Public Policy and Technical Alert | December 2021
Friday, January 7, 2022
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.
SEC adopts amendments to finalize rules relating to the Holding Foreign Companies Accountable Act
The SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act (HFCAA). The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate. “The [SEC] and the PCAOB will continue to work together to ensure that the auditors of foreign companies accessing U.S. capital markets play by our rules,” said SEC Chair Gary Gensler.
Statement from the Acting Chief Accountant on OCA’s continued focus on high quality financial reporting in a complex environment
Paul Munter, the acting chief accountant of the SEC, issued a statement outlining the Office of the Chief Accountant’s (OCA) role in the financial reporting system. In the statement, Munter shares perspectives from the OCA’s ongoing priorities and its work over the past year related to rulemaking activities, oversight of standard setting, implementation and application of standards, and application of auditor independence requirements. The statement finishes with a discussion of the vital role of individual stakeholder groups, including observations regarding key areas of focus for each stakeholder group to promote a continued flow of high-quality financial reporting to investors.
SEC approves 2022 PCAOB budget and accounting support fee
The SEC voted to approve the 2022 budget of the PCAOB and the related annual accounting support fee. The 2022 PCAOB budget totals $310.3 million. The accounting support fee totals $297.9 million, of which $267.2 million will be assessed on public company issuers and $30.7 million will be assessed on registered broker-dealers.
PCAOB makes HFCAA determinations regarding mainland China and Hong Kong
The PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong because of positions taken by People’s Republic of China (PRC) authorities in those jurisdictions. “To protect investors and to carry out the PCAOB’s mandate, our inspectors and investigators need consistent access across all jurisdictions to the audit work performed for public companies in U.S. capital markets,” said PCAOB Acting Chairperson Duane M. DesParte.
2022 GAAP Financial Reporting Taxonomy, SEC Reporting Taxonomy, and DQC Rules Taxonomy now available
The FASB announced the availability of the 2022 GAAP Financial Reporting Taxonomy (GRT) and the 2022 SEC Reporting Taxonomy (SRT). The FASB also made available the 2022 DQC Rules Taxonomy (DQCRT). The 2022 GRT contains updates for accounting standards and other recommended improvements. The 2022 SRT contains improvements for removing references for superseded guidance, adding references to improve selection of the appropriate element for the disclosure requirement, and adding new abstract elements to provide a complete organizational structure. The DQCRT is uniquely structured from the typical design of XBRL taxonomies because it is narrowly focused on conveying the XBRL US Data Quality Committee’s (DQC) validation rules, predominantly for regulator use.
FRC announces areas of supervisory focus for 2022/23
The Financial Reporting Council (FRC) announced its areas of supervisory focus for 2022/23, including priority sectors, for corporate reporting reviews and audit quality inspections. In 2022/23, the FRC’s Supervision Audit Quality Review team will pay particular attention in its reviews to areas including climate-related risks, fraud risks, and cash and cash flow statements. In selecting corporate reports and audits for review, the FRC will prioritize sectors that are under particular pressure, including travel, hospitality, and leisure, as well as retail.
IAASB: New technology-focused FAQ available
The Technology Working Group of the International Auditing and Assurance Standards Board (IAASB) released non-authoritative support material to help auditors understand how to plan an audit under International Standard on Auditing (ISA) 300, Planning an Audit of Financial Statements, when using automated tools and techniques. The publication does not amend or override the ISAs, the texts of which alone are authoritative.
2023 IASB Research Forum – call for papers
The International Accounting Standards Board (IASB) and its partnering journals for the 2023 Research Forum, Accounting in Europe and European Accounting Review, issued a call for papers on the theme of accounting for intangible assets. The goal of the Research Forum is to stimulate interaction between academics and non-academics, including standard-setters, investors, regulators, auditors, and preparers of financial statements, through discussion of evidence-based papers that inform the standard-setting activities of the IASB. Topics of interest include disclosure in financial statements, as well as recognition and measurement of internally-generated assets.
The demand for assurance engagements on sustainability and ESG reporting is high. Here is how the IAASB is responding.
Tom Seidenstein, the chair of the IAASB, issued a statement predicting that the push for added corporate reporting and disclosure on sustainability and climate-related information will only accelerate. “We see the trend moving from voluntary reporting commitments to requirements mandated by jurisdictions throughout the world,” he said. In the statement, Seidenstein highlights some aspects of the IAASB’s 2022-2023 work plan, including an agreement to dedicate capacity and resources to the assurance of sustainability/ESG reporting.
CAQ Audit planning alert for auditors of brokers and dealers
The CAQ issued an Audit Planning Alert for Auditors of Brokers and Dealers. In the alert, the CAQ poses questions for auditors of brokers and dealers to consider as they plan both their audit and attestation engagements. The alert focuses on six areas:
- Auditing revenue;
- Audit evidence produced by service organizations and/or the broker or dealer;
- Auditing related-party transactions;
- Auditing the supplemental information;
- Performing examination engagements; and
- Performing review engagements.
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.
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 Public Policy & Technical Alert can be addressed to Matt Sickmiller, Senior Manager, Professional Practice (firstname.lastname@example.org).