Public Policy and Technical Alert, June 2020
Tuesday, July 7, 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 extends relief for virtual meetings of fund boards
- SEC and Justice Department’s Antitrust Division sign Memorandum of Understanding
- SEC Office of the Chief Accountant statement on the continued importance of high-quality financial reporting for investors in light of COVID-19
- SEC Office of the Chief Accountant statement on commencement of appointment process for the 2020-2025 PCAOB board seat
- SEC provides an update on the Commission’s targeted regulatory relief to assist market participants affected by COVID-19
- SEC updates filing threshold to Rule 17h reporting requirements for broker-dealers
- PCAOB issues six largest U.S. Firm Inspection Reports in a new format
- Jackie Cottrell named PCAOB Director of Office of External Affairs
- FASB offers limited effective date delays on revenue recognition and leases standards
- FASB approves new standards and a proposed effective date delay at final meeting of Chairman Russell G. Golden
- FASB issues Taxonomy Staff Q&A Document on how to apply the Taxonomy to COVID-19 pandemic and relief disclosure
- FRC: COVID-19 Going concern, risk and viability
- FRC: Updated guidance for Audit General Meetings
- IOSCO Board elects Chair and Vice Chairs for the term 2020-2022
- IAASB releases two webinars providing guidance on ISA 600 and Extended External Reporting Assurance
- FRC: COVID-19 resources, action, the future
- IASB issues amendments to IFRS 17 Insurance Contracts
- IAASB publishes COVID-19 related guidance on auditing accounting estimates and related disclosures
- AICPA offers insight for valuing businesses affected by COVID-19
- New AI white papers for CPAs explore evolving role in the audit
- New AICPA accounting guidance helps PPP lenders make appropriate financial reporting decisions
- New documentary on PBS shines light on unique, rewarding careers in auditing
- CAQ COVID-19 Resources
- Understanding the auditing requirements for accounting estimates and the use of specialist
SEC extends relief for virtual meetings of Fund Boards
The SEC announced that it is extending conditional relief from the in-person voting requirements for fund boards that it originally provided in March 2020. That relief has been extended at least through December 31, 2020.
SEC and Justice Department’s Antitrust Division sign Memorandum of Understanding
The SEC and the Department of Justice’s Antitrust Division signed an interagency Memorandum of Understanding (MOU) in an effort to facilitate cooperation and communication between the agencies. The MOU establishes a framework for the SEC and the DOJ’s Antitrust Division to continue regular discussions and review law enforcement and regulatory matters affecting competition in the securities industry, including provisions to establish periodic meetings among the respective agencies’ officials. The MOU also provides for the exchange of information and expertise the agencies believe to be potentially relevant and useful to their oversight and enforcement responsibilities, as appropriate and consistent with applicable legal and confidentiality restrictions.
SEC Office of the Chief Accountant statement on the continued importance of high-quality financial reporting for investors in light of COVID-19
Chief Accountant Sagar Teotia issued a statement on June 23 reaffirming the importance of high-quality financial reporting in light of the significant impacts of COVID-19. Topics include:
- Office of the Chief Accountant’s (OCA) engagement and work related to high-quality financial reporting;
- OCA’s engagement with the FASB and PCAOB;
- OCA’s engagement with international standard setters and other regulators; and
- OCA’s engagement with, and the vital role of, audit committees.
SEC Office of the Chief Accountant statement on commencement of appointment process for the 2020-2025 PCAOB board seat
Chief Accountant Sagar Teotia issued a statement on June 24 discussing the appointment process for the vacancy on the PCAOB Board for the 2020-2025 term. James G. Kaiser’s term on the PCAOB Board expires in October 2020. Mr. Kaiser is eligible for reappointment to the 2020-2025 term, but has informed the SEC that he does not wish to stand for reappointment.
SEC provides an update on the Commission’s targeted regulatory relief to assist market participants affected by COVID-19
The SEC statement includes a summary of the current targeted, temporary relief and assistance provided by the Commission and staff, along with the staff’s views on whether and, if so, how that relief should be adjusted taking into account market outreach and observations. The SEC believes that the need for certain relief remains, including relief to ensure continued remote operations and to provide flexibility in light of continued market volatility. The statement also indicates that other forms of current relief are unlikely to be extended.
SEC updates filing threshold to Rule 17h reporting requirements for broker-dealers
On June 29 the SEC issued an order to update the filing threshold for broker-dealers’ Form 17-H filings made pursuant to Exchange Act Rules 17h-1T and Rule 17h-2T. The threshold will exempt certain smaller broker-dealers from the reporting requirements of the rules while continuing to provide information to the Commission on the financial condition of covered broker-dealers and their affiliates.
