Public Policy and Technical Alert, August 2020
Thursday, September 3, 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:
- August staffing changes and reappointments at the SEC
- SEC provides transparency to the process of nominating candidates to the Investor Advisory Committee
- SEC proposes to change the retail investor experience through modernized fund shareholder reports and disclosures
- SEC modernizes the accredited investor definition
- SEC adopts rule amendments to modernize disclosures of business, legal proceedings, and risk factors under regulation S-K
- PCAOB posts 2019 Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers
- FASB updates financial reporting requirements related to convertible instruments and contracts in an entity’s own equity
- FASB launches Post-Implementation Review web portal
- FASB seeks public comment on a Private Company Council proposal on determining current price of an underlying share for equity-classified share option awards
- IOSCO examines the evolution of liquidity provision in equity securities markets
- The IASB published a request for information related to their comprehensive review of the IFRS for SME’s Standard
- FRC statement on Accounting for Lease Modifications (Amendment to IFRS 16 Covid-19-Related Rent Concessions)
- IASB issues IFRS Taxonomy Update for COVID-19-Related Rent Concessions
- IFRS Foundation publishes revised Due Process Handbook
- FRC: Joint webinar held with the IASB on the General Presentation and Disclosures Exposure Draft
- IASB completes response to IBOR reform with amendments to IFRS Standards
- IAASB: New illustrative examples for ISA 540 (Revised) implementation: Expected credit losses
- AICPA’s new discussion paper on making professional judgments on attestation materiality in the current business environment
- AICPA proposes new standard to help auditors assess the risks of material misstatement in financial statements
- Anti-fraud in action: Balancing big data and data ethics during COVID-19
- Audit in action
- CAQ Symposium 2020
August staffing changes and reappointments at the SEC
The SEC announced the following key staffing changes and reappointments in August:
- Marc P. Berger named Deputy Director of Enforcement, Steven Peikin to depart:
The Securities and Exchange Commission announced that Division of Enforcement Co-Director Steven Peikin was scheduled to depart the agency in August. The SEC also named Marc P. Berger as Deputy Director of Enforcement. Prior to accepting the role Mr. Berger was the Director of the SEC’s New York Regional Office where he oversaw 400 professional staff of enforcement attorneys, accountants, investigators and compliance examiners involved in the investigation and prosecution of enforcement actions and the performance of compliance inspections in the New York region.
- Lindsay McCord named Chief Accountant in Division of Corporate Finance:
The SEC announced that Lindsay McCord has been named Chief Accountant in the Division of Corporate Finance. Ms. McCord has served as Acting Chief Accountant since March 2020. Prior to her role as Acting Chief Accountant, Ms. McCord was a Deputy Chief Accountant in the Division of Corporate Finance leading a team providing technical guidance and interpretations of financial statement and related disclosure requirements.
- Caroline A. Crenshaw and Hester M. Pierce sworn in as SEC Commissioners:
The SEC announced that Caroline A. Crenshaw and Hester M. Peirce have been sworn into office as SEC commissioners. Crenshaw and Pierce were both unanimously confirmed by the U.S. Senate on August 6, 2020. Commissioner Crenshaw is a captain in the United States Army Reserve, Judge Advocate General’s Corps, and has served in positions across the SEC, including in the Office of Compliance Inspections and Examinations, the Division of Investment Management, and as counsel to Commissioners Kara Stein and Robert J. Jackson, Junior. Commissioner Crenshaw fills a term that expires on June 5, 2024. Hester Pierce was reappointed for a term that expires on June 5, 2025.
- SEC Names Diana Stoltzfus as Deputy Chief Accountant to replace Marc Panucci as Deputy Chief Accountant:
The SEC announced that Deputy Chief Accountant Marc Panucci has left the agency. He has been replaced by Diana Stoltzfus, who will lead the SEC’s Office of the Chief Accountant’s Professional Practice Group. Ms. Stoltzfus joins the SEC from PricewaterhouseCoopers LLP, where she was a partner in the firm’s assurance practice. She has experience serving as a lead partner and in other roles in the performance of the firm’s integrated audits of financial statements, which includes, among other things, matters related to audits of internal control over financial reporting, analyzing and applying PCAOB rules and standards, and analyzing complex accounting matters.
SEC provides transparency to the process of nominating candidates to the Investor Advisory Committee
The SEC published procedures setting forth a staff-led process to nominate candidates for appointment to the Investor Advisory Committee (IAC). Candidates for vacancies on the IAC will be identified by a nominating committee composed of staff from across the SEC’s divisions and offices. The nominating committee will initially be chaired by Robert Marchman, Senior Policy Advisor for Diversity and Inclusion.
