This site uses cookies for analytics, personalized content and ads. By continuing to browse this site, you agree to this use of cookies in accordance with our Cookie Policy.
                         

Alert

Public Policy and Technical Alert, December 2020

Thursday, January 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

  • SEC announces new Investor Advisory Committee members
  • SEC Enforcement Director Stephanie Avakian to conclude tenure
  • SEC adopts final rules for the disclosure of payments by resource extraction issuers
  • SEC approves 2021 PCAOB budget and accounting support fee
  • SEC issues statement and requests comment regarding the custody of digital asset securities by special purpose broker-dealers
  • SEC issues guidance related to Special Purpose Acquisition Companies
  • Elad Roisman named Acting Chairman of the SEC

PCAOB

  • PCAOB issues COVID-19 spotlight, provides insights and reminders for auditors

FASB

  • FASB proposes improvements to accounting for acquired revenue contracts with customers in a business combination
  • 2021 GAAP Financial Reporting Taxonomy, SEC Reporting Taxonomy, and XBRL US DQC Rules Taxonomy now available
  • Financial Accounting Foundation appoints eight new members to the Financial Accounting Standards Advisory Council

International

  • FRC: New research supports introduction of standards for audit committees
  • IFRS: Academic Research Input to the IASB’s Work
  • FRC: Consolidated COVID-19 guidance for companies and auditors
  • FRC highlights importance of a challenge culture in audit firms
  • IASB reviews package of IFRS Standards for group accounting
  • FRC announces its thematic reviews, audit areas of focus, and priority sectors for 2021/22
  • IAASB communique details plans to develop separate standard for audits of less complex entities
  • IESBA: Nominations open for board members to join the board
  • IAASB: Candidates sought to serve on the board
  • IESBA, IRBA, and IAASB jointly issue staff guidance on Navigating the Heightened Risks of Fraud and Other Illicit Activities During the COVID-19 Pandemic
  • IASB issues IFRS Taxonomy Update for Interest Rate Benchmark Reform Phase 2
  • IAASB releases quality management standards
  • FRC: Technological Resources Using Technology to Enhance Audit Quality
  • Global sustainability and integrated reporting organizations launch prototype climate-related financial disclosure standard
  • FRC launches consultation to revise UK quality management standards
  • IESBA releases report on accomplishments 2016-2020

AICPA

  • AICPA’s revised standard for attestation engagements tackles transparency and consistency in review reports and engagements
  • AICPA hires Jennifer Burns, CPA as Chief Auditor
  • AICPA issues new white paper for auditors conducting SOC engagements of organizations that use blockchain

CAQ Updates

  • Common themes emerge in data from first year of CAMs implementation
  • Profession in focus: Hot topics for auditors heading into year end
  • Enhancing skepticism to fight fraud
  • IFRS Foundation consultation on sustainability reporting

Upcoming Events

SEC

SEC announces new Investor Advisory Committee members

The SEC announced the appointment of eight new members to its Investor Advisory Committee. The committee was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act to advise the SEC on regulatory priorities, regulation of securities products, trading strategies, fee structures, disclosure effectiveness, and initiatives to help protect investors and promote investor confidence and the integrity of the U.S. securities markets.

SEC Enforcement Director Stephanie Avakian to conclude tenure

The SEC announced that Division of Enforcement Director Stephanie Avakian has concluded her tenure. Avakian spent the past four years as co-director and then director of the SEC’s Enforcement Division.

SEC adopts final rules for the disclosure of payments by resource extraction issuers

The SEC voted to adopt final rules that will require resource extraction issuers that are required to file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals. The rules are intended to:

  • Achieve the statutory objective of increasing the transparency of payments to governments for the purpose of the commercial development of their oil, natural gas, and minerals; and
  • Comply with the Congressional Review Act .

The final rules will be effective 60 days following publication in the Federal Register.