PCAOB issues six largest U.S. Firm Inspection Reports in a new format
The PCAOB issued the 2018 inspection reports for the six largest U.S. audit firms in a new, redesigned format. The PCAOB’s new inspection report format streamlines the report content and utilizes new charts and graphs as part of the PCAOB’s efforts to make the information more digestible and accessible for users. It also includes new information not previously communicated in inspection reports as part of the PCAOB’s efforts to enhance transparency. The PCAOB also issued a guide to reading the new inspection reports, containing an overview of each section of the new reports and highlighting changes from the previous report format.
Jackie Cottrell named PCAOB Director of Office of External Affairs
The PCAOB announced that Jackie Cottrell has been named Director of the Office of External Affairs, which leads the PCAOB’s communications, government affairs and outreach efforts. Cottrell has more than 25 years of experience in government, corporate and non-profit environments. Prior to joining the PCAOB, Ms. Cottrell served as the chief of staff for Senator Pat Roberts for 18 years, where she oversaw policy, communications and constituent relations activities.
FASB offers limited effective date delays on revenue recognition and leases standards
The FASB issued an Accounting Standards Update (ASU) that grants a one-year effective date delay for certain companies and organizations applying the revenue recognition and leases guidance. Under the ASU, private companies and private not-for-profit organizations may apply the new leases standard for fiscal years beginning after December 15, 2021, and to interim periods within fiscal years beginning after December 15, 2022. Public not-for-profit organizations that have not yet issued (or made available to issue) financial statements reflecting the adoption of the leases guidance may apply the standard for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.
FASB approves new standards and a proposed effective date delay at final meeting of Chairman Russell G. Golden
The FASB approved the issuance of two upcoming ASUs: one related to financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity, and one related to how not-for-profit organizations present and disclose contributed nonfinancial assets. The FASB also voted to issue a proposed ASU that would delay the effective date for its standard related to financial reporting for insurance companies that issue long-duration contracts, such as life insurance, disability income, long-term care and annuities. The votes occurred during Russell G. Golden’s final meeting as chairman of the board.
FASB issues Taxonomy Staff Q&A Document on how to apply the Taxonomy to COVID-19 pandemic and relief disclosures
The FASB Taxonomy staff issued a question-and-answer document (Q&A) that responds to frequently asked questions about the application of the U.S. GAAP Financial Reporting Taxonomy to disclosures related to the effects of the COVID-19 pandemic and relief efforts. The FASB staff developed the Q&A to provide information on applying the Taxonomy to disclosures related to the evolving coronavirus situation based on feedback it has received to date.
FRC: COVID-19 Going concern, risk and viability
The Financial Reporting Council (FRC) issued a report on disclosure in an uncertain environment. The FRC report highlights the impact and key considerations for companies in three key areas of disclosure: going concern, risk reporting and viability statements.
FRC: Updated guidance for Audit General Meetings
On May 20, the UK Government introduced into the House of Commons the Corporate Insolvency and Governance Bill 2020. The bill contains a range of measures impacting companies and other entities in financial difficulties. In response to the introduction of the bill, the FRC has updated its guidance on best practices for Audit General Meetings in the Q&A’s published previously.
IOSCO Board elects Chair and Vice Chairs for the term 2020-2022
The International Organization of Securities Commissions (IOSCO) board elected its leadership for the term 2020-2022. The Board re-elected Ashley Alder, CEO of SFC Hong Kong, as its Chair, and Jean-Paul Servais, Chairman of FSMA Belgium, as a Vice Chair. It also elected Heath P. Tarbert, Chairman of the US CFTC, as a new Vice Chair. They join Obaid Al Zaabi, CEO of SCA UAE, who is Vice Chair of the Board in his ex-officio capacity as Chair of the IOSCO Growth and Emerging Markets Committee.
IAASB releases two webinars providing guidance on ISA 600 and Extended External Reporting Assurance
The International Auditing and Assurance Standards Board (IAASB) posted the recordings of two webinars and opened them up for public comment. The first webinar was hosted on June 10 and covered the current Public Consultation on Proposed Guidance: Extended External Reporting Assurance. The second webinar was hosted on June 11 and covered the Exposure Draft of Proposed ISA 600 (Revised), Special Considerations Audits of Group Financial Statements (Including the Work of Component Auditors).
FRC: COVID-19 resources, action, the future
The FRC issued a report to provide more detailed guidance and examples in an effort to help companies amid the COVID-19 pandemic. The first section covers some practical issues regarding reporting during the pandemic, and the subsequent sections are structured around the following key reporting areas:
- Resources, including the availability of cash;
- Actions to manage short-term expenditure and ensure viability; and
- The future, including how the decisions made now ensure the sustainability of the company and impact its stakeholders.
IASB issues amendments to IFRS 17 Insurance Contracts
The International Accounting Standards Board (IASB) issued amendments to IFRS 17, Insurance Contracts. The amendments, among other changes, include the deferral of the effective date by two years, to annual reporting periods beginning on or after 1 January 2023.
IAASB publishes COVID-19 related guidance on auditing accounting estimates and related disclosures
The IAASB has released COVID-19 pandemic-related guidance on auditing accounting estimates and related disclosures.
AICPA offers insight for valuing businesses affected by COVID-19
The AICPA released a set of FAQs to help CPAs and valuation professionals adjust business valuations based on the Coronavirus Aid, Relief and Economic Security (CARES) Act. The set of questions addresses provisions professionals should consider when evaluating businesses that received funding or support under one of the CARES Act provisions.
New AI white papers for CPAs explore evolving role in the audit
The AICPA and CPA Canada released white papers aimed at audit professionals and others seeking information on how artificial intelligence (AI) will evolve the role of the auditor as well as the audit itself.
New AICPA accounting guidance helps PPP lenders make appropriate financial reporting decisions
The AICPA and its Depository Institutions Expert Panel released a Technical Questions and Answers (TQA) to assist depository institutions, credit unions, credit card companies, broker-dealers, insurance companies and other lenders in appropriately accounting for the loans they distribute under the Paycheck Protection Program. The TQA also addresses how creditors may restructure loans made in response to COVID-19 that result in restructurings that are not troubled debt restructurings and include periods of reduced payments, including payment deferrals, fee waivers, extension of repayment terms or delays in payment.
New documentary on PBS shines light on unique, rewarding careers in auditing
Roadtrip Nation premiered its new career exploration documentary, “Making It Balance,” on PBS and other public television stations on June 4. The documentary, which follows three young adults as they discover how people of all backgrounds and passions forge their own career paths through the auditing profession, was made possible by the CAQ’s Discover Audit Initiative, designed to introduce the next generation of diverse and dynamic talent to the world of public company auditing. Traveling from Austin to Boston, the roadtrippers interviewed experienced auditors and business leaders across music, sports and auditing, learning how working as an auditor can serve as a stepping-stone to a diverse and varied career.
CAQ COVID-19 RESOURCES
In June, the CAQ published the following COVID-19 specific resources:
- Focus on the Auditor’s Risk Assessment
The COVID-19 pandemic and the related market conditions created many new uncertainties for auditors, audit committees, investors and management of public companies. The CAQ created resource provides reminders for auditors related to their responsibilities to identify, assess, and respond to risks of material misstatement. In addition, these reminders also may be helpful to audit committee members in their oversight role of the external audit.
- Profession in Focus: Audit Committee Considerations During COVID-19
In this video, the CAQ’s Vanessa Teitelbaum, Senior Director, Professional Practice, sits down with Brian Anderson, Corporate Director and CAQ Governing Board Member and Amy Rojik, Assurance Partner and Director at BDO’s Corporate Governance and Financial Reporting, to uncover what audit committee members should be focused on, given the radical changes that have occurred in the last 3 months due to the COVID-19 virus and pandemic.
- Goodwill impairment considerations in the COVID-19 environment
The COVID-19 pandemic and the related market conditions created many new uncertainties for auditors, audit committees, investors and management of public companies. The CAQ created resource provides a high-level overview of managements accounting requirements and auditor considerations for testing goodwill impairment in the COVID-19 environment.
- Profession in Focus: A conversation with SEC Chief Accountant Sagar Teotia during COVID-19
SEC Chief Accountant Sagar Teotia joined CAQ Executive Director Julie Bell Lindsay for a discussion on critical issues facing public companies and auditors during the COVID-19 pandemic. Watch the full video to hear Sagar’s insights on topics ranging from going concern and internal control over financial reporting to second quarter accounting judgments and leadership changes at the FASB.
Understanding the auditing requirements for accounting estimates and the use of specialists
The CAQ teamed up with Financial Executives International (FEI) to summarize the PCAOB’s new and amended requirements for auditing accounting estimates and the auditors use of the work of specialists. This resource identifies key changes within the new and amended requirements for auditing accounting estimates which emphasize the role of professional skepticism, including addressing potential management bias, when auditing accounting estimates.
The CAQ Symposium 2020, Virtual
AAA Annual Meeting, Virtual Conference
IAASB Board Meeting, New York, NY
CII 2020 Fall Conference: Corporate Governance in the Wake of COVID-19, Virtual Conference
NACD Summit 2020, Virtual
FEI Corporate Financial Reporting Insights Conference, New York, NY
AICPA Conference on Current SEC and PCAOB Developments, Washington, DC
IAASB Board Meeting, Madrid, Spain
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.
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