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 Adopts Amendments to Rules Governing Beneficial Ownership Reporting
The SEC adopted rule amendments governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. The amendments update Regulation 13D-G to require market participants to provide more timely information on their positions to meet the needs of investors in today’s financial markets. Compliance with the revised Schedule 13G filing deadlines will be required beginning on Sept. 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on Dec. 18, 2024. Compliance with the other rule amendments will be required upon their effectiveness.
PCAOB Revises Standard-Setting, Research, and Rulemaking Agendas Following Record-Setting Action in 2023
The staff of the PCAOB posted revised standard-setting, research, and rulemaking agendas, following record action in 2023.
- In 2023, the Board has taken more formal actions on standard setting and rulemaking than any year in the last 10 years, issuing four proposals – with one more expected to be considered before year’s end – and adopting a final confirmation standard and related amendments that had previously been stalled since 2010.
- By the end of 2023, it is anticipated the Board will have considered five proposals – more than any single year in PCAOB history since the first set of standards and rules were proposed in 2003.
- Over the past two years, the Board has issued six proposals – with one more expected later this year – and adopted two standards and related amendments.
The standard-setting, research, and rulemaking projects can be found on the Standard-Setting, Research, and Rulemaking Projects page.
New PCAOB Staff Report Sheds Light on Rising Audit Deficiencies Related to Engagement Quality Reviews
The PCAOB announced a new staff report that reveals 42% of firms the PCAOB inspected in 2022 had a quality control criticism related to engagement quality reviews (EQRs), up from 37% in 2020. The staff report, “Inspection Observations Related to Engagement Quality Reviews,” focuses on the PCAOB-mandated EQR process, in which a reviewer who is not part of the engagement team evaluates significant judgments made by the audit engagement team. In addition to covering recent trends in audit deficiencies related to EQRs, the staff report provides good practices and reminders for auditors so they can avoid such deficiencies. It also highlights key questions related to EQRs that audit committees might want to consider as discussion points as they engage with external auditors.
George R. Botic Sworn in as PCAOB Board Member
The PCAOB announced that George R. Botic was sworn in on October 25, 2023, as a board member. His current term will run through October 24, 2028. Botic has been with the PCAOB since 2003. Prior to his swearing in as a board member, he was the director of the PCAOB’s Division of Registration and Inspections, which includes the Global Network Firm, Non-Affiliate Firm, and Broker-Dealer Firm inspection programs, as well as the registration program.
FASB to Host November 10 Public Roundtable on Its Post-Implementation Review of the Revenue Recognition Standard
The FASB announced it will host a public roundtable on the FASB’s Post-Implementation Review of Topic 606, Revenue from Contracts with Customers. The roundtable will take place on Friday, November 10, 2023, at the FASB offices located in Norwalk, Connecticut. The purpose of the roundtable is to solicit feedback from those who have experience implementing Topic 606 to assist the FASB in its review of the standard. Roundtable participants, including investors and other financial statement users, preparers, auditors, and others across all industries, will share their insights on the process of implementing Topic 606, technical issues identified during that process, and other topics that will assist in the evaluation of the benefits of Topic 606 and related costs. The roundtable meeting will be live streamed on the FASB website.
FASB to Host Public Roundtable on Recent Proposal to Improve Disclosures Around Income Statement Expenses
The FASB announced it will host a public roundtable on its July 2023 proposed ASU, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The roundtable will take place on December 13, 2023, at the FASB offices located in Norwalk, Connecticut. The purpose of the roundtable is to provide an opportunity for those who have submitted a comment letter or provided feedback on the proposed ASU (which would apply to public business entities) to discuss their feedback with the FASB. The Board is seeking participation from investors, preparers, auditors, and others across all industries. The meeting will be webcast and archived on the FASB website for 90 days following the meeting.
FASB Issues Disclosure Improvements in Response to the SEC’s Disclosure Update and Simplification Initiative
The FASB issued an ASU that incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification. The ASU incorporates into the Codification 14 of the 27 disclosures referred by the SEC in Release No. 33-10532, Disclosure Update and Simplification, issued August 17, 2018. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity.
Financial Accounting Standards Advisory Council Meeting Recap for September 21, 2023
The FASB announced the Financial Accounting Standards Advisory Council held its quarterly meeting on September 21, 2023. The FASB chair provided highlights on FASB activities, and the SEC, PCAOB, and AICPA staff members commented on current issues and activities. Council members discussed the following topics:
- Disaggregation—Income Statement Expenses
- FASB Standard-Setting Process—Benefit-Cost Analysis
- Improvements to Income Tax Disclosures
IASB Proposes Updates to the IFRS Accounting Taxonomy 2023
The International Accounting Standards Board published a proposed update to the IFRS Accounting Taxonomy 2023 to reflect recent amendments to the following IFRS Accounting Standards: International Tax Reform—Pillar Two Model Rules, which amended IAS 12 Income Taxes and was issued in May 2023; International Tax Reform—Pillar Two Model Rules, which amended Section 29 of the IFRS for SMEs Standard and was issued in September 2023; Supplier Finance Arrangements, which amended IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures and was issued in May 2023; and Lack of Exchangeability, which amended IAS 21 The Effects of Changes in Foreign Exchange Rates and was issued in August 2023. The proposed IFRS Taxonomy Update includes changes to the IFRS Accounting Taxonomy elements to reflect the new and amended disclosure requirements introduced by these amendments. The deadline for submitting comments is December 4, 2023.