SEC approves 2021 PCAOB budget and accounting support fee

The SEC voted to approve the 2021 budget of the PCAOB and the related annual accounting support fee. The 2021 PCAOB budget totals $287.3 million, an increase of approximately 0.9% from its 2020 budget, and takes into account changes necessitated by the current telework environment such as a reduction on travel spending. The accounting support fee totals $263.9 million, approximately 2.3% lower than the 2020 accounting support fee, of which $236.2 million will be assessed on public companies and $27.7 million will be assessed on registered broker-dealers.

SEC issues statement and requests comment regarding the custody of digital asset securities by special purpose broker-dealers

The SEC issued a statement and request for comment regarding the custody of digital asset securities by broker-dealers in an attempt to encourage innovation around the application of Securities Exchange Act Rule 15c3-3 to digital asset securities. The statement sets forth the SEC’s position that, for a period of five years, a broker-dealer operating under the circumstances set forth in the statement will not be subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities for the purposes of paragraph (b)(1) of Rule 15c3-3. These circumstances, among other things, include that the broker-dealer limits its business to digital asset securities, establishes and implements policies and procedures reasonably designed to mitigate the risks associated with conducting a business in digital asset securities, and provides customers with certain disclosures regarding the risks of engaging in transactions involving digital asset securities. The Commission is also requesting comment to gain additional insight into the evolving standards and best practices with respect to custody of digital asset securities.

SEC issues guidance related to Special Purpose Acquisition Companies

A Special Purpose Acquisition Company (SPAC) is a company with no operations that offers securities for cash and places substantially all the offering proceeds into a trust or escrow account for future use in the acquisition of one or more private operating companies.  Following its initial public offering, or IPO, the SPAC will identify acquisition candidates and attempt to complete one or more business combination transactions after which the company will continue the operations of the acquired company or companies as a public company.

This recently published guidance provides the Division of Corporation Finance’s views about certain disclosure considerations for SPACs in connection with their initial public offerings and subsequent business combination transactions.

Elad Roisman named Acting Chairman of the SEC

The SEC announced that President Donald J. Trump designated Elad L. Roisman as Acting Chairman of the agency. Roisman was sworn in as a Commissioner of the SEC on September 11, 2018. Prior to joining the Commission, he served as Chief Counsel on the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

PCAOB

PCAOB issues COVID-19 spotlight, provides insights and reminders for auditors

The PCAOB released a new spotlight publication, Staff Observations and Reminders During the COVID-19 Pandemic, to provide insights from recent PCAOB inspections of reviews of interim financial information and audits. The spotlight is intended to build on information provided in the PCAOB’s April 2020 spotlight, and reminds readers that despite the ongoing challenges created by the pandemic, auditors remain responsible for conducting audits in accordance with PCAOB standards and rules, as well as other regulatory and professional standards.

FASB

FASB proposes improvements to accounting for acquired revenue contracts with customers in a business combination

The FASB issued a proposed Accounting Standards Update (ASU) intended to address inconsistency and diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination. Current GAAP provides guidance on when to recognize and how to measure assets and liabilities in a business combination but does not provide guidance specific to contract assets and contract liabilities arising from revenue contracts with customers. Stakeholders are encouraged to review and share input on the proposed ASU by March 15, 2021.

2021 GAAP Financial Reporting Taxonomy, SEC Reporting Taxonomy, and XBRL US DQC Rules Taxonomy now available

The FASB announced the availability of the 2021 GAAP Financial Reporting Taxonomy, the 2021 SEC Reporting Taxonomy, and the 2021 XBRL US DQC Rules Taxonomy.

Financial Accounting Foundation appoints eight new members to the Financial Accounting Standards Advisory Council

The Board of Trustees of the Financial Accounting Foundation (FAF) announced the appointment of new members to the Financial Accounting Standards Advisory Council (FASAC). The FAF Trustees also reappointed 26 FASAC members for additional one-year terms. The FASAC advises the FASB on strategic and technical issues, project priorities, and other matters that affect standard setting.

