Public Policy and Technical Alert, April 2021
Friday, May 7, 2021
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 public statement: SPACs, IPOs and Liability Risk under the Securities Laws
- SEC public statement: Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies
- SEC reopens comment period for Universal Proxy
- Gary Gensler Sworn in as Chair of the SEC
- Alex Oh resigns from SEC; Melissa Hodgman named Acting Director of Enforcement
- PCAOB renews cooperative agreement with Belgium and French audit regulators
- PCAOB solicits nominations for its Standards Advisory Group
- Board member Duane M. DesParte elected IFIAR Chair
- New IAASB guidance helps advance assurance for non-financial reporting
- FRC publishes strategy for 2021/22
- Bertrand Perrin to join IASB
- IASB proposes amendments setting out accounting for when no foreign exchange rate exists
- FRC proposes extending application period for accounting requirements covering COVID-19-related rent concessions
- European Commission adopts proposal for a Corporate Sustainability Reporting Directive
- IASB proposes changes to the IFRS Taxonomy 2021 for Disclosure of Accounting Policies and Definition of Accounting Estimates
- IFIAR 2021 Plenary Meeting
- IFIAR 2020 Annual Report
- IESBA Amends Auditor Independence Provisions
- IAASB releases video addressing quality management considerations for firms
- Fraud and emerging tech: Artificial intelligence and machine learning
- Key actions for establishing effective governance over ESG reporting
- Profession in focus: Diversity in focus with Rashada Whitehead
- S&P 100 and ESG reporting
SEC public statement: SPACs, IPOs and Liability Risk under the Securities Laws
Acting Director, Division of Corporation Finance, John Coates, issued a statement regarding SPACs as the U.S. securities markets have seen an unprecedented surge in their use and popularity during the last several months. Risks highlighted include fees, legal liability, conflicts, and sponsor compensation, from celebrity sponsorship and the potential for retail participation drawn by hype, and the sheer amount of capital pouring into the SPACs. The SEC staff are continuing to look carefully at filings and disclosures by SPACs and their private targets.
SEC public statement: Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies
The SEC staff recently evaluated fact patterns relating to the accounting for warrants issued in connection with a SPAC’s formation and initial registered offering. While the specific terms of such warrants can vary, certain features of warrants issued in SPAC transactions may be common across many entities. The staff issued a statement to highlight the potential accounting implications of certain terms that may be common in warrants included in SPAC transactions and to discuss the financial reporting considerations that apply if a registrant and its auditors determine there is an error in any previously-filed financial statements.
SEC reopens comment period for Universal Proxy
The SEC voted to reopen the comment period on the proposed rules for the use of universal proxy cards in all non-exempt solicitations for contested director elections. The reopened comment period permits interested parties to submit further comments and data on the rule amendments proposed in 2016 as well as additional comments on the questions raised in the reopening release. It further allows interested parties to comment on developments since 2016 when the proposing release was issued, including the potential economic and other effects of the proposal in light of any such developments.
The public comment period will remain open for 30 days following publication of the release in the Federal Register.
Gary Gensler Sworn in as Chair of the SEC
Gary Gensler was sworn into office as a Member of the SEC by U.S. Senator Ben Cardin. He was nominated to Chair the SEC by President Joseph R. Biden on February 3, 2021 and confirmed by the U.S. Senate on April 14, 2021.
Chairman Gensler named several members of his senior staff following his swearing in. Prashant Yerramalli will continue to serve as the SEC’s Chief of Staff, a role he has held since January under Acting Chair Allison Herren Lee. Heather Slavkin Corzo will lead a team of policy experts who will advise Gensler on SEC rulemakings. Kevin Burris will serve as the SEC’s primary liaison to Members of Congress, other federal agencies, and state governments, and be responsible for developing legislative strategy, coordinating Congressional testimony, and responding to Congressional requests. Finally, Scott Schneider will oversee the SEC’s media relations, digital strategy, speechwriting, public engagement, and internal agency communications.
