In This Issue
SEC Reopens Comment Period for Proposed Rule Amendments to Modernize Beneficial Ownership Reporting
The SEC reopened the comment period for its proposed amendments to modernize the rules governing beneficial ownership reporting, and the staff of the Commission’s Division of Economic and Risk Analysis released a memorandum that provides supplemental data and analysis related to the proposed amendments’ economic effects. The public comment period will remain open until June 27, 2023, or until 30 days after the date of publication of the reopening release in the Federal Register, whichever is later.
Investor Bulletin: Opportunity to Comment on Proposed Standard Addressing Core Auditing Principles and Responsibilities
The PCAOB Office of Investor Advocate posted an Investor Bulletin alerting investors to the opportunity to comment on the PCAOB’s proposed auditing standard, AS 1000, General Responsibilities of the Auditor in Conducting an Audit. On March 28, 2023, the Board issued the proposal for public comment. Comments are due by May 30, 2023.
2023 Inspections to Prioritize Audit Risks Related to Fraud, the Financial Services Sector, Crypto
The PCAOB inspectors outlined their priorities for 2023 inspections in a new report from the PCAOB staff. The report outlines plans to increase the focus on fraud-related audit procedures, continue prioritizing risks related to material digital assets, and continue selecting audits in the financial services sector for inspection, among other priorities. The complete list of 2023 inspection priorities outlined in the report includes:
- Risk of fraud
- Auditing and accounting risks
- Risk assessment and internal controls
- Financial services specific considerations
- Broker-dealer specific considerations
- M&A, including de-SPAC transactions
- Digital assets
- Use of the work of other auditors
- Quality control (particularly talent retention and its impact on audit quality, and independence)
- Other areas of inspection (critical audit matters, cybersecurity, and use of data and technology in the audit)
A New PCAOB Staff Report Provides Insights on Audits of Special Purpose Acquisition Companies (SPACs) and De-SPAC Transactions
The PCAOB posted a new Spotlight report, Inspection Observations—Audits of Special Purpose Acquisition Companies and De-SPAC Transactions. From 2020 to 2021, the U.S. markets experienced an unprecedented surge in the number of initial public offerings by special purpose acquisition companies (SPACs). The PCAOB Division of Registration and Inspections found that many companies classified warrants issued during the IPO of the SPAC with certain features as equity and subsequently restated their financial statements to classify these warrants as a liability. Instances were observed where the public company’s auditors failed to identify material misstatements in issued financial statements due to errors in the accounting for warrants. The
auditor must evaluate whether the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework.
A New PCAOB Staff Spotlight Reminds Auditors That Professional Competence and Skepticism Are Essential to Quality Audits
The PCAOB posted a new report, Spotlight: Professional Competence and Skepticism Are Essential to Quality Audits. The staff of the PCAOB reminds auditors of the importance of critically assessing the audit firm’s capabilities, obtaining proper understanding of the company they are auditing, and performing work with due professional care and professional skepticism. These matters are particularly important in circumstances where changes to economic conditions or other factors affect the company. Auditors are reminded of their responsibility to take into account all evidence obtained when evaluating the results of the audit, including information regarding potential bias in management’s judgments about the amounts and disclosures in the
financial statements.
ASU 2023-02 Accounting for Investments in Tax Credit
The AICPA posted an alert on Accounting Standards Update (ASU) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The FASB issued ASU 2023-02 on March 29, 2023.
More Than Half of Finance Professionals Are Considering Changing Jobs to Boost Career Development, According to a New Study
The AICPA, in cooperation with PwC, released a new study that shows finance professionals are moving roles with increased frequency and feel the need to acquire new skills and adjust to the modern business world, with almost a quarter of workers (24%) saying they want to change their jobs within a year, and another 29% not ruling out this option. Finance and the Great Reshuffle is based on research conducted among 270 professionals working for large companies, primarily in controlling; reporting; financial planning and analysis; and accounting. A 15% attrition rate is generally considered manageable for organizations, but losing half of the finance workforce within the next 12 months would represent a major operational challenge.