International

FRC: New research supports introduction of standards for audit committees

The Financial Reporting Council (FRC) published new research suggesting the development of standards for audit committees would support a more consistent approach to promoting audit quality. The research, conducted by YouGov, involved interviews with Audit Committee Chairs (ACCs) on how they carry out their role. The research found that ACCs placed great emphasis on the audit tendering process to ensure a high-quality audit, and on challenging their auditor over how their planned audit approach would deliver quality.

IFRS: Academic Research Input to the IASB’s Work

The International Financial Reporting Standards (IFRS) posted a list of academic accounting research projects. The projects are linked to academic teams in Canada, Sweden, the United Kingdom, and the United States. The research projects are independent but are all directly relevant to projects on the International Accounting Standard Board (IASB)’s work plan and the five projects are as follows:

  • Financial Statement Comparability in Extractive Industries: International Evidence;
  • An Assessment of Corporate Disclosures of IFRS 15: Revenue from Contracts with Customers;
  • The Impact of Hedging and Hedge Reporting on Managers’ and Investors’ Decisions;
  • Are Non-GAAP Measures Running Amok? Evidence on the Proliferation of Non-GAAP Adjustments and the Quality of the Related Disclosures; and
  • Income Statement Presentation and Forecasting Quality
FRC: Consolidated COVID-19 guidance for companies and auditors

The FRC published consolidated COVID-19 guidance for companies and auditors. The consolidated guidance supersedes all previous FRC guidance for companies and auditors. The new guidance for auditors:

  • Provides examples of factors that may heighten risks of material misstatement due to fraud or irregularity;
  • Identifies that improper claims for financial support could result in liabilities for repayment and fines; and
  • Reflects the updated guidance for companies and other minor edits.
FRC highlights importance of a challenge culture in audit firms

The FRC posted a review of its audit quality inspection results, in which it found that audit firms did not challenge the management of audited entities effectively on the significant judgements they had made. In response, the FRC has undertaken a new analysis of its audit quality inspection results to identify recurring themes requiring audit firms’ attention, examples of good practice, and to correlate these results with root cause analysis undertaken by the largest UK audit firms.

IASB reviews package of IFRS Standards for group accounting

The IASB published a request for information on the IFRS Standards for group accounting—IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities. The request for information is part of the Post-implementation Review for the standards and seeks feedback on applying the standards and on the information provided to users of financial statements.

Comments are due by May 10, 2021.

FRC announces its thematic reviews, audit areas of focus, and priority sectors for 2021/22

The FRC announced its corporate reporting and audit quality review program for 2021/22, alongside its priority sectors for review. The FRC’s Corporate Reporting Review team will supplement its routine reviews of corporate reporting with five thematic reviews during the next year. These reviews will identify scope for improvement, as well as examples of better practices, in areas of key stakeholder interest. The areas of focus for audit quality reviews are:

  • COVID-19 impact;
  • Estimates;
  • Fraud;
  • Climate risk.

Priority sectors are those considered by the FRC to be high risk for corporate reporting and audit by virtue of economic or other pressures. In selecting corporate reports and audits for review, the FRC will give priority to the following sectors:

  • Travel, Hospitality and Leisure;
  • Retail;
  • Property;
  • Financial services.
IAASB communique details plans to develop separate standard for audits of less complex entities

The International Auditing and Assurance Standards Board (IAASB) published a communique detailing plans for a new standard for audits of less complex entities. The communique discusses current thinking about what the standard will look like, what entities it will apply to, and the development timeline. The IAASB expects to publish the draft standard for public consultation in 2021.

