Public Policy and Technical Alert, April 2020
Friday, May 1, 2020
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 Chair statement on approach to allocation of resources, oversight and rulemaking; implementation of regulation best interest and form CRS
- Division of Trading and Markets staff statement regarding requirements for certain paper submissions in light of COVID-19 concerns
- SEC Office of the Chief Accountant statement on the importance of high-quality financial reporting in light of the significant impacts of COVID-19
- SEC statement on the importance of disclosure – For investors, markets and our fight against COVID-19
- SEC Division of Corporation Finance updates C&DI’s
- Staff guidance for conducting shareholder meetings in light of COVID-19 concerns
- SEC enhances standards for critical market infrastructure
- Division of Corporation Finance statement regarding requirements for form 144 paper filings in light of COVID-19 concerns
- SEC provides for phased CAT Broker-Dealer reporting timelines with conditional exemption for impacts of COVID-19
- Emerging market investments entail significant disclosure, financial reporting and other risks; remedies are limited
- SEC forms cross-divisional COVID-19 Market Monitoring Group
- PCAOB staff provides reminders for audits nearing completion in light of COVID-19
- PCAOB posts request for comment, seeks stakeholder input on critical audit matters
- FASB issues staff Q&A document on accounting for leases during COVID-19 pandemic
- FASB seeks public comment on proposal to offer limited effective date delays on time-sensitive standards
- FASB issues staff Q&A document on hedge accounting during COVID-19 pandemic
- IOSCO statement on application of accounting standards during the COVID-19 outbreak
- IAASB enhances ISRS 4400 to respond to evolving needs of stakeholders
- IESBA extends comment period on proposals to strengthen international independence standards
- IAASB releases conforming amendments that align international standards more closely with the revised IESBA code
- IOSCO steps up its efforts to address issues around sustainability and climate change
- IAASB publishes its Strategy for 2020‒2023 and Work Plan for 2020‒2021
- IAASB Technical Director update on COVID-19 response
- FRC: Meeting statutory obligations related to annual and other general meetings during COVID-19
- FRC: Modified audit opinions during COVID-19 crisis
- IAASB issues support material for audit documentation when using automated tools and techniques.
- IASB Exposure Draft on COVID-19-related rent concessions
- IAASB releases an Exposure Draft of proposed ISA 600
- IAASB publishes guidance on going concern during COVID-19 crisis
- AICPA Auditing Standards Board agrees to defer SASs 134-140 effective dates for one year due to Coronavirus
- CAQ COVID-19 Resources
SEC Chair statement on approach to allocation of resources, oversight and rulemaking; implementation of regulation best interest and form CRS
On April 2, SEC Chairman, Jay Clayton issued a statement on the SEC’s approach to the COVID-19 pandemic. The statement outlines that the approach is premised on putting health and safety first, as well as a firm message that the law continues to apply. In addition, the statement clarifies that the SEC will continue to allocate resources in the best interests of investors and the capital markets, with investor protection and market integrity front of mind. Chairman Clayton also outlined that the SEC believes that the June 30, 2020 compliance date for Regulation Best Interest and other requirements, including the requirement to file and begin delivering Form CRS, remains appropriate.
Division of Trading and Markets staff statement regarding requirements for certain paper submissions in light of COVID-19 concerns
SEC Division of Trading and Markets (the Division) staff is providing temporary relief for paper submissions due to the impact of COVID-19. The relief covers those who submit impacted paper submissions for the period from and including March 16, 2020, to June 30, 2020. The Division staff will not recommend the Commission take enforcement action with respect to any failure to comply with the paper format submission requirement or manual signature requirement of the impacted paper submissions under certain conditions. The Division staff also stated it will not recommend that the Commission take enforcement action with respect to any failure to comply with notarization requirements applicable to the impacted paper submissions or in the electronic filings of broker-dealer annual reports required under paragraph (d) of Rule 17a-5 that are due to be filed at the Commission no later than June 30, 2020 under certain conditions.
SEC Office of the Chief Accountant Statement on the importance of high-quality financial reporting in light of the significant impacts of COVID-19
Chief Accountant Sagar Teotia issued a statement on April 3 highlighting the Office of the Chief Accountant’s view of the importance of high-quality financial reporting during COVID-19. Topics include:
- Accounting – OCA collaboration with the FASB; Judgments and Estimates; CARES Act;
- Auditing – OCA collaboration with the PCAOB;
- International – OCA interaction with the IASB and the Monitoring Group; and
- Stakeholder Engagement – Audit Firms; Focus on Emerging Markets.