IAASB Enhances Auditor’s Report Transparency on Independence to Reflect Revisions in the IESBA Code of Ethics
The International Auditing and Assurance Standards Board released amendments aimed at bolstering transparency and providing auditors with a clear mechanism to action changes to the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (including International Independence Standards). The IAASB amended International Standard on Auditing 700 (Revised), Forming an Opinion and Reporting on Financial Statements and ISA 260 (Revised), Communication with Those Charged with Governance. The IESBA Code now requires firms to publicly disclose when a firm has applied the independence requirements for public interest entities in an audit of the financial statements of an entity. The IAASB’s amendments provide a clear and practical framework for implementing this new requirement through appropriate communication in the auditor’s report and with those charged with governance.
New Edition of the IAASB Handbook Now Available on the IAASB Website & for Print Orders
The IAASB released the 2022 edition of the Handbook of International Quality Management, Auditing, Review, Other Assurance, and Related Services Pronouncements, which includes:
- IAASB’s new and revised suite of quality management standards such as International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements
- International Standard on Related Services (ISRS) 4400 (Revised), Agreed-Upon Procedures Engagements
The following standards, which are not yet effective for this version of the handbook, have been included in the back of Volume 1:
- International Standard on Auditing (ISA) 600 (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)
- • Conforming and Consequential Amendments to Other International Standards arising from ISA 600 (Revised)
FRC to Strengthen Auditor Reporting Requirements of Breaches of Laws and Regulations
The FRC launched a consultation to strengthen auditor requirements to detect and report material misstatements from non-compliance with laws and regulations and to clarify instances auditors should report such breaches, and other significant matters, to the relevant regulators. The FRC is consulting on strengthening the following standards:
- ISA (UK) 250 (Revised November 2019) Section A—Consideration of Laws and Regulations in an Audit of Financial Statements
- ISA (UK) 250 (Revised November 2019) Section B—The Auditor’s Statutory Right and Duty to Report to Regulators of Public Interest Entities and Regulators of Other Entities in the Financial Sector
For both standards, the FRC is proposing an effective date for audits of financial statements for periods beginning on or after December 15, 2024. The FRC consultation closes on January 12, 2024.
IESBA Staff Releases Q&As to Support Adoption and Implementation of International Independence Standard on Group Audits
The staff of the International Ethics Standards Board for Accountants (IESBA) released a questions and answers publication on the pronouncement Revisions to the Code Relating to the Definition of Engagement Team and Group Audits. The Q&A publication is designed to highlight, illustrate, or explain aspects of the revisions in the Code and is intended to complement the Basis for Conclusions for the final pronouncement. It will assist firms, national standards setters, and professional accountancy organizations in adopting or implementing the revisions. The pronouncement is coming into effect for audits of financial statements and group financial statements for periods beginning on or after December 15, 2023, with early adoption permitted.
New IAASB Resources Alert: Explore ISSA 5000 FAQ on Materiality
The IAASB announced a comprehensive set of Frequently Asked Questions, The Application of Materiality by the Entity and the Assurance Practitioner, has been developed. The FAQ compilation addresses a variety of questions, including how the concept of materiality applies to sustainability reporting and assurance; the definition of double materiality; and how an assurance practitioner considers an organization’s “materiality process” during a sustainability assurance engagement, among other questions and answers. The comment period for the recently proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, is open until December 1, 2023.
FRC Report Looks at ‘Materiality Mindset’ for Better Corporate Reporting
The FRC published a report looking at how companies can improve their corporate reporting by taking a more focused, strategic approach to assessing materiality. Following interviews with companies, investors, advisors, and other stakeholders, the new report, “Materiality in practice: applying a materiality mindset,” encourages companies to think holistically about what information is material to their stakeholders when preparing annual reports. It provides practical suggestions and examples for identifying material issues, where reporting could be streamlined and prioritizing key messages. Key elements in the report include:
- Taking a holistic approach that connects quantitative, qualitative and sustainability-related factors across strategy, operations, and finances.
- Focusing on the key issues that management and the board are prioritizing across the short, medium, and long-term.
Steelers Announce Partnership With the Center for Audit Quality to Introduce Students to Accounting
The Pittsburgh Steelers announced a multi-year partnership with the CAQ Accounting+, a first-of-its-kind, multi-stakeholder nationwide campaign to attract a new generation of diverse students into the accounting talent pipeline. The core focus of this partnership is the ‘Steelers Showcase’ program, which will launch this fall. This program will expose students from across Western Pennsylvania to the field of accounting, with the committed goal of increasing the diversity of the accounting profession’s talent pipeline. At Steelers Showcase events, students will have the opportunity to network with members of the Steelers’ Finance Department and local industry executives.
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).