Alex Oh resigns from SEC; Melissa Hodgman named Acting Director of Enforcement
The SEC announced that Alex Oh has resigned her position as Director of the Division of Enforcement for personal reasons. Melissa Hodgman will return to the role of Acting Director of the Division of Enforcement. Hodgman served as the Enforcement Division’s Acting Director from January 2021 through April 2021. Before that, she was the Associate Director in the SEC’s Home Office since October 2016. Hodgman began working in the Enforcement Division in 2008 as a staff attorney.
PCAOB renews cooperative agreements with Belgium and French audit regulators
The PCAOB announced it has reached a cooperative agreement with the Belgian Audit Oversight College. The PCAOB also separately announced the renewal of its cooperative agreement with the Haut Conseil du Commissariat aux Comptes of France. The agreements allow for cooperation between the PCAOB and the foreign regulators in the oversight of audit firms subject to the jurisdiction of both the PCAOB and the respective foreign regulator. In addition to providing a framework for joint inspections, the 2021 agreements allow for the exchange of confidential information in accordance with applicable laws abroad and the Sarbanes-Oxley Act in the United States.
PCAOB solicits nominations for its Standards Advisory Group
The PCAOB announced that it is seeking nominations for the 2021-2023 term and 2021-2024 term of its new Standards Advisory Group (SAG). The deadline for nominations is June 14, 2021. The SAG, established by the PCAOB on March 29, is an 18-person expert body comprised of five representatives from the investor community, four audit professionals, three audit committee members or directors, three financial reporting oversight personnel, and three academics and others with specialized knowledge. Fourteen of the 18 positions on the SAG will be filled by the PCAOB following recommendations made by the PCAOB’s SAG Selection and Tasking Committee. The Board will consider nominations provided by the CAQ for the remaining four positions for audit professionals. Appointments will be announced in early September, and the new terms will begin immediately. The SAG’s charter is available to the public via the PCAOB’s website.
Board member Duane M. DesParte elected IFIAR Chair
The PCAOB announced that board member Duane M. DesParte has been elected Chair of the International Forum of Independent Audit Regulators (IFIAR). In that role, DesParte will serve a two-year term expiring in April 2023. DesParte has been a PCAOB board member since April 2018.
New IAASB guidance helps advance assurance for non-financial reporting
The International Auditing and Assurance Standards Board (IAASB) published Non-Authoritative Guidance on Applying International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ISAE 3000) to extended external reporting assurance engagements. The guidance is intended to respond to stakeholder-identified challenges commonly encountered in applying ISAE 3000. It seeks to promote consistent high-quality application of ISAE 3000 in extended external reporting assurance engagements in order to:
- Strengthen the influence of such engagements on the quality of extended external reporting;
- Enhance trust in the resulting assurance reports; and
- Increase the credibility of extended external reports so that they can be trusted and relied upon by their intended users.
FRC publishes strategy for 2021/22
The Financial Reporting Council (FRC) published its Strategy for 2021/22 after a period of consultation during which respondents expressed broad support for the FRC’s progress towards the new Audit, Reporting, and Governance Authority (ARGA). The UK government has published its proposals for restoring trust in audit and corporate governance. These proposals include the establishment of a new statutory regulator to replace the FRC. The FRC’s Strategy for 2021/22 includes objectives to:
- Set high standards in corporate governance and stewardship, corporate reporting, auditing, and actuarial work, and assess the effectiveness of the application of those standards, enforcing them proportionately where it is in the public interest;
- promote improvements and innovation in the areas for which the FRC is responsible, exploring good practice with a wide range of stakeholders;
- influence the development of international standards, including for climate and wider ESG reporting by engaging in the global regulatory and standard setting communities, to ensure that they are informed by stakeholder demands for high quality, consistent and comparable information that is robustly assured;
- promote a more resilient audit market; and
- transform the organization into a new robust and independent regulator, acting in the public interest.