SEC statement on the importance of disclosure – For investors, markets and our fight against COVID-19
Chairman Clayton and William Hinman, Director of the Division of Corporate Finance, issued a statement on April 8 regarding the importance of disclosure (particularly forward-looking disclosure) for investors and the markets in light of COVID-19. The statement urges companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning, and provides certain observations and requests to facilitate such disclosure and engagement.
SEC Division of Corporation Finance updates C&DI’s
The SEC’s Division of Corporate Finance updated the following Compliance and Disclosure Interpretations (C&DIs):
Staff guidance for conducting shareholder meetings in light of COVID-19 concerns
The staff of the Division of Corporation Finance and the Division of Investment Management issued guidance to assist issuers, shareholders, and other market participants affected by COVID-19 with meeting their obligations under the federal proxy rules for upcoming annual meetings in response to COVID-19.
SEC enhances standards for critical market infrastructure
On April 9, the SEC adopted amendments to its rules for securities clearing agencies to apply enhanced standards to all SEC-registered central counterparties and central securities depositories. Securities clearing agencies subject to the SEC’s enhanced standards must adhere to requirements regarding, among other things, their policies and procedures for financial risk management, governance, recovery planning, operations, and disclosures to market participants and the public.
Division of Corporation Finance statement regarding requirements for form 144 paper filings in light of COVID-19 concerns
The staff of the Division of Corporation Finance provided a statement for those affected by COVID-19 regarding form 144. This staff statement outlines that the Division of Corporate Finance will not recommend enforcement action to the Commission in certain situations. The statement is temporary and covers those who submit form 144 for the period from and including April 10, 2020 to June 30, 2020.
SEC provides for phased CAT Broker-Dealer reporting timelines with conditional exemption for impacts of COVID-19
The SEC announced on April 20 that it has voted to issue two exemptive orders in order to move Consolidated Audit Trail (CAT) implementation forward:. The orders:
- Establish a phased CAT reporting timeline for broker-dealers; and
- Permit introducing brokers that meet certain requirements to follow the small broker-dealer reporting timeline.
Emerging market investments entail significant disclosure, financial reporting and other risks; remedies are limited
In a joint statement, leaders of the SEC and PCAOB summarize the risks and related considerations to issuers, auditors, index providers and investors that are associated with emerging markets, including China.
SEC forms cross-divisional COVID-19 Market Monitoring Group
On April 24, the SEC announced the formation of an internal, cross-divisional COVID-19 Market Monitoring Group. This temporary, senior-level group will assist the Commission and its various divisions and offices in:
- Commission and staff actions and analysis related to the effects of COVID-19 on markets, issuers, and investors—including Main Street investors; and
- Responding to requests for information, analysis and assistance from other regulators and other public sector partners.
PCAOB staff provides reminders for audits nearing completion in light of COVID-19
The PCAOB released a staff Spotlight document, COVID-19: Reminders for Audits Nearing Completion, to provide important reminders to auditors of issuers and broker-dealers for audits nearing completion. The Spotlight considers the impact that COVID-19 might have on an auditor’s risk assessment, the execution of the audit, and potential impacts to financial reporting. The Spotlight also highlights considerations for auditor’s reports and the firms’ systems of quality control.
PCAOB posts request for comment, seeks stakeholder input on critical audit matters
On April 17, the PCAOB issued a Request for Comment from the Office of Economic and Risk Analysis, which seeks input from audit firms, preparers, audit committees, investors, and other financial statement users to inform the PCAOB’s interim analysis of the Critical Audit Matter requirements.
FASB issues staff Q&A document on accounting for leases during COVID-19 pandemic
Many lessors are, or are expected to be, providing lease concessions to tenants impacted by the economic disruptions caused by the pandemic. To provide interpretive guidance on accounting for lease concessions, the FASB staff developed this Q&A to respond to some frequently asked questions and to help stakeholders navigate the guidance in this area.
FASB seeks public comment on proposal to offer limited effective date delays on time-sensitive standards
FASB issued a proposed Accounting Standards Update that would grant a one-year effective date delay for certain stakeholders applying leases and revenue recognition guidance. The leases effective date deferral would be limited to private companies, private not-for-profit organizations, and public not-for-profit organizations that have not yet issued their financial statements. The proposed effective date deferral for revenue recognition would be limited to private company franchisors.
The FASB requested stakeholders provide comment by May 6, 2020.
FASB issues staff Q&A document on hedge accounting during COVID-19 pandemic
The FASB staff issued a question-and-answer document that responds to frequently asked questions about the disruptive effects of COVID-19 on cash flow hedge accounting. Stakeholders have asked how the postponement or cancellation of forecasted transactions related to the effects of the COVID-19 pandemic should be considered when applying cash flow hedge accounting under Accounting Standards Codification Topic 815, Derivatives and Hedging. The FASB staff developed the Q&A to provide guidance on this unique and evolving situation.
