December 15, 2021

Audit Committee Insights | November/December 2021



Audit Committee Insights | November/December 2021

Wednesday, December 15, 2021

The weather outside may or may not be frightful. The fire might be delightful. It’s fine if you have no place to go (you can read our update below to prepare you for the new year). But it’s nice if you do. Be safe. Stay healthy. Stay sane.

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What’s happening? A new sustainability standards board.

The IFRS Foundation announced at COP 26 – the UN global summit to address climate change – the formation of a new International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. This is a big deal. Climate-change related disclosures are high on the SEC’s agenda.

Also announced at COP 26 – a commitment by leading investor-focused sustainability disclosure organizations to consolidate into the new board. The Climate Disclosure Standards Board and the Value Reporting Foundation (which houses the Integrated Reporting Framework and the SASB Standards) will be consolidated by June 2022. Stakeholders agree – we need a global set of comparable standards for ESG reporting. This is a big step in that direction.

Understanding climate-related risk considerations

 Here are Five Climate Questions Every Bank Board Should Ask according to the Office of the Comptroller of the Currency. While geared for large banks, these questions may be useful for all board members. The OCC plans to issue high-level framework guidance for large banks on climate risk management by the end of 2021.

  1. What is our overall exposure to climate change?
  2. Which counterparties, sectors, or locales warrant our heightened attention and focus?
  3. How exposed are we to a carbon tax?
  4. How vulnerable are our data centers and other critical services to extreme weather?
  5. What can we do to position ourselves to seize opportunities from climate change?

To learn more about audited financial statements and climate-related risk considerations – including examples to illustrate how management might consider climate-related risks when preparing financial statements – check out the CAQ’s climate resource.


The role of the audit committee: Disclose the good job you are doing in your proxy

We have partnered with Audit Analytics for eight years to publish the Audit Committee Transparency Barometer – an analysis of disclosures of audit committee oversight in proxy statements of companies in the S&P Composite 1500 (S&P 1500). While our 2021 findings continue to demonstrate a positive, long-term trend of increased voluntary audit committee disclosures, opportunities remain for public companies to increase their transparency around audit committee activities. 

But why do these disclosures matter? Here are 3 reasons: 

  1. Disclosures are positively correlated with audit quality. 
  2. Investors are increasingly using disclosures to make investment decisions. 
  3. Transparency can dispel criticism. 

Read our full blog here. 

We found one area of increasing disclosure is cybersecurity – these disclosures continue to be the biggest mover year-over-year, increasing by 5 to 7 percentage points among S&P 500 companies each year since 2016. COVID-19 changed how we work, with some companies opting to go permanently remote, resulting in an increased dependence on technology. Audit committees have reacted positively by increasing disclosure of how they oversee the company’s cybersecurity risks. 

Regulatory developments: SEC focus on materiality and auditor independence

The AICPA annual conference on SEC and PCAOB developments is an annual tradition for year-end accounting and auditing technical reminders. Three full days of technical updates and a plethora of CPE credit. EY’s summary includes these highlights:

  • Environmental, social and governance matters — SEC officials reminded companies of the Commission’s 2010 climate change guidance, indicating that the SEC staff will continue to review issuers’ climate-related disclosures while rulemaking is underway. The SEC staff expects companies to consider the 2010 guidance and its recently published sample comment letter on climate-change-related disclosures in their year-end reporting.
  • Materiality in error corrections — SEC officials emphasized that the evaluation of materiality requires an objective evaluation of the total mix of information and that the more quantitatively significant an error becomes, the more difficult it is for qualitative factors to overcome that fact. They also reminded preparers and auditors that when a material accounting error is identified, it is a high hurdle to conclude that a material weakness does not exist, and that a registrant could have errors that are quantitatively small but material due to qualitative factors.
  • Revenue recognition — The SEC staff said that revenue recognition continues to be a frequent topic of consultations, especially in areas such as principal versus agent considerations, identification of performance obligations and consideration payable to a customer. The staff discussed some challenges in applying the guidance in fact patterns involving technology companies, including platform business models.
  • LIBOR — The SEC staff issued a statement during the Conference encouraging companies to provide robust disclosures about how they are affected by the transition away from the London Interbank Offered Rate (LIBOR). The FASB staff said it is evaluating alternatives to extend the relief provided in Accounting Standards Codification (ASC) 848, Reference Rate Reform, because the cessation date for several major USD LIBOR tenors has been pushed back to June 30, 2023.
  • Audit matters — SEC officials stressed the importance of auditor independence and compliance with the Commission’s independence rules, particularly the general standard of auditor independence. The timing and prioritization of PCAOB projects are expected to be reassessed once the remaining PCAOB members who were appointed in November begin their terms in January 2022.


