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Alert

PUBLIC POLICY AND TECHNICAL ALERT, FEBRUARY 2020

Friday, March 6, 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

  • SEC proposes amendments to modernize the infrastructure for the collection, consolidation, and dissemination of market data
  • SEC and PCAOB issue a joint statement on audit quality in China and other emerging markets and the coronavirus
  • SEC Investor Advisory Committee meeting held on February 27

FASB

  • FAF appoints John Auchincloss to serve as executive director
  • FASB proposes improvements to accounting for contributed nonfinancial assets by not-for-profit organizations
  • FASB issues ASU 2020-02 updating Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)

International

  • FRC outlines plans for an operational separation of the UK’s largest firms
  • IAASB releases an update on the Auditor Reporting Project
  • Bill Coen appointed Chair of the IFRS Advisory Council
  • FRC releases a draft plan and budget for 2020/21
  • FRC and BEIS publish joint letters to assist accountants and auditors during the Brexit transition period
  • IFIAR releases 2019 Inspection Findings Survey
  • IESBA Technology Group releases a report on the ethical implications of technology

AICPA

  • ARSC issues SSARS No. 25 further aligning review standards with international standards and GAAS

Other Developments

  • IOSCO publishes key considerations for regulating crypto-asset trading platforms

CAQ Updates

  • AFC publishes Fraud and Emerging Tech: Blockchain
  • Roadtrip Nation’s documentary “Making it Balance” to premiere June 4 on PBS

Upcoming Events

SEC

SEC proposes amendments to modernize the infrastructure for the collection, consolidation, and dissemination of market data

On February 14, the SEC proposed amendments to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed national market system (NMS) stocks. The proposal would update and expand the content of NMS market data to better meet the diverse needs of investors in today’s equity markets and also would seek to introduce competitive forces into this core component of the NMS for the first time. The SEC has not significantly updated the rules that govern the content and dissemination of NMS market data since their initial implementation in the late 1970s.

SEC and PCAOB issue a joint statement on audit quality in China and other emerging markets and the coronavirus

A February 2020 joint statement from SEC Chairman Jay Clayton, SEC Division of Corporation Finance Director Bill Hinman, SEC Chief Accountant Sagar Teotia, and PCAOB Chairman William D. Duhnke III discussed observations from their November 2019 and February 2020 meetings with senior representatives of the four largest U.S. audit firms, including certain of their network representatives, to discuss audit quality across their global networks and certain of the challenges faced in auditing public companies with operations in emerging markets, including China. Among the issues discussed was that the PCAOB continues to be prevented from inspecting the audit work and practices of PCAOB-registered audit firms in China on a comparable basis to other non-U.S. jurisdictions. PCAOB inspections are a key component of SEC regulatory efforts to enhance the quality of financial reporting and ensure audit quality.

Also noted in the joint statement, Chairman Clayton reiterated comments from a prior statement on the coronavirus. He noted that the SEC staff continues to monitor, and to the extent appropriate, will provide guidance and other assistance to issuers and other market participants regarding disclosures related to the current and potential effects of the coronavirus. The statement went on to note that the actual effects may be difficult to assess or predict with meaningful precision both generally and on an industry- and issuer-specific basis.

SEC Investor Advisory Committee meeting held on February 27

The SEC Investor Advisory Committee held a meeting on February 27. The agenda included two panel discussions that provided an:

  • Update for investors regarding accounting and auditing trends, and
  • Discussion regarding potential impact of LIBOR transition on investors.

The archived webcast is available on the SEC website.

FASB

FAF appoints John Auchincloss to serve as executive director

John Auchincloss has been appointed the Financial Accounting Foundation’s (FAF) executive director. Auchincloss joined FAF as vice president and general counsel in May 2016. He was named acting president last year following the departure of then-president Terri Polley. Prior to joining FAF, Auchincloss was general counsel and secretary for Commonfund, a private, not-for-profit asset management firm. He also has served as an assistant U.S. attorney in the Southern District of New York.

FASB proposes improvements to accounting for contributed nonfinancial assets by not-for-profit organizations

On February 10, FASB issued a proposed Accounting Standards Update (ASU) intended to improve transparency around how not-for-profit organizations present and disclose contributed nonfinancial assets, also known as gifts-in-kind (e.g., fixed assets such as land, buildings, and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing, or pharmaceuticals; intangible assets; and/or recognized contributed services). The proposed ASU would require a not-for-profit organization to present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets.

Comments on the proposed ASU are due April 10, 2020.

FASB issues ASU 2020-02 updating Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)

In February the FASB issued ASU 2020-02Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)  (SEC Update).

With respect to Topic 326, the ASU amends the SEC paragraphs in Topic 326 to incorporate the SEC Staff Guidance in SAB 119 related to the implementation of Topic 326, incorporating guidance on:

  • Measuring current expected credit losses;
  • Development, governance, and documentation of a systematic methodology;
  • Documenting the results of a systematic methodology; and
  • Validating a systematic methodology.

With respect to Topic 842, the ASU amends the standard to reflect a SEC Staff announcement about the adoption of Topic 842. The announcement indicates that the SEC Staff would not object to a public business entity adopting Topic 842 for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, if that public interest entity is characterized as such because of the requirement to include its financial statements or financial information in another entity’s filing (or includes it voluntarily).

International

FRC outlines plans for an operational separation of the UK’s largest firms

On February 27, the Financial Reporting Council (FRC) outlined plans for an operational separation of the UK’s largest accounting firms in an effort that it believes will bring about audit quality improvements. The move comes almost a year after an independent review recommended that the firms separate audit from consulting roles.

