Public Policy and Technical Alert, March 2020
Friday, April 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:
- CARES Act
- SEC adopts rule amendments and new standards
- SEC proposes rule changes to the Exempt Offering Framework
- Division of Corporation Finance Chief Accountant Kyle Moffatt to leave SEC
- PCAOB publishes 2019 Annual Report
- FASB issues new ASUs
- FASB names new members to its Small Business Advisory Committee
- FASB announces SEC acceptance of 2020 GAAP Financial Reporting Taxonomy and SEC Reporting Taxonomy
- FRC publishes a report and discussion paper on technology in the audit
- FRC launches consultation to adopt ISAE 3000
- FRC publishes 2020/21 strategy for reform
- IOSCO report examines how existing regulatory principles could apply to stablecoins
- IASB reviews accounting for goodwill
- IFRS Foundation issues 2020 IFRS XBRL taxonomy
- IAASB releases a consultation paper on proposed Extended External Reporting non-authoritative guidance
- AICPA issues SAS 139 to align existing standards with new auditors’ reporting standards
- AFC publishes Assessing Corporate Culture: A Proactive Approach to Deter Misconduct
COVID-19 Regulatory Relief, Guidance and Announcements
The PCAOB is providing registered audit firms an up to 45-day relief from inspections with the exception of providing the PCAOB access to audit documentation for certain engagements. The PCAOB expects to fully resume inspections beginning May 11, 2020.
The SEC has created a page with a summary of operational initiatives, market-focused actions, guidance and targeted assistance and relief, investor protection efforts and other work of the SEC in response to the effects of COVID-19. The SEC is focusing on:
- the continuity of SEC operations;
- monitoring market functions and system risks;
- providing prompt, targeted regulatory relief and guidance to issuers, investment advisers and other registrants impacted by COVID-19 to facilitate continuing operations, including in connection with the execution of their business continuity plans; and
- maintaining the SEC’s enforcement and investor protection efforts, particularly with regard to the protection of critical market systems and vulnerable investors.
The AICPA has created a page with numerous resources and news related to COVID-19. Topics highlighted include virtual learning opportunities, a message from CEO Barry Melancon, a topic-specific COVID-19 resource listing, news, and information on AICPA led efforts related to advocacy and tax relief.
The Coronavirus, Aid, Relief, and Economic Security Act (CARES Act) contains provisions providing relief from certain generally accounted accounting principles (GAAP):
- Section 4013 – a financial institution may elect to not apply GAAP requirements to loan modifications related to the COVID-19 pandemic that would otherwise be categorized as a troubled debt restructuring (TDR), and suspends the determination of loan modifications related to the COVID-19 pandemic from being treated as TDRs, and
- Section 4014 – optional temporary relief from the adoption of Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments, for insured depository institutions, bank holding companies, or any affiliate until the earlier of the date on which the national emergency ends or December 31, 2020.
The International Auditing and Assurance Standards Board (IAASB) has created a page with updates issued by the IAASB related to the COVID-19 response.
The Financial Reporting Council (FRC) has created a page with all updates issued by the FRC related to the COVID-19 response.
SEC adopts rule amendments and new standards
In March 2020, the SEC adopted the following new rule and amendments:
- Investor disclosure requirements – the new rule and related form and rule amendments to simplify and streamline disclosures for investors about variable annuities and variable life insurance contracts. The changes permit the use of a concise prospectus intended to improve investors’ understanding of the contracts’ features, fees, and risks.
The new rule and related rule and form amendments will become effective on July 1, 2020.
- Accelerated filer and large accelerated filer definitions – the amendments change the accelerated filer definitions which trigger the external auditor attestation requirement over internal control over financial reporting under Section 404(b) of the Sarbanes Oxley Act.
The final amendments apply to an annual report filing due on or after April 27, 2020
- Financial disclosure requirements – the amendments are applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The amended rules focus on the provision of material, relevant, and decision-useful information regarding guarantees and other credit enhancements.
The amendments will be effective on January 4, 2021, but voluntary compliance will be permitted in advance of the effective date.
SEC proposes rule changes to the Exempt Offering Framework
On March 4, the SEC announced that it has voted to propose a set of amendments that intends to harmonize, simplify, and improve the exempt offering framework to promote capital formation and expand investment opportunities while preserving and enhancing important investor protections.
Responses should be submitted by June 1, 2020.
Division of Corporation Finance Chief Accountant Kyle Moffatt to leave SEC
The SEC announced that Kyle Moffatt, Chief Accountant and Disclosure Program Director in the Division of Corporation Finance, will leave the SEC in March after nearly 20 years of public service. Upon Mr. Moffatt’s departure, Lindsay McCord, Deputy Chief Accountant in the Division of Corporation Finance, will become Acting Chief Accountant. Ms. McCord joined the SEC’s Division of Corporation Finance in 2009 and has served as Deputy Chief Accountant since 2017.
PCAOB publishes 2019 Annual Report
On March 31, the PCAOB published its 2019 Annual Report. The annual report summarizes the PCAOB operations and financial results form fiscal year 2019. It also details key initiatives pursued by the PCAOB in support of its five strategic goals.
FASB issues new ASUs
The FASB issued:
- ASU 2020-03, Codification Improvements to Financial Instruments makes narrow-scope improvements to various aspects of the financial instruