory). In a volatile economic environment, it may be
particularly important for entities to determine whether the utility of
their inventory on hand has been impaired as a result of their inability
to transfer those price increases to customers. Also, entities with
noncancelable, unhedged firm purchase commitments for inventory should
recognize expected net losses to the extent that they are unable to
recover such cost through sales.
Further, if supply-chain disruptions affect an entity’s ability to
operate its manufacturing facilities at normal capacity, the entity
should consider the accounting guidance on inventory to determine which
costs may be capitalized. For example, certain manufacturers with
facilities that may be operating at abnormally low production levels
would be required to expense abnormal overhead costs as incurred rather
than capitalize them into inventory.
Indefinite-Lived Intangible Assets Other Than Goodwill
Indefinite-lived intangibles other than goodwill (such as trade names)
should be tested for impairment at least annually or more frequently if
events or changes in circumstances indicate that it is more likely than
not that the asset is impaired (i.e., a “triggering event” has
occurred). In addition to evaluating the need for an interim impairment
test, an entity should consider whether events and circumstances
continue to support its conclusion that an asset has an indefinite
useful life, which might occur if the entity’s expected use of the asset
changes in response to certain conditions.
Long-Lived Assets
Long-lived assets such as property, equipment, finite-lived intangibles,
or right-of-use (ROU) assets arising from leases are tested for
impairment when triggering events occur. An entity may need to consider
whether factors such as rising costs due to spikes in energy prices
(such as in the European Union) or higher labor costs have resulted in
an impairment trigger. If a triggering event has occurred, the entity
first assesses whether the asset is recoverable on an undiscounted cash
flow basis. If the entity determines that the carrying amount of the
assets is not recoverable, it then performs a valuation to calculate the
fair value and to measure any subsequent impairment of the assets’
carrying value. Regardless of whether the entity recognizes an
impairment loss, it should still consider whether there has been a
change in the remaining useful life or salvage value because of the
triggering event that occurred.
Also, an entity may choose to abandon assets, whether
because of geopolitical crises abroad or decisions to shift supply
chains. If so, the entity should test the assets for impairment and
consider the need for revised depreciation estimates.
For additional considerations related to impairment and abandonment of
long-lived assets, see Chapters 2 and 4,
respectively, of Deloitte’s Roadmap Impairments and Disposals of
Long-Lived Assets and Discontinued
Operations.
Goodwill
Under U.S. GAAP, an entity must test goodwill for
impairment at the reporting-unit level at least annually or more
frequently if triggering events occur. An entity should pay particular
attention to goodwill impairment when there have been significant
declines in market capitalization, particularly as the entity's market
capitalization approaches or declines below its carrying value.
Impairment and Valuation of Financial Assets
Overview
When measuring a financial asset’s fair value (either on
a recurring basis or to determine whether an impairment has occurred),
an entity should be aware that fair value measurements are market-based
and represent an exit price; thus, they are not entity-specific. An
entity should maximize the use of observable inputs, except in certain
times of significant volatility when it may be able to ignore observable
inputs if a transaction is not orderly. Further, an entity should
consider (1) the inputs used in a valuation technique and whether credit
risk or liquidity risk should be included, (2) whether a valuation
technique is appropriate in the circumstances, and (3) whether
information obtained from brokers or pricing services is reliable given
the current uncertainty, especially in specific geographies. See
Chapter
10 of Deloitte’s Roadmap Fair Value Measurements and Disclosures
(Including the Fair Value Option) for more
information.
The impairment model used for financial assets will
depend on the type of investments, some of which will not require fair
value measurements. In the discussions below, it is assumed that an
entity has adopted the current expected credit losses (CECL) accounting
standard.
Investments in Equity Securities Without Readily Determinable Fair Values
If an entity holds investments in equity securities
without readily determinable fair values and elects not to remeasure
those securities at fair value in each reporting period, it should
remeasure the investments to fair value if either (1) there is an
observable transaction in the same or similar security of the same
issuer or (2) on the basis of a qualitative assessment (performed in
each reporting period), the investment is impaired and the fair value of
the investment is less than its carrying value. Entities that are
invested in certain types of equity securities such as an investment in
the equity of a startup or of a foreign operation may want to focus in
particular on the qualitative assessments and fair value considerations
discussed above.
Investments in Equity Method Investments and Joint Ventures
Entities with equity method investments may need to
evaluate whether decreases in an investment’s value are other than
temporary. See Section
5.5 of Deloitte’s Roadmap Equity Method Investments and Joint
Ventures for further discussion of the assessment
of equity method investments for other-than-temporary impairments.
