As part of the Center for Audit Quality’s (CAQ) ongoing effort to keep members and stakeholders informed on significant public policy and accounting matters, we are pleased to offer the Public Policy and Technical Alert (PPTA). Each month, the PPTA highlights and examines the regulatory, standard-setting, legislative, and broader financial reporting developments impacting the public company audit profession. Please note that the PPTA is intended as general information and should not be relied upon as being definitive or all-inclusive. The CAQ encourages member firms to refer to the rules, standards, guidance, and other resources in their entirety at the hyperlinks provided below. All entities should carefully evaluate which requirements apply to their respective organizations.
In This Issue
SEC Investor Advisory Committee to Discuss Proposals to Improve Equity Market Structure and Examine the Use of Materiality as a Disclosure Standard
The SEC’s Investor Advisory Committee announced it will hold a public meeting on March 7 at 10 a.m. ET at the SEC Headquarters in Washington, D.C. The meeting will also be webcast on the SEC website. The committee will host two panels:
- Discussing the U.S. Securities and Exchange Commission’s Proposals to Improve Equity Market Structure; and
- Examining the Use of Materiality as a Disclosure Standard – Can the Definition be Improved to Better Serve Investors?
The committee will also discuss a recommendation on Digital Engagement Practices.
SEC To Hold Open Meeting on Climate-related Disclosures Rule
The SEC will hold an open meeting on March 6, 2024, to consider whether to adopt rules to require registrants to disclose certain climate-related information. The meeting will be webcast at www.sec.gov and is scheduled to start at 9:45 am ET.
PCAOB Announces 2024 Advisory Group Members
The PCAOB announced the 2024 members of its two advisory groups: the Investor Advisory Group and the Standards and Emerging Issues Advisory Group. Advisory group members are appointed for two-year terms. For 2024 appointments, terms expire December 31, 2025. For continuing members, terms expire December 31, 2024. IAG and SEIAG member biographies are available on the PCAOB’s website.
PCAOB to Host Virtual Roundtable on NOCLAR Proposal, Reopen Comment Period Until March 18
The PCAOB announced its staff will host a public virtual roundtable regarding the proposal to amend PCAOB auditing standards related to the auditor’s responsibility for considering a company’s noncompliance with laws and regulations on March 6, 2024, at 9:30 a.m ET. In light of the roundtable, the Board is reopening the comment period beginning February 26 through March 18, 2024. The objective of the roundtable is to obtain additional insight from commenters, stakeholders, and experts as the PCAOB’s staff works toward a final recommendation to the Board. The roundtable will include three panels focused on the proposal’s requirements relating to auditors’ identification of laws and regulations and assessment of those laws and regulations, as well as costs and benefits of the proposal. A briefing paper on the roundtable includes specific questions to be discussed and additional background.
Proposed PCAOB Rule Would Prohibit Auditors From Making False or Misleading Statements About PCAOB Registration and Oversight
The PCAOB issued for public comment a proposal for a new PCAOB Rule 2400, False or Misleading Statements Concerning PCAOB Registration and Oversight. If adopted, the rule would prohibit false or misleading statements regarding firms’ registration status to clients, potential clients, or the public. The proposal includes a new procedural mechanism that would enable the Board, under specified conditions, to treat a PCAOB-registered firm’s failures both to file annual reports and to pay annual fees for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration and to deem the firm’s registration withdrawn. Proposed Rule 2400 seeks to strengthen investor protection and confidence in three principal ways:
- Establishing a general prohibition on false or misleading statements concerning registration
- Providing specificity about the application of the general prohibition
- Codifying the Board’s practice of considering false or misleading statements during the registration process
The deadline for public comment on the proposal is April 12, 2024.
Standard-Setting Process Oversight Committee Meeting
The FASB announced the Standard-Setting Process Oversight Committee of the board of trustees of the Financial Accounting Foundation would hold a meeting virtually on February 23, 2024. The agenda for the open session was:
- GASB Report
- FASB Report
- FASB Liaison to the PCC Report
- PCC Meeting Observations Report
- Other Meeting Observation Reports
The committee was scheduled to discuss administrative and oversight matters later in a closed session. The meeting will be archived for future access on the FAF website.