Bertrand Perrin to join IASB
The Trustees of the International Financial Reporting Standards (IFRS) Foundation appointed Bertrand Perrin as a member of the International Accounting Standards Board (IASB). Perrin, from France, has experience as a preparer and has worked closely with the IASB and the IFRS Foundation for several years, most recently as a member of the IFRS Interpretations Committee, which he joined in 2016. His initial five-year term on the IASB starts on July 1, 2021.
IASB proposes amendments setting out accounting for when no foreign exchange rate exists
The IASB published for public consultation proposed amendments to International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates. The proposed amendments aim to help companies determine whether a currency can be exchanged into another currency, and what accounting to apply if the currency cannot be exchanged.
Comments are due September 1, 2021.
FRC proposes extending application period for accounting requirements covering COVID-19-related rent concessions
The FRC has issued an exposure draft that proposes to extend the application period of requirements that cover the accounting treatment of temporary rent concessions occurring as a direct consequence of the COVID-19 pandemic by one year. Financial Reporting Exposure Draft (FRED) 78 proposes that requirements originally introduced in October 2020 apply to rent concessions that reduce lease payments originally due on or before June 30, 2022, provided the other conditions for applying the requirements are met. As pandemic restrictions continue, the FRC believes that extending the existing time condition is considered necessary to ensure these concessions are accounted for consistently and in a way that best reflects their substance. The amendments are proposed to be effective for accounting periods beginning on or after January 1, 2021, with early application permitted.
Comments on FRED 78 are due May 11, 2021.
European Commission adopts proposal for a Corporate Sustainability Reporting Directive
The European Commission adopted a proposal for a Corporate Sustainability Reporting Directive, which would amend the existing reporting requirements of the current Non-Financial Reporting Directive. The proposal:
- extends the scope to all large companies and all companies listed on regulated markets (except listed micro-enterprises);
- requires the audit (assurance) of reported information;
- introduces more detailed reporting requirements, and a requirement to report according to mandatory European Union sustainability reporting standards; and
- requires companies to digitally ‘tag’ the reported information, so it is machine readable and feeds into the European single access point envisaged in the capital markets union action plan.
The next step is for the European Parliament, and the Member States in the Council, to negotiate a final legislative text on the basis of the European Commission’s proposal. The final timetable will depend on how the European Parliament and Council progress in their negotiations.
IASB proposes changes to the IFRS Taxonomy 2021 for Disclosure of Accounting Policies and Definition of Accounting Estimates
The IASB published a proposed update to the IFRS Taxonomy 2021 for the following amendments to IFRS Standards:
- Disclosure of Accounting Policies, which amended IAS 1, Presentation of Financial Statements and IFRS Practice Statement 2, Making Materiality Judgements; and
- Definition of Accounting Estimates, which amended IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
The Proposed IFRS Taxonomy Update includes changes to the IFRS Taxonomy elements to reflect the new and amended disclosure requirements introduced by the amendments, issued by the Board in February 2021.
Comments on the proposed changes are due by June 21, 2021.
IFIAR 2021 Plenary Meeting
The IFIAR posted a stakeholder announcement on the virtual 2021 Plenary Meeting focusing on the Management of Audit Quality in the COVID Environment and Beyond. The meeting took place April 19-21. Highlights of the meeting include:
- Duane DesParte (PCAOB, United States) elected as IFIAR Chair and Mr. Takashi Nagaoka (JFSA, Japan) elected as IFIAR Vice Chair;
- approved an updated, five-year strategic Plan; and
- IFIAR members shared information on challenges related to COVID-19, inspection results, and audit market developments in various jurisdictions.
IFIAR 2020 Annual Report
The IFIAR released its 2020 Annual Report. The Annual Report covers, among other topics, IFIAR’s progress last year on advancing its strategic objectives through its focus on its four core strategies:
- Facilitate collaboration and knowledge sharing between Members;
- Develop strategic relationships with investors and other key stakeholders, including standard setters, and maintain effective communications with global network firms;
- Implement sustained targeted outreach to Members and prospective Members; and
- Establish an effective and efficient Board, Working Group, Task Force and Secretariat structure which enables coordinated high impact initiatives to achieve the strategic objectives.