Make a list and check it twice: On the audit committee agenda for 2022

KPMG’s Board Leadership Center highlights eight issues to keep in mind as audit committees consider and carry out their 2022 agendas:

  1. Stay focused on financial reporting and related internal control risks—job number one.
  2. Monitor the SEC’s rulemaking activities on climate and other ESG disclosures and clarify the audit committee’s related oversight responsibilities.
  3. Stay apprised of global tax developments and risks and recognize that tax has become an important element of ESG.
  4. Help sharpen the company’s focus on ethics and compliance.
  5. Reinforce audit quality and set clear expectations for the external auditor.
  6. Understand how technology is impacting the finance organization’s talent, efficiency, and value-add.
  7. Help ensure that internal audit is focused on the company’s critical risks.
  8. Make the most of the audit committee’s time together.

We think it’s a good list. Read the full publication here.


ICYMI: CAQ Public Policy and Technical Alert (PPTA), October and November 2021

Each month, the PPTA highlights and examines the regulatory, standard-setting, legislative, and broader financial reporting developments impacting the public company audit profession. The October and November Alerts included these featured articles:

SEC approves PCAOB rule to establish a framework for determinations under the Holding Foreign Companies Accountable Act

The SEC announced that it has approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 will establish a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. SEC Chair Gary Gensler described the approval as “an important step to protect U.S. investors.”

SEC appoints new chairperson and board members to the PCAOB

The SEC announced the appointments of Erica Y. Williams as Chairperson and Christina Ho, Kara M. Stein, and Anthony (Tony) C. Thompson as Board members of the PCAOB. “Finance is about trust, and the PCAOB has a critical role to play in ensuring that public company financial disclosures can be trusted by investors,” said SEC Chair Gary Gensler. “With these additions to the Board, the PCAOB will have the leadership to meet the mission given to it by Congress.”

Christina Ho and Kara M. Stein sworn in as PCAOB board members

The PCAOB announced that Christina Ho and Kara M. Stein were sworn in as board members on November 9 and 18, 2021, respectively. Ho will fill the 2nd CPA seat and has 28 years of broad experience in public finance, policy development, accounting and auditing, disclosure modernization, data analytics, and technology innovation. Stein was previously a Distinguished Policy Fellow and Lecturer-in-Law at the University of Pennsylvania Carey Law School, the Director of the AI, Data, and Capital Markets Initiative at the Center on Innovation, University of California Hastings Law, and served as an SEC Commissioner from 2013 to 2019.

FRC report sets out what it expects from audit firms to deliver high quality audit

The Financial Reporting Council (FRC) for the first time published a blueprint for what is required by UK audit firms to deliver high-quality audit. The FRC’s report sets out the key elements required by audit firms to ensure they are delivering high quality audits. Specifically, the report highlights the six key attributes that contribute to the running of high-quality audit practices, such as the culture, governance, and leadership of the firms, alongside their investment in well-qualified people, training, and processes. It also includes the key elements that contribute to high-quality individual audits, from the planning phase through to the delivery and completion of audits.

FRC to focus on climate-related reporting as new disclosure requirements beckon

The FRC published its Annual Review of Corporate Reporting, which outlines the FRC’s “top ten” areas where improvements to reporting are required. These include reporting on judgments and estimates, revenue, and cash flow statements. The FRC has also published its year-end bulletin of key corporate reporting matters for companies which sets out the FRC’s areas of focus for the coming year. From next year, premium listed companies will be required to disclose their compliance with the Taskforce for Climate-related Financial Disclosures recommendations on a comply-or-explain basis. The FRC also expects material climate change policies, risks, and uncertainties to be included in narrative reporting and appropriately considered and reflected in the financial statements.


The GOAT and a nice guy. Tom Brady and teammates surprise boys’ freshman basketball team.

This is not a debate about the Patriots or the Bucs or any other football team. After all, the CAQ is a nonpartisan organization. But it’s hard not to smile at this story. The Tampa Bay Bucs’ Sean Murphy-Bunting was inadvertently added to a Michigan high-school boys basketball team’s group chat. When trying to add the last person, Luca, the number was one digit off. Instead of leaving the conversation, the mix-up would lead to a FaceTime call with some of the biggest stars in the Bucs’ locker room, according to ESPN.

According to Twitter, the phone was passed around the locker room. “ Fournette stays on FaceTime for a good 10 minutes while @TomBrady finishes up a meeting. The boys are absolutely losing it during this. After some time passes, Brady pops up on the screen and says, “What’s up fellas?!?!” The boys lose their minds…”

“They were shocked,” Fournette said of when he handed the phone to Brady. “That was sweet,” Brady said of the impromptu FaceTime. “I didn’t know who it was. said, ‘Here’s my boy’ or whatever he said. It was nice. It would have been nice for me when I had been in high school too. That was fun. That was really fun. It was really good to see all those young kids hyped up.”

The high school boys confirmed that, tragically, it was only after the FaceTime call ended that “Luca,” the teammate whose number started the fiasco, was added to the group text.


Questions and comments about Audit Committee Insights can be addressed to Vanessa Teitelbaum, Senior Director, Professional Practice (

This newsletter is intended as general information and should not be relied upon as being definitive or all-inclusive. The CAQ encourages readers to refer to applicable rules, standards, guidance, and other resources in their entirety. All entities should carefully evaluate which requirements apply to their respective organizations.

Check out the CAQ’s Audit Committee Resource Webpage for more information.