IESBA: Nominations open for board members to join the board

The International Ethics Standards Board for Accountants (IESBA) posted a call for interested candidates to apply for seven volunteer openings for an initial term of service of up to 3 years, commencing January 1, 2022. The IESBA Nominating Committee is interested in candidates from a wide range of relevant backgrounds, in the private or public sector, including:

  • Preparers of financial statements;
  • Users of audited financial statements or assurance reports;
  • Academics;
  • Auditors and assurance providers; and
  • National standard setters.
IAASB: Candidates sought to serve on the board

The IAASB posted a call for interested candidates to apply for a three-year term on the board. The term will commence on January 1, 2022. The IAASB Nominating Committee is interested in candidates from a wide range of relevant backgrounds, including:

  • Users of audited financial statements or assurance reports;
  • Nominees from regulatory and audit inspection or oversight bodies;
  • Preparers of financial reports;
  • Academics; and
  • National standard setters.
IESBA, IRBA, and IAASB jointly issue staff guidance on Navigating the Heightened Risks of Fraud and Other Illicit Activities During the COVID-19 Pandemic

The IESBA, in conjunction with the IAASB and the South African Independent Regulatory Board for Auditors, published a guide entitled Navigating the Heightened Risks of Fraud and Other Illicit Activities During the COVID-19 Pandemic, including Considerations for Auditing Financial Statements. The publication highlights the heightened risks of fraud arising from the COVID-19 environment and the implications for professional accountants in business, including accountants in government, and professional accountants in public practice, including auditors.

The Staff of Chartered Professional Accountants of Canada and IESBA also jointly released a Staff Alert, COVID-19 and Evolving Risks for Money Laundering, Terrorist Financing and Cybercrime. The document highlights the heightened risks of money laundering, terrorist financing and cybercrime in the COVID-19 environment. It describes the implications for both professional accountants in business and public practice.

IASB issues IFRS Taxonomy Update for Interest Rate Benchmark Reform Phase 2

The IASB issued an update to the IFRS Taxonomy 2020 to reflect Interest Rate Benchmark Reform—Phase 2, issued in August 2020. The update includes IFRS Taxonomy elements to reflect the new disclosure requirements introduced by the amendments issued by the IASB in August 2020.

IAASB releases quality management standards

The IAASB released its three quality management standards. The standards seek to promote a robust, proactive, scalable, and effective approach to quality management. The suite of standards includes:

  • 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;
  • ISQM 2, Engagement Quality Reviews; and
  • International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements.

The standards become effective on December 15, 2022.

FRC: Technological Resources Using Technology to Enhance Audit Quality

The FRC published its response to its recent consultation, Technological Resources: Using Technology to Enhance Audit Quality. The response noted that almost all respondents agreed that the use of technology could significantly improve audit quality, when deployed at the right time in the audit process by those with the right training. Training and skillset were identified as many respondents’ primary concerns. The FRC intends for the response to serve as a foundation for discussions about the role of the regulator in relation to the use of technological recourse in audit, be that enhancing relevant standards, influencing international standard setters, developing guidance on select topics or clearly communicating expectations regarding the use of technology.

Global sustainability and integrated reporting organizations launch prototype climate-related financial disclosure standard

Carbon Disclosure Project, the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council and the Sustainability Accounting Standards Board, have co-authored an illustration of how their current frameworks, standards and platforms, along with the elements set out by the Task Force on Climate-related Financial Disclosures, can be used together to provide a running start for development of global standards that enable disclosure of how sustainability matters create or erode enterprise value.

FRC launches consultation to revise UK quality management standards

The FRC launched a consultation on the proposed revision of the standards for an audit firm’s responsibilities to design, implement, and operate a system of quality management. The revision would reflect recent updates to international standards issued by the IAASB. The FRC proposed to undertake a new quality management approach that is focused on proactively identifying and responding to risks to quality. This approach would require firms to customize the design, implementation, and operation of their systems of quality management based on the nature and circumstances of the firm, using an integrated approach that reflects upon the quality management system as a whole.

The deadline for submitting comments is March 19, 2021.