AICPA & CIMA Join International Initiatives to Support Implementation of IFRS Sustainability Disclosure Standards
AICPA & CIMA announced they have become members of the IFRS Foundation’s Partnership Framework and a contributor to the standard-setting organization’s Knowledge Hub. The two initiatives are designed to raise global awareness about the IFRS Sustainability Disclosure Standards and support implementation of them. For the second year, AICPA & CIMA are also premium sponsors of the IFRS Sustainability Symposium. That sponsorship reflects:
- AICPA & CIMA’s long-standing support for integrated reporting, integrated thinking and sustainability disclosure standards
- Members’ key role in preparing sustainability disclosure information and providing assurance on it
- The accounting profession’s evolution to meet current and future needs of stakeholders
Sustainability Reporting and Assurance Practices of Largest Global Companies Continue to Mature
AICPA announced it updated its study of the sustainability reporting and assurance practices of the largest global companies, along with CIMA and the International Federation of Accountants. The study, an annual benchmark, now includes 2022 data. Among the highlights of the updated study:
- Almost all companies (98%) report some information on sustainability
- Use of standalone sustainability reports has declined by 27 percentage points in the past three years.
- 69% of companies obtained assurance on at least some of their sustainability disclosures
- Accountancy firms (as opposed to consultants or other service providers) handled 58% of the assurance engagements related to sustainability in 2022
While progress is being made, the report, The State of Play: Sustainability Disclosure and Assurance 2019-2022, Trends and Analysis, highlights the need for companies worldwide to move toward a global system of sustainability disclosure requirements
IAF and IESBA Join Forces to Support Growth in the Market for High-Quality Sustainability Information
The International Accreditation Forum and the International Ethics Standards Board for Accountants announced a strategic partnership to advance the use of a common framework of high standards of ethical conduct to underpin trust in the assurance of sustainability information. The IAF and the IESBA have agreed to common objectives to support the growth of transparent, relevant, and trustworthy corporate sustainability disclosures. The cornerstone of the partnership is the IAF’s stipulation to national accreditation bodies around the world that the IESBA’s proposed International Ethics Standards for Sustainability Assurance (including International Independence Standards) are to be used when accrediting and authorizing conformity assessment bodies to carry out assurance work on corporate sustainability disclosures. The IESBA recently launched the public consultation on the proposed IESSA and related standards, and is expected to finalize the standards by the end of the year.
Webcast: Overview of the Forthcoming IFRS Accounting Standard IFRS 18
The International Accounting Standards Board posted a webcast that introduces International Financial Reporting Standards 18 Presentation and Disclosure in the Financial Statements, the forthcoming IFRS Accounting Standard that will set out the overall requirements for presentation and disclosures in the financial statements. This new Standard responds to investors’ demand for better information about companies’ financial performance. It will affect all companies and all investors. IFRS 18 is expected to be issued in April 2024.
IAASB Moves to Strengthen Auditors’ Efforts Related to Fraud
The International Auditing and Assurance Standards Board proposed a significant strengthening of its standard on auditors’ responsibilities relating to fraud. The proposed revisions to International Standard on Auditing 240 (Revised), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, include:
- Clarified auditor responsibilities relating to fraud in an audit.
- Emphasized professional skepticism to ensure auditors remain alert to possible fraud and exercise professional skepticism throughout an audit.
- Strengthened identification and assessment of risks of material misstatement due to fraud.
- Clarified response to fraud or suspected fraud identified during the audit.
- Increased ongoing communication with management and those charged with governance about fraud.
- Increased transparency about auditors’ responsibilities and fraud-related procedures in the auditor’s report.
- Enhanced audit documentation requirements about fraud-related procedures.
The IAASB invites all stakeholder to submit their comments by June 5, 2024.
Monitoring Group Pleased to Report Strong Progress Implementing Recommendations to Strengthen the International Audit, Assurance, Ethics, and Independence Standard-Setting System
The International Organization of Securities Commissions announced the Monitoring Group reported strong progress in implementing recommendations to strengthen the international audit, assurance, ethics, and independence standard-setting system. In July 2020, the MG issued its recommendations Strengthening the International Audit and Ethics Standard-Setting System. In the report, the MG addresses:
- Responding to the Public Interest and an Accelerated Pace of Change – Assurance over Sustainability Information
- High-quality International Audit, Assurance, Ethics, and Independence Standards are a Public Good
- Standard Setting Boards Composition and Staffing
- Stakeholder Advisory Council
- Funding the International Audit, Assurance, Ethics, and Independence Standard-Setting Structure
The MG calls on all stakeholders who benefit from these high-quality standards to financially support the standard-setting structure.
IESBA to Hold Interactive Webinars on the Proposed IESSA and Ethics Standards Relating to Sustainability Reporting and Using the Work of an External Expert
The IESBA on February 22 and February 27 held interactive global webinars to present the key proposals in the Exposure Drafts on International Ethics Standards for Sustainability Assurance (including International Independence Standards) and Other Revisions to the Code Relating to Sustainability Assurance and Reporting and Using the Work of an External Expert. The webinars provided useful information and valuable insight on the proposals in the Exposure Drafts for participants from all stakeholder groups, including regulators, preparers of sustainability information, sustainability assurance practitioners from all backgrounds, and investors. The webinars were made available on YouTube following the session. Another webinar is scheduled for March 5.