ISSB Decides to Prioritize Climate-Related Disclosures to Support Initial Application
At its meeting on April 4, 2023, the International Sustainability Standards Board decided that it will complement its package of transitional reliefs to support companies applying the ISSB’s first two Standards—S1 (general requirements) and S2 (climate). The relief will enable companies to focus initial efforts on ensuring they meet investor information needs around climate change. The full package of reliefs means, for the first year they use the ISSB Standards, companies need not:
- provide disclosures about sustainability-related risks and opportunities beyond climate-related information;
- provide annual sustainability-related disclosures at the same time as the related financial statements;
- provide comparative information;
- disclose Scope 3 greenhouse gas emissions; and
- use the Green House Gas Protocol to measure emissions, if they are currently using a different approach.
IOSCO Commits to Deliver on Sustainability Disclosures and Crypto Exchanges in 2023: IOSCO Publishes Work Program for 2023-2024
The Board of the International Organization of Securities Commissions (IOSCO) published the 2023-2024 Work Program to further its core objectives of protecting investors, maintaining fair, efficient and transparent markets, and addressing systemic risks. The work program covers a two-year horizon and will be reviewed and refreshed, as appropriate, at end-2023 to ensure its ongoing relevance. The workstreams in this Work Program are organized under the following five themes:
- Strengthening Financial Resilience
- Supporting Market Effectiveness
- Protecting Investors
- Addressing New Risks in Sustainability and Fintech
- Promoting Regulatory Cooperation and Effectiveness
IESBA Proposes Strategy and Work Plan for 2024-2027
The International Ethics Standards Board for Accountants (IESBA) released its Proposed Strategy and Work Plan, 2024-2027: Towards a More Sustainable Future: Advancing the Centrality of Ethics for public comment. The proposed strategy and work plan sets out the IESBA’s vision, strategic drivers, and themes to guide its actions over the next strategy period of 2024-2027, as well as a number of topics the IESBA has identified as potential new work streams for the period. The IESBA invites stakeholders to submit their responses by July 7, 2023. IASB Confirms Temporary Relief From Deferred Tax Accounting Following OECD Pillar Two Tax Reform
The International Accounting Standards Board (IASB) decided to finalize amendments to IAS 12 Income Taxes following the Pillar Two model rules published by the Organisation for Economic Co-operation and Development. The amendments, approved in a special supplementary meeting, will provide temporary relief for companies from having to account for deferred taxes arising from the implementation of the Pillar Two model rules. The amendments will introduce:
- a temporary exception to the accounting for deferred taxes arising from the jurisdictional implementation of the global tax rules; and
- targeted disclosure requirements for affected companies to help users of the financial statements better understand a company’s exposure to Pillar Two income taxes arising from that legislation, particularly before its effective date.
IESBA Strengthens Global Ethics Standards to Respond to Transformative Effects of Technological Innovation
The IESBA released final revisions to the International Code of Ethics for Professional Accountants (including International Independence Standards). The revisions:
- Strengthen the Code in guiding the mindset and behavior of professional accountants when they use technology.
- Provide enhanced guidance fit for the digital age in relation to the fundamental principles of confidentiality, and professional competence and due care, as well as in dealing with circumstances of complexity.
- Strengthen and clarify the International Independence Standards (IIS) by addressing the circumstances in which firms and network firms may or may not provide a technology-related non-assurance service to an audit or assurance client.
The revisions to the IIS will be effective for audits and reviews of financial statements for periods beginning on or after December 15, 2024. The other revisions to the ethics provisions of the Code will be effective as of December 15, 2024. Early adoption is permitted.