Members of the public interested in serving on the Committee should email a letter of interest to IAC-Candidates@sec.gov with applicable information about their relevant experience.
SEC proposes to change the retail investor experience through modernized fund shareholder reports and disclosures
The SEC proposed comprehensive modifications to the mutual fund and exchange-traded fund disclosure framework. The proposal would:
- require streamlined reports to shareholders that would include, among other things, fund expenses, performance, illustrations of holdings, and material fund changes;
- significantly revise the content of these items to better align disclosures with developments in the markets and investor expectations;
- encourage funds to use graphic or text features—such as tables, bullet lists, and question-and-answer formats—to promote effective communication; and
- promote a layered and comprehensive disclosure framework by continuing to make available online certain information that is currently required in shareholder reports but may be less relevant to retail shareholders generally.
SEC modernizes the accredited investor definition
The SEC adopted amendments to the “accredited investor” definition, one of the principal tests for determining who is eligible to participate in the private capital markets. The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth. The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify.
SEC adopts rule amendments to modernize disclosures of business, legal proceedings, and risk factors under regulation S-K
The SEC announced that it voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. The amendments adopted by the Commission update these items to reflect the many changes in capital markets and the domestic and global economy in recent decades and were intended to improve disclosures for both investors and registrants.
PCAOB posts 2019 Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers
The PCAOB published a report entitled Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers. The report provides a summary of inspection results as well as information auditors can use to improve audit quality.
FASB updates financial reporting requirements related to convertible instruments and contracts in an entity’s own equity
The FASB issued a new Accounting Standards Update (ASU) related to the financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU is intended to simplify the accounting for convertible instruments by removing major separation models required under current Generally Accepted Accounting Principles. The update also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted per share calculation in certain areas. The ASU is effective for public business entities that meet the definition of an SEC filer, excluding smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
FASB launches Post-Implementation Review web portal
The FASB announced the launch of its new Post-Implementation Review (PIR) web portal. The PIR web portal links visitors to current projects and provides an overview of the actions taken to date as well as the plan for future activities related to assessing areas for improvement arising from adoption or implementation.
FASB seeks public comment on a Private Company Council proposal on determining current price of an underlying share for equity-classified share option awards
The FASB issued a proposed ASU intended to reduce cost and complexity for private companies when determining the fair value of the shares underlying a share-option award on its grant date or modification date. The proposed ASU would allow a nonpublic entity to determine the current price of a share underlying an equity-classified share-option award using a valuation method performed in accordance with specific regulations of the U.S. Department of the Treasury that provide acceptable methodologies to comply with the “presumption of reasonableness” requirements of Section 409A of the U.S. Internal Revenue Code.
The comment period ends on October 1, 2020.
IOSCO examines the evolution of liquidity provision in equity securities markets
The Board of the International Organization of Securities Commissions (IOSCO) published a report that explores how liquidity provision has evolved in equity securities markets in recent years. The report is based on a survey, completed prior to the COVID-19 pandemic, of regulatory authorities, trading venues and market intermediaries. The report identifies several common themes which regulators could consider as key elements in relation to market making programs and/or other liquidity provision incentive arrangements.
The IASB published a request for information related to their comprehensive review of the IFRS for SME’s Standard
The International Accounting Standards Board (IASB) published a Request for Information as part of the second comprehensive review of the IFRS for Small and Medium-sized Entities’ (SMEs) Standard. The objective of the Request for Information is to seek views on whether and how aligning the IFRS for SMEs Standard with the full IFRS Standards could better serve users of financial statements prepared applying the IFRS for SMEs Standard without causing undue cost and effort for SMEs.
The comment period ends on October 27, 2020.
FRC statement on Accounting for Lease Modifications (Amendment to IFRS 16 Covid-19-Related Rent Concessions)
The Financial Reporting Council (FRC) confirmed it will not pursue regulatory action where issuers adopt the provisions contained in the Accounting for Lease Modifications (Amendment to IFRS 16 – Covid-19-Related Rent Concessions) before the amendment is adopted by the European Union.
IASB issues IFRS Taxonomy Update for COVID-19-Related Rent Concessions
The IASB has issued an update to the IFRS Taxonomy 2020 for COVID-19-Related Rent Concessions, which amended IFRS 16 Leases. The IFRS Taxonomy Update includes IFRS Taxonomy elements to reflect the new disclosure requirements introduced by the amendment, issued by the IASB in May 2020.