Financial Assets Measured at Amortized Costs (Such as Held-to-Maturity Debt Securities, Loans, and Trade Receivables)
Entities should apply the CECL impairment model, which
is based on expected losses rather than historical incurred losses, when
recognizing credit losses on financial assets that are carried at
amortized cost. The allowance for credit losses takes into account
historical loss experience, current conditions, and reasonable and
supportable forecasts. Given the current macroeconomic environment,
entities may experience an increase in recognized allowances for credit
losses on these types of investments.
Available-for-Sale Debt Securities
An investment in an available-for-sale (AFS) debt
security is impaired if the fair value of the investment is less than
its amortized cost basis. An entity must assess impairment at the
individual security level. Subsequent accounting for an AFS debt
security also depends on the investor’s intention to sell the security
or whether it is more likely than not (MLTN) that it would be required
to sell it. If the investor intends to sell the security or it is MLTN
that it would be required to sell it, the investor must write down the
security’s amortized cost basis to its fair value, write off any
existing allowance for credit losses, and recognize in earnings any
incremental impairment. An entity that does not intend to sell an
impaired security, or for which it is not MLTN that it would be required
to sell the security, must determine whether a decline in fair value
below the amortized cost basis resulted from a credit loss or from other
factors. Any portion of the impairment attributable to credit losses is
recognized through net income, with the remainder recorded through other
comprehensive income. See Chapter 7 of Deloitte’s Roadmap
Current
Expected Credit Losses for further discussion of
AFS debt securities.
Consolidation
A reporting entity consolidates another entity (a legal entity) if it has a
controlling financial interest in that entity. The reporting entity’s
consolidation determination may be affected by factors such as geopolitical
conditions, sanctions, and the impact of current economic conditions on a
legal entity that is currently a variable interest entity (VIE). In
addition, reporting entities may need to reconsider whether a legal entity
is a VIE if certain VIE “reconsideration events” occur. They should also
continually reassess whether they are the primary beneficiary of a VIE
throughout the entire period in which they are involved with the VIE. See
Chapter 9 (on VIE reconsideration
events) and Chapter 7 (on determining
the primary beneficiary) of Deloitte’s Roadmap Consolidation — Identifying a Controlling Financial
Interest for further information.
Revenue
In addition to issues related to customer collectibility for
which CECL allowances may be required, an entity may need to consider
whether the inability of a customer to pay affects the entity’s conclusion
that a revenue contract exists. In such a case, revenue recognition may be
precluded. Further, many entities may renegotiate contracts, grant
concessions, or cancel contracts and may need to consider the accounting
requirements for contract modifications and price concessions. See Chapter 4 (on
identifying a contract), Chapter 6 (on determining the transaction price), and
Chapter 9
(on contract modifications) of Deloitte’s Roadmap Revenue Recognition for
additional information about these matters.
Stock-Based Compensation Arrangements
As a result of the decline in equity markets, an entity may
have determined that a significant portion of its employees’ outstanding
stock options are “underwater” or “out-of-the-money.” In such a case, the
entity may reprice the options, may issue modified awards, or may allow
employees to participate in stock option exchange programs. An entity that
employs these measures as a means of talent retention should be aware of the
potential one-time impacts to earnings. See Chapter 6 of Deloitte’s Roadmap
Share-Based Payment
Awards for more information about modifications of
share-based payment awards.
Leasing Arrangements
In addition to the impairment considerations described in
the Long-Lived
Assets section, lessors and lessees should be aware that any
rent concessions granted in a leasing arrangement outside the original lease
are likely to be accounted for as a lease modification. See Chapter 8 (on
lessees) and Chapter
9 (on lessors) of Deloitte’s Roadmap Leases for
more information about lease modifications. Lessors should also be aware
that net investments in leases (other than operating leases) are subject to
the CECL impairment model described in the Impairment and Valuation of Financial
Assets section. For information about the application of the
leasing guidance to lessors with outstanding operating lease receivables,
see Deloitte’s Financial Reporting Alert, “Assessing the Collectibility of
Operating Lease Receivables.”
Foreign Currency Matters
While inflation in the United States has increased
significantly, certain countries such as Turkey and Argentina have been
experiencing hyperinflation. Under U.S. GAAP, entities must assess whether
they are operating in an economy that has become highly inflationary. If so,
they are required to remeasure financial statements in the reporting
currency. See Chapter
7 of Deloitte’s Roadmap Foreign Currency Matters for
more information about highly inflationary economies.
Hedge Accounting
The current economic conditions may affect an entity’s
ability to apply hedge accounting. For example, it may be challenging for
entities with certain cash flow hedges (such as interest rate swaps with
current maturities extending beyond current debt obligations) to roll over
their debt obligations. Such a challenge may be an indicator that it is no
longer probable that forecasted transactions will occur and an entity
therefore may be required to discontinue hedge accounting. Also, an entity
whose derivative and hedging portfolios are at an increased risk of
counterparty default may have to discontinue hedge accounting. See
Deloitte’s Roadmap Hedge Accounting for more information.