IESBA Amends Auditor Independence Provisions
The International Ethics Standards Board for Accountants (IESBA) released revisions to the Non-Assurance Services (NAS) and fee-related provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards). The revised NAS and fee-related provisions seek to strengthen the guardrails around auditor independence in two important areas that have the potential to create incentives influencing auditor behavior—non-assurance services provided to audit clients and fees. The package of new measures includes:
- A prohibition on audit firms from providing a NAS that might create a self-review threat to an audit client that is a public interest entity.
- New provisions intended to enable and promote more robust engagement between auditors and those charged with governance of public interest entities about independence matters relating to NAS and fees.
- Updated provisions intended to address undue fee dependency on audit clients.
- Provisions intended to stimulate greater public transparency about fees paid by audit clients that are public interest entities to assist stakeholder judgments about auditor independence.
- Comprehensive guidance intended to steer auditors’ threat assessments and actions in relation to NAS and fees.
The revised NAS and fee-related provisions become effective for audits of financial statements for periods beginning on or after December 15, 2022. Early adoption is permitted.
IAASB releases video addressing quality management considerations for firms
In December 2020 the IAASB released a suite of new and revised quality management standards that will become effective on December 15, 2022. To support the implementation, the IAASB released a new video on the new standards. The video addresses considerations for firms when preparing to implement the standards, such as what may be retained from current systems, the time and resources needed, the impact on the firm as a whole, and various ways to approach implementation. The video emphasizes the need for firms to start early and prepare for implementation.
Fraud and emerging tech: Artificial intelligence and machine learning
The Anti-Fraud Collaboration, via the CAQ, published a resource examining the implications of artificial intelligence (AI) and one of its most commonly known applications—machine learning—when it comes to mitigating fraud risk. AI has become one of the fastest-growing priorities for many companies in the digital era and will have a wide-ranging impact on businesses across the globe.
Key actions for establishing effective governance over ESG reporting
The CAQ, in conjunction with the Association of International Certified Public Accountants, published a report exploring how companies can establish effective governance over Environmental, Social and Governance (ESG) reporting. The report considers key actions, including:
- Conducting materiality or risk assessments to determine which ESG topics are important or “material” to the organization, its investors, and other stakeholders;
- Implementing appropriate board oversight of material ESG matters;
- Integrating/aligning material ESG topics into the enterprise risk management process; and
- Integrating ESG matters into the overall company strategy.
Profession in focus: Diversity in focus with Rashada Whitehead
In this video, the CAQ’s Vice President of Operations and Talent Initiatives, Liz Barentzen, sits down with Rashada Whitehead, Head of Colleague Experience Culture, Diversity, Equity & Inclusion (DEI) at Grant Thornton, to discuss Grant Thornton’s DEI report, recruitment, the impacts of COVID-19, and more.
S&P 100 and ESG reporting
The CAQ posted select information from its analysis of the most recently publicly available ESG data for S&P 100 companies. Key takeaways include:
- All companies had some ESG information available;
- The vast majority of companies had this information outside of an SEC filing, typically in a standalone ESG report; and
- 11% of S&P 100 companies received assurance from a public company auditing firm over some of their ESG information.
May 4-20, 2021
FEI: 2021 Financial Leadership Summit, Virtual
May 24, 2021
AICPA, SASB, and the CAQ: 2021 ESG Disclosure Priorities, Virtual
June 3-4, 2021
SEC and Financial Reporting Institute Conference, Virtual
IAASB Quarterly Board Meeting, Virtual
June 21, 2021
FRC Culture Conference: Building an audit firm culture that supports high quality audit, Virtual
SEPTEMBER 22-24, 2021
CII Fall 2021 Conference, Chicago
November 2-18, 2021
Corporate Financial Reporting Insights Conference, Virtual
AICPA and CIMA National Tax Conference, Washington, DC
DECEMBER 6-8, 2021
AICPA & CIMA Conference on Current SEC and PCAOB Developments, Washington, DC
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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