IOSCO statement on application of accounting standards during the COVID-19 outbreak
The International Organization of Securities Commissions (IOSCO) developed a document with considerations relevant for a wide range of issuers that extend credit and are subject to IFRS 9, Financial Instruments.
IAASB enhances ISRS 4400 to respond to evolving needs of stakeholders
The International Auditing and Assurance Standards Board (IAASB) released International Standard on Related Services (ISRS) 4400 (Revised), Agreed-Upon Procedures Engagements, its revised standard for performing agreed-upon procedures (AUP) engagements. Some of the significant changes include:
- Responding to the needs of stakeholders – Broadening the scope of the standard to meet demand for AUP engagements and introducing requirements and application material to address evolving engagement circumstances, such as the use of a practitioner’s expert in an AUP engagement;
- Providing transparency in the AUP report – Introducing requirements and application material to clarify whether or not the practitioner is required to comply with independence requirements and, if so, the determination and disclosure of the relevant independence requirements; and
- Enhancing consistency in the performance of AUP engagements – Clarifying how professional judgment is exercised in an AUP engagement and introducing requirements and application material on engagement acceptance and continuance conditions and documentation.
ISRS 4400 (Revised) will be effective for AUP engagements for which the terms of engagement are agreed on or after January 1, 2022.
IESBA extends comment period on proposals to strengthen international independence standards
IESBA announced on April 7 that it is extending by one month the comment period on the Exposure Drafts: Proposed Revisions to the Non-Assurance Services Provisions of the Code and Proposed Revisions to the Fee-related Provisions of the Code. The extension is expected to provide stakeholders who are experiencing disruptions caused by the COVID-19 pandemic additional time to comment.
The new comment deadline is June 4, 2020.
IAASB releases conforming amendments that align international standards more closely with the revised IESBA code
The IAASB released conforming amendments to the IAASB’s International Standards as a result of the recently restructured and revised IESBA International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code).
The conforming amendments aim to align the IAASB’s International Standards with the revisions to the IESBA Code.
IOSCO steps up its efforts to address issues around sustainability and climate change
The IOSCO Board agreed in February 2020 to establish a Board-level Task Force on Sustainable Finance. The IOSCO Board appointed Erik Thedéen, Director General of Finansinspektionen, Sweden, as chair of the Task Force. Its aim is three-fold:
- First, to improve sustainability–related disclosures made by issuers and asset managers;
- Second, to work in collaboration with other international organizations and regulators to avoid duplicative efforts and to enhance coordination of relevant regulatory and supervisory approaches; and
- Third, to prepare case studies and analyses of transparency, investor protection and other relevant issues within sustainable finance to illustrate the practical implications of its work.
IAASB publishes its Strategy for 2020‒2023 and Work Plan for 2020‒2021
On April 15, the IAASB published its Strategy for 2020‒2023 and Work Plan for 2020‒2021. The strategy looks to build sustained trust in financial and other reporting through high-quality audits, assurance, and related services engagements. The IAASB also recognizes the need to address the impact of technology, demands relating to changing reporting needs (including demands in relation to non-financial reporting), and changing expectations for the audit. The strategy sets three strategic objectives to focus IAASB priorities and resources during 2020‒2023:
- Increase the emphasis on emerging issues to ensure that the IAASB International Standards provide a foundation for high-quality audit, assurance and related services engagements;
- Innovate the IAASB’s ways of working to strengthen and broaden our agility, capabilities, and capacity to do the right work at the right time; and
- Maintain and deepen relationships with stakeholders to achieve globally relevant, progressive and operable standards.
IAASB Technical Director update on COVID-19 response
The IAASB’s COVID-19 response includes the development of Staff Alerts on several targeted topics to support the application of their standards under current circumstances. The IAASB’s goal is to support the public interest and the role auditors must play in sustaining trust in financial and other external reporting.
FRC: Meeting statutory obligations related to annual and other general meetings during COVID-19
On March 28, it was announced that the UK Government would, as soon as possible, bring forward legislation to assist those companies for which COVID-19 restrictions make it difficult to meet statutory obligations to hold meetings and to file documentation on the Companies Register. The Financial Reporting Council (FRC) designed a Q&A to provide companies with additional information upon which to plan activities over the coming months.
FRC: Modified audit opinions during COVID-19 crisis
On April 21, the FRC published further guidance on modified auditors’ opinions and reports during the Covid-19 crisis.