IAASB releases an update on the Auditor Reporting Project

The International Auditing and Assurance Standards Board’s (IAASB) Auditor Reporting Implementation Working Group recently published the Auditor Reporting Project Update which provides an update on the IAASB’s post implementation review (PIR) of the revised auditor reporting standards. The IAASB committed to undertake a PIR when the auditor reporting standards were issued in 2015. The PIR activities will be undertaken during 2020, with the findings targeted to be presented to the IAASB at its December 2020 meeting.

Bill Coen appointed Chair of the IFRS Advisory Council

The Trustees of the IFRS Foundation appointed Bill Coen as Chair of the IFRS Advisory Council, effective February 11, 2020. He served on the IFRS Advisory Council from 2016 until 2019. Coen was Secretary General of the Basel Committee on Banking Supervision from 2014 to 2019 and Deputy Secretary General from 2007 to 2014 and also worked for the Board of Governors of the Federal Reserve System in Washington DC, with a variety of responsibilities relating to banking policy, supervision and licensing.

FRC releases a draft plan and budget for 2020/21

On February 5, the FRC released its draft plan and budget for 2020/21. The plan for 2020/21 sets up the FRC to further progress in its transition to a new regulatory body as proposed by last year’s independent review of the FRC. Further, it lays out the FRC’s initial response and the steps that can be taken in the short term to be responsive to three independent reviews of the regulatory framework conducted in prior years. This strategy will be replaced in 2021 with a longer-term strategy once the UK government’s final positions on several key public policy issues are finalized.

The consultation period on the plan and budget closed on February 28, 2020.

FRC and BEIS  publish joint letters to assist accountants and auditors during the Brexit transition period

On February 13, the FRC and Department for Business, Energy and Industrial Strategy (BEIS) published joint letters for accountants and auditors with information regarding auditing, accounting and corporate reporting standards during the transition period following the UK’s exit from the European Union.

IFIAR releases 2019 Inspection Findings Survey

On February 17, the International Forum of Independent Audit Regulators (IFIAR) released its eighth annual survey of inspection findings arising from its member regulators’ individual inspections of audit firms affiliated with the six largest global audit firm networks. Overall, the downward trend in the percentage of audits inspected with one or more findings continued in the 2019 survey reaching 33% (down from 47% when data was first collected for the 2014 survey).

IESBA Technology Group releases a report on the ethical implications of technology

On February 27, the International Ethics Standards Board for Accountants (IESBA) Technology Group released a report as part of Phase 1 of the IESBA’s technology initiative that is exploring the ethical implications of technology on the accounting, assurance, and finance functions. Phase 1 focused its information gathering on artificial intelligence and the related areas of big data and data analytics. The report is the culmination of work the global ethics standards setting board initiated in recognition of the pace and magnitude of change caused by disruptive technological innovations.

AICPA

ARSC issues SSARS No. 25 further aligning review standards with international standards and GAAS

On February 11, the AICPA’s Accounting and Review Services Committee (ARSC) issued Statement on Standards for Accounting and Review Services (SSARS) No. 25, Materiality in a Review of Financial Statements and Adverse Conclusions. SSARS 25 further converges Accounting and Review services (Clarified) Section 90, Review of Financial Statements with International Standard on Review Engagements 2400 (Revised), Engagements to Review Historical Financial Statements and minimizes differences with US generally accepted auditing standards (GAAS) regarding concepts that are consistent regardless of the level of service performed on the financial statements, such as materiality.

SSARS No. 25 becomes effective for engagements performed in accordance with SSARSs on financial statements for periods ending on or after December 15, 2021. Early implementation is permitted.

Other Developments

IOSCO publishes key considerations for regulating crypto-asset trading platforms

On February 12, the Board of the International Organization of Securities Commissions (IOSCO) published a report that describes the issues and risks associated with crypto-asset trading platforms and sets out key considerations to assist regulatory authorities in addressing these issues. The development of crypto-assets is an important area of interest for regulatory authorities around the world and has been identified in the IOSCO work program as an on-going priority in 2020.

CAQ Updates

AFC publishes Fraud and Emerging Tech: Blockchain

 One of the biggest disruptors in digital innovation, blockchain is redefining the future of financial reporting, audit, and risk management. This article, part of an emerging technology series from the Anti-Fraud Collaboration (AFC), examines the implications of blockchain when it comes to fighting financial reporting fraud.

Roadtrip Nation’s documentary “Making it Balance” to premiere June 4 on PBS

On June 4, Roadtrip Nation will premier “Making It Balance”, a documentary fueled by the CAQ’s Discover Audit initiative. The CAQ worked with Roadtrip Nation to produce a one-hour documentary showcasing careers in auditing and accounting. The program tracks the journey from Austin to Boston of three accounting majors who interviewed twelve auditors and accountants from a wide range of roles, including those who have applied the skills they gained from auditing to pursue other dreams.

Upcoming Events

March 9-11

CII Spring Conference and 35th Anniversary, Washington, DC

March 16-20

IAASB Board Meeting, New York, NY

April 1-3

REITwise: 2020 Law, Accounting & Finance Conference, Washington, DC

May 17-20

CFA Institute Annual Conference, Atlanta, GA

June 6

USC SEC Conference, Los Angeles, CA

June 8-11

ICGN Annual Conference, Toronto, Canada

June 11-12

PLI 35th Midyear SEC Reporting & FASB Forum, New York, NY

June 15-19

IAASB Board Meeting, New York, NY

June 23-28

ACFE Global Fraud Conference, Boston, MA

August 7-12

AAA Annual Meeting, Atlanta, GA

September 14-18

IAASB Board Meeting, New York, NY

November 9-10

FEI Corporate Financial Reporting Insights Conference, New York, NY

December 7-9

AICPA Conference on Current SEC and PCAOB Developments, Washington, DC

December 7-11

IAASB Board Meeting, Madrid, Spain

 

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.