IFRS Foundation publishes revised Due Process Handbook
The Trustees of the IFRS Foundation published the revised Due Process Handbook, which sets out the procedural requirements of the IASB and the IFRS Interpretations Committee and related matters. A couple of the key changes are:
- Clarifying the authority of agenda decisions published by the Interpretations Committee and their role in supporting consistent application of IFRS Standards, and enhancing the related due process by formally involving the IASB in their finalization; and
- Reflecting recent developments in the IASB’s effect analysis process — assessing the likely effects of a new or amended IFRS Standard — that emphasize the role of such analyses in standard-setting and make it clear that such analyses take place at all stages of standard-setting.
FRC: Joint webinar held with the IASB on the General Presentation and Disclosures Exposure Draft
The FRC published a recording of the joint webinar with the IASB on the General Presentation and Disclosures Exposure Draft held on August 6, 2020.
IASB completes response to IBOR reform with amendments to IFRS Standards
The IASB finalized its response to the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks by issuing a package of amendments to IFRS Standards. The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The amendments relate to:
- Changes to contractual cash flows;
- Hedge accounting; and
These amendments are effective for annual reporting periods beginning on or after January 1, 2021 with early adoption permitted.
IAASB: New illustrative examples for ISA 540 (Revised) implementation: Expected credit losses
The International Auditing and Assurance Standards Board (IAASB) published illustrative examples for auditing expected credit loss (ECL) accounting estimates that were produced by the International Standard on Auditing (ISA) 540 (Revised) Implementation Working Group. The examples, which do not constitute an authoritative pronouncement of the IAASB, illustrate how an auditor could address certain requirements of ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures. They were developed to assist the auditor in understanding how ISA 540 (Revised) may be applied to:
- IFRS 9 Impairment (ECL) — Credit card
- IFRS 9 Impairment (ECL) — Significant increase in credit risk
- IFRS 9 Impairment (ECL) — Macroeconomic inputs and data
AICPA’s new discussion paper on making professional judgments on attestation materiality in the current business environment
To assist practitioners in considering materiality, the AICPA issued nonauthoritative guidance Materiality Considerations for Attestation Engagements Involving Aspects of Subject Matters That Cannot be Quantitatively Measured. The AICPA issued this paper to assist CPAs with materiality determinations on attestation engagements on a variety of new and emerging subject matters, not all of which can be numerically measured and evaluated.
AICPA proposes new standard to help auditors assess the risks of material misstatement in financial statements
The Auditing Standards Board of the AICPA issued an exposure draft of Proposed Statement on Auditing Standards (SAS) Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. The proposed SAS is based on the International Standard on Auditing 315, Identifying and Assessing the Risks of Material Misstatement. The AICPA’s stated overall objectives of this proposed SAS are:
- To enhance the requirements and guidance on identifying and assessing the risks of material misstatement, in particular the guidance that addresses the entity’s system of internal control and information technology; and
- To revise the definition of significant risks. The current definition focuses on risks that require special audit considerations. The revised definition focuses on where those risks lie on the spectrum of inherent risk and it includes new guidance intended to enhance an auditor’s professional skepticism.
The feedback period closes November 25, 2020.
Anti-fraud in action: Balancing big data and data ethics during COVID-19
In this video, the CAQ’s Margot Cella, Vice President, Research and Anti-Fraud Initiatives, interviews Azlo’s Senior Director of Compliance and Internal Control, Dana Lawrence, to explore the pervasiveness of big data and its data ethics and governance implications during the COVID-19 crisis.
Audit in action
The CAQ has featured a series of stories from the audit profession that shed light on the vital work of auditing during the COVID-19 pandemic.
CAQ Symposium 2020
The CAQ published a recap of its virtual symposium that was held on August 3-4, 2020. The Symposium brought together leading academic scholars, regulators, and top practitioners from the CAQ’s Governing Board Member firms. The Symposium agenda was centered on the following areas:
- Key issues with multinational group audits, including the evolution of standard setting, supervision and review of component auditors, component oversight in the current environment, and regulatory and access challenges;
- Preview of an independent research project on ICFR management review controls that was commissioned jointly by the CAQ and Financial Executives International; and
- Firm’s system of quality control, including what information is currently available from the firms on audit quality, the objectives of their internal processes for managing the quality of their audits, and the approach that the IAASB and the PCAOB are taking with respect to standard setting in this area.
IAASB Board Meeting, Virtual
September 14-21, 29 & October 1
IESBA Meeting, Virtual
The SEC Speaks in 2020, Virtual
October 12 – November 12
NACD Summit 2020, Virtual
SIFMA Annual Meeting, Virtual
ICGN Global Virtual Summit 2020, Virtual
45th IOSCO Annual Meeting, Virtual
November 30 – December 4
IESBA, New York, NY
IAASB Board Meeting, Virtual
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 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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