IESBA releases report on accomplishments 2016-2020

The IESBA released a report, Ethics and Trust – Breaking New Ground, summarizing the board’s accomplishments from June 1, 2016 to July 31, 2020. The report includes an update on the IESBA’s current projects and initiatives and touches on the outreach activities undertaken by the IESBA to extend and deepen its dialogue with stakeholders about issues relevant to elevating global ethics and building public trust in the accounting profession.

AICPA

AICPA’s revised standard for attestation engagements tackles transparency and consistency in review reports and engagements

The AICPA’s Auditing Standards Board issued Statement on Standards for Attestation Engagements (SSAE) No. 22, Review Engagements, to supersede SSAE No. 18, Attestation Standards: Clarification and Recodification, as amended, section 210. SSAE No. 22 describes the types of procedures a practitioner may perform in a review engagement, and is intended to:

  • Clarify for practitioners that the objective of a review engagement is to obtain limited assurance;
  • Result in more transparent reporting by requiring that the practitioner disclose in the review report the procedures performed in order to obtain limited assurance; and
  • Allow the practitioner to issue a report containing an adverse review conclusion when the subject matter is materially and pervasively misstated.
AICPA hires Jennifer Burns, CPA as Chief Auditor

The AICPA announced the appointment of Jennifer Burns, CPA as its Chief Auditor. Burns was a partner in Deloitte’s national office of Audit and Assurance practice and has more than 25 years of experience in public accounting. In her new role, Burns will head the Association’s U.S. and international auditing and attestation efforts. She will start on January 25, 2021.

AICPA issues new white paper for auditors conducting SOC engagements of organizations that use blockchain

The AICPA issued a new white paper intended to assist auditors providing SOC reports on organizations that have incorporated blockchain into their service delivery systems. The paper examines the skills and competencies auditors need to perform such engagements, the unique features of blockchain, the risks associated with using blockchain, and how the use of blockchain by service organizations may affect their SOC examinations.

 

CAQ Updates

Common themes emerge in data from first year of CAMs implementation

The CAQ released a new report with data and analysis on the first year that critical audit matters (CAMs) were included in auditor reports. The CAQ report finds that every auditor report for S&P 100 companies contained at least one CAM. Auditor reports included a total of 198 CAMs for an average of just under two (1.98) CAMs per report. There was a single auditor report that communicated five CAMs, while 32 auditor reports communicated only one CAM.

Profession in focus: Hot topics for auditors heading into year end

Catherine Ide, the CAQ’s Vice President of Professional Practice, spoke with PwC’s Jorge Milo, National Office Managing Partner and National Quality Office Leader, about topics that are top of mind for public company auditors heading into the calendar year end audit cycle.

Enhancing skepticism to fight fraud

The CAQ posted a webcast promoting the importance of skepticism and how it can be critical in detecting fraud or error during the financial reporting process. In the webcast, a panel comprised of financial reporting supply chain members provided practical insights into enhancing skepticism while overcoming biases, managing the risks of emerging technologies, and emerging from a crisis.

IFRS Foundation consultation on sustainability reporting

The CAQ issued a comment letter providing views on the IFRS Foundation’s Consultation Paper on Sustainability Reporting. The CAQ expressed support for the IFRS Foundation’s efforts to develop and seek comment on this consultation on sustainability reporting.

Upcoming Events

January 14-16, 2021

AAA 2021 Auditing Section Virtual Midyear Meeting, Virtual

March 3, 2021

PLI’s Corporate Governance – A Master Class, Virtual

MARCH 8-10, 2021

CII Spring 2021 Conference, Washington, DC

March 23-25, 2021

Nareit’s REITwise, Virtual

May 3-5, 2021

AICPA & CIMA Employee Benefit Plans Conference, Las Vegas, NV

OCTOBER 25-27, 2021

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.

Questions and comments about the PPTA can be addressed to: info@thecaq.org.