IAASB issues support material for audit documentation when using automated tools and techniques
The Technology Working Group of the IAASB released non-authoritative support material related to the auditor’s documentation when using automated tools and techniques (ATT), such as data analytics, robotic automation processes or artificial intelligence applications. The material is intended to assist auditors in understanding how the use of ATT during an audit engagement may affect the auditor’s documentation in accordance with International Standard on Auditing (ISA) 230, Audit Documentation, and the documentation requirements of other relevant ISAs.
IASB Exposure Draft on COVID-19-related rent concessions
On April 24, the IASB issued an Exposure Draft: COVID-19-Related Rent Concessions. The Exposure Draft proposes relief from assessing whether COVID-19 related rent concessions are lease modifications and proposes that lessees account for COVID-19 related rent concessions as if they are not lease modifications.
The deadline for submitting comments is May 8, 2020.
IAASB releases an Exposure Draft of proposed ISA 600
The IAASB released the Exposure Draft of proposed ISA 600 (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) on April 27. The proposed standard:
- Clarifies the scope and applicability of the standard;
- Emphasizes the importance of exercising professional skepticism throughout the group audit;
- Clarifies and reinforces that all ISAs need to be applied in a group audit through establishing stronger linkages to the other ISAs, in particular to proposed ISA 220 (Revised), Quality Management for an Audit of Financial Statements, ISA 315 (Revised 2019), Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment, and ISA 330, Auditor’s Responses to Assessed Risks;
- Reinforces the need for robust communication and interactions between the group engagement team, group engagement partner and component auditors;
- Includes new guidance on testing common controls and controls related to centralized activities;
- Includes enhanced guidance on how to address restrictions on access to people and information; and
- Enhances special considerations in other areas of a group audit, including materiality and documentation.
In consideration of COVID-19’s impact, the Exposure Draft of proposed ISA 600 (Revised) is open for public comment until October 2, 2020.
IAASB publishes guidance on going concern during COVID-19 crisis
On April 29, the IAASB issued their official guidance on auditor considerations relating to going concern in light of changing environment due to the COVID-19 pandemic.
AICPA Auditing Standards Board agrees to defer SASs 134-140 effective dates for one year due to Coronavirus
The AICPA’s Auditing Standards Board agreed to defer implementation of seven recently issued Statements on Auditing Standards (SASs) due to the coronavirus pandemic. These standards, SAS Nos. 134-140, will be deferred one year.
The effective dates of the SASs were for audits of private company financial statements for periods ending on or after December 15, 2020. The deferral means that effective dates now apply for periods ending on or after December 15, 2021.
The standards affected are:
- SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, as amended;
- SAS 135, Omnibus Statement on Auditing Standards—2019;
- SAS 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as amended;
- SAS 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports;
- SAS 138, Amendments to the Description of the Concept of Materiality;
- SAS 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134; and
- SAS 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137.
CAQ COVID-19 Resources
The CAQ has created the following resources to assist those impacted by COVID-19:
- Key auditor and audit committee considerations: This resource is intended to provide high-level financial reporting considerations for auditors and audit committees as certain audits near completion, quarterly reviews are occurring, and during planning for 2020 audits.
- 10-Q considerations during COVID-19: This resource is intended to provide a high-level overview of the auditor’s responsibilities related to the interim financial statements included in Form 10-Q.
- Going concern: Management and auditor responsibilities: This resource is intended to provide a high-level overview of management’s accounting requirements under US GAAP and a public company auditor’s requirements under PCAOB auditing standards related to going concern.
- COVID-19 considerations for non-GAAP financial measures and performance metrics: This resource is intended to provide a high-level overview of SEC requirements and guidance for registrants around non-GAAP reporting and the potential impact of COVID-19 on that reporting.
- Managing fraud risk, culture, and skepticism during COVID-19: This resource is intended to heighten awareness of the risk of fraud and misconduct that might occur inside an organization during, or as a result of, this crisis.
USC SEC Conference, Los Angeles, CA
PLI 35th Midyear SEC Reporting & FASB Forum, New York, NY
IAASB Board Meeting, New York, NY
ACFE Global Fraud Conference, Online
AAA Annual Meeting, Atlanta, GA
IAASB Board Meeting, New York, NY
FEI Corporate Financial Reporting Insights Conference, New York, NY
AICPA Conference on Current SEC and PCAOB Developments, Washington, DC
IAASB Board Meeting, Madrid, Spain
ICGN Annual Conference, Toronto, Canada
The Center for Audit Quality is an autonomous, nonpartisan, nonprofit organization dedicated to enhancing investor confidence and public trust in the global capital markets by fostering high-quality public company audits; collaborating with other stakeholders to advance the discussion of critical issues; and advocating policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions. Based in Washington, D.C., 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.
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