Paul Munter Appointed Chair of the Monitoring Group
The IOSCO announced Paul Munter has assumed the role of Chair of the Monitoring Group. He previously served as the Co-Chair of the MG together with Jean-Paul Servais, current Chair of the Board of the IOSCO and Chair of Belgium’s Financial Services and Markets Authority. Munter is the Chief Accountant of the SEC and the Chair of IOSCO’s Committee on Issuer Accounting, Audit and Disclosure. FRC Publishes Conversation Starters to Boost Investor-Audit Committee Engagement
The FRC announced the launch of a new web page providing conversation starters aimed at promoting better engagement between investors and audit committees to facilitate better understanding of companies and their approach to financial reporting and internal control. The series of conversation starters is aimed at investors wishing to engage with audit committees and companies on assurance-related topics. The conversation starters have been developed in consultation with stakeholders, including investors, audit committees, and other interested parties. ISSB Prepares to Consult on Future Priorities and International Applicability of the SASB Standards
The ISSB announced plans to publish a request for information about its agenda priorities in May 2023 with a comment period of 120 days. Based on research into the information needs of investors, the ISSB has identified four potential projects: biodiversity, ecosystems, and ecosystem services; human capital; human rights; and integration in reporting. The ISSB will balance advancing new research and standard-setting projects in a timely manner with its previously agreed activities to build on the foundation established by its initial two Standards, S1 and S2. The ISSB expects to issue these Standards towards the end of June. IAASB Advances Timeline for Consultation for Proposal on Sustainability Assurance
The IAASB confirmed at its April meeting its intention to advance the consultation on its proposed new standard for sustainability assurance, International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Subject to the expected IAASB approval of the Exposure Draft in June, stakeholders can now expect the public consultation on the proposed standard to open in the latter part of July or early August 2023 and extend into December 2023. The consultation was originally scheduled to commence in October 2023. The advanced consultation period will better ensure the completion of the final standard in 2024. IAASB Opens Public Consultation for Its Revised Going Concern Standard
The IAASB issued proposed revisions to its current standard on going concern, International Standard on Auditing 570 (Revised), Going Concern. The proposed changes aim to:
- Promote consistent practice and behavior and facilitate effective responses to identified risks of material misstatement related to going concern;
- Strengthen the auditor’s evaluation of management’s assessment of going concern, including reinforcing the importance, throughout the audit, of the appropriate exercise of professional skepticism; and
- Enhance transparency with respect to the auditor’s responsibilities and work related to going concern where appropriate, including strengthening communications and reporting requirements.
Comments are requested by August 24, 2023.
IESBA Staff Releases Database of Public Interest Entity Definitions by Jurisdiction to Support Local Adoption and Implementation Efforts
The IESBA released a database of Public Interest Entity (PIE) definitions by jurisdiction to further support the adoption and effective implementation of the revisions to the definitions of listed entity and PIE in the International Code of Ethics for Professional Accountants (including International Independence Standards). Among other things, the PIE revisions:
- Expanded the list of PIE categories in the Code, including a new category, “publicly traded entity,” to replace the category “listed entity.”
- Recognize the essential role local bodies responsible for the adoption of the Code play in delineating the specific entities that should be scoped in as PIEs in their jurisdictions, encouraging them to properly define the PIE categories in the expanded definition and adding any other categories relevant to their environments.
- Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.
The PIE revisions become effective for audits of financial statements for periods beginning on or after December 15, 2024.
IAASB Work Plan Comment Letter
The CAQ posted its comment letter related to the International Auditing and Assurance Standards Board (IAASB) Proposed Strategy and Work Plan for 2024-2027. The CAQ’s specific comments focus on:
- The importance of consistency in global auditing and assurance standards
- The value of seeking multi-stakeholder input at both the strategic and standard-setting levels
- The importance of transparency in standard setting
IAASB Audit Evidence Comment Letter
The CAQ posted its views related to the IAASB’s request for comment on its Proposed International Standard on Auditing 500 (Revised) Audit Evidence and Proposed Conforming and Consequential Amendments to Other ISAs. The CAQ supports the Board’s goal to develop a principles-based approach for making judgments about information intended to be used as audit evidence. The CAQ has two primary concerns as follows:
- Elements in the Explanatory Memorandum are not sufficiently incorporated into ED-500
- ED-500 could go further to accommodate the use of technology
Corporate Decision-Making: Why Choose a CPA for Your ESG Assurance Needs?
The CAQ announced a new publication on choosing a CPA for ESG assurance. The publication explores:
- The increasing demand for independently assured ESG information by public companies
- How third party, independent assurance may be required or desired by private companies
- The benefits of engaging a CPA for third party assurance of ESG information
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