IFRS Foundation Publishes Summary of National Accounting Standard-Setters’ Research on Materiality Judgement Guidance
The IFRS Foundation published a summary of evidence gathered by national standards-setters on the effects of guidance on materiality judgements in IFRS Accounting Standards and other materials. The research national standard setters carried out responds to the International Accounting Standards Board’s April 2022 call for research to assess the effect of these initiatives on investors, companies, auditors, and regulators. The research showed there is a good understanding of the concept of materiality. Use of the guidance published in 2017 and 2018 varies across jurisdictions; where in use, the guidance has been found helpful. The research also suggested it would be beneficial to continue raising awareness among stakeholders about the guidance.
Statement on FRC Policy Update: Launch of the UK Stewardship Code 2020 Review
The FRC announced it is undertaking a fundamental review of the UK Stewardship Code 2020 to ensure it supports growth and the UK’s competitiveness. The review will focus on, among other topics, the extent to which the Code:
- supports long term value creation through appropriate investor-issuer engagement that drives issuers’ prospects and performance
- creates reporting burdens on issuers as well as Code signatories and
- has led to any unintended consequences, such as short-termism in targets and outlook for issuers.
The review will be undertaken in three phases:
- The first phase will be a targeted outreach
- The second phase will be a public consultation
- The revised Code will be most likely published in early 2025.
February 2024 IASB Update and Podcast Now Available
The IASB announced that its latest podcast is available, and features highlights from the IASB meeting held on February 19-22. In this episode, IASB Executive Technical Director Nili Shah is joined by IASB Chair Andreas Barckow and IASB Vice-Chair Linda Mezon-Hutter to discuss the following projects:
- changes to the IASB work plan (00:45);
- progress made in the post-implementation reviews of IFRS 15 Revenue from Contracts with Customers (02:32) and IFRS 9—impairment (05:38);
- developments in the Rate-regulated Activities project (08:09); and
- discussions on the Second Comprehensive Review of the IFRS for SMEs Accounting Standard (12:52).
A full summary of the IASB meeting can be found in the February 2024 IASB Update.
Research Advisory Board Grant Program
The CAQ posted a statement listing the published peer-reviewed journal articles from its Research Advisory Board grant project. From 2009-2021, the RAB grant project annually awarded grants to fund auditing-related scholarly research. The independent academic research projects substantively inform audit practice or policy and regulatory issues that impact audit quality and the profession. Although the program is no longer active, the achievements of grant recipients and their published journals continue to have a profound impact on the profession.
Institutional Investor Survey: Research Findings, Q1 Survey
The CAQ shared a resource that presents results from KRC Research’s Q1 2024 survey, focusing on noncompliance and fraud. The CAQ has partnered with KRC Research, a global public opinion research consultancy, to conduct independent quantitative and qualitative field work involving a diverse group of investor community stakeholders. Throughout 2024, KRC Research will conduct quarterly quantitative surveys on topics of interest to investors based on previous research findings. Two reports released in 2023 offered qualitative insights into institutional investors’ beliefs, concerns, and expectations regarding corporate reporting in the U.S.
Understanding the PCAOB’s Latest Inspection Results: Five Guiding Principles for Audit Committees
The CAQ staff shared five key principles to consider when reviewing the latest inspection results from the PCAOB. The Board’s inspection process is perhaps one of the most valuable “checks” on audit quality. Another of the valuable “checks” in the system is the audit committee’s oversight role of the external auditor. With this in mind, when engaging in dialogue with external auditors about the PCAOB’s inspection reports, an audit committee member should consider:
- The PCAOB’s inspection process continues to drive improvement in audit quality
- Inspection findings are not the sole measure of audit quality, nor are they a report card
- Inspection findings rarely lead to a restatement
- Inspection findings have narrowed
- Audit quality depends on people
The Center for Audit Quality is a nonpartisan public policy organization serving as the voice of U.S. public company auditors and matters related to audits of public companies. The CAQ promotes high quality performance by U.S. public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit www.thecaq.org.
The CAQ Public Policy and Technical Alert (PPTA) is intended as general information and should not be relied upon as being definitive or all-inclusive. As with all other CAQ resources, this is not authoritative and readers are urged to refer to relevant rules and standards. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The CAQ makes no representations, warranties, or guarantees about, and assumes no responsibility for, the content or application of the material contained herein and expressly disclaims all liability for any damages arising out of the use of, reference to, or reliance on such material. This publication does not represent an official position of the CAQ, its board, or its members.
Questions and comments about the Public Policy & Technical Alert can be addressed to Vanessa Teitelbaum, Senior Director, Professional Practice (vteitelbaum@thecaq.org).