Income Taxes
An entity may have more difficulty developing forecasts as a
result of the current macroeconomic conditions, which may affect different
aspects of its income tax accounting. Even if the entity has generated
income recently, it will need to consider the current economic environment
and whether future losses are projected, which may indicate that a valuation
allowance on deferred tax assets is required. In addition, for interim
reporting purposes, adjustments to forecasted income (such as those assumed
for other impairment analyses) will also need to be factored into the
entity’s estimated annual effective tax rate (AETR). In other, more extreme,
instances, an overall reduction in an entity’s forecasted income due to
changing economic conditions might make the entity’s AETR highly sensitive
to changes in estimated ordinary income for the year (and the entity may not
be able to make a reliable estimate of the AETR). In those cases, the actual
effective tax rate for the year to date may be the best estimate of the
AETR. See Chapter
5 (on valuation allowances) and Chapter 7 (on interim reporting) of
Deloitte’s Roadmap Income Taxes for more information.
Presentation and Disclosure Considerations
Classification
Entities operating in geographies in which the United
States and other countries have imposed sanctions may need to consider
whether it remains appropriate to classify certain assets as current or
certain liabilities as long-term on the statement of financial position.
For example, cash and cash equivalents may be restricted, and entities
affected by the economic environment may be at increased risk of
breaching financial covenants. If such a breach occurs on or before the
end of the reporting period and gives the lender the right to demand
repayment within 12 months of the end of the reporting period, the
liability would generally be classified as current in the borrower’s
financial statements.
Further, if an entity concludes that a material event is
of an unusual nature or occurs infrequently (or both), the entity may
need to report the nature and financial effects of the event as a
component of income separately from continuing operations or provide a
footnote disclosure.
Risks and Uncertainties
Estimates in financial statements are made on the basis
of current events and transactions, the effects of which may not be
precisely determinable until some future period. Uncertainty about the
outcome of future events should be disclosed in the financial
statements. For significant accounting estimates, financial statement
disclosure is required when it is reasonably possible that an estimate
will change in the near term and the effect of the change will be
material. Further, entities are required under U.S. GAAP to disclose
their concentrations if certain criteria are met. Entities with material
exposures in specific regions or economies will need to consider whether
to disclose concentrations, particularly if such concentrations makes
them vulnerable to the risk of a near-term severe impact.
Going-Concern Considerations
An entity will need to consider whether current
macroeconomic or geopolitical conditions give rise to substantial doubt
about whether the entity may be able to continue as a going concern and,
if so, whether it should continue to prepare its financial statements on
a going-concern basis. Specifically, management must determine whether
(1) there are conditions and events that, when considered in the
aggregate, raise substantial doubt about the entity’s ability to
continue as a going concern within one year after the date on which the
financial statements are issued and, if so, (2) management’s plans are
able to mitigate these conditions. An entity should also consider the
disclosure requirements even if management’s plans alleviate doubt about
the entity’s ability to continue as a going concern.
Subsequent Events
In an environment in which changes may occur rapidly or
unexpectedly (and especially in areas affected by geopolitical crises),
entities should carefully evaluate information that becomes available
after the balance sheet date but before the issuance of the financial
statements. Under U.S. GAAP, entities must recognize the effects of all
subsequent events that provide additional evidence about conditions that
existed as of the balance sheet date (including estimates) in the
financial statements. Even if they are not required to recognize
subsequent events, entities should evaluate whether they must provide
disclosures and whether omitting them would cause the financial
statements to be misleading.
Internal Controls Over Financial Reporting
Entities may be required to either identify new controls or
modify existing ones in response to new or modified financial reporting
risks that have emerged as a result of the current macroeconomic or
geopolitical environment. They must also consider the operating
effectiveness of existing controls, especially if shortages in labor or
changes in ownership have caused a change or breakdown in review-type
controls.
Importantly, SEC registrants must disclose in their
quarterly or annual filings any changes in internal controls that have
materially affected, or are reasonably likely to materially affect, their
internal control over financial reporting in Item 4 of Form 10-Q or in Item
9A of Form 10-K (or in Item 15 of Form 20-F for foreign private
issuers).
Contacts
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Dennis
Howell
Partner
Deloitte &
Touche LLP
+1 203 761
3478
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Michael
Shrago
Senior Manager
Deloitte &
Touche LLP
+1 716 429
5096
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For information about Deloitte’s
service offerings related to the matters discussed in this alert, please
contact:
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Jamie Davis
Partner
Deloitte &
Touche LLP
+1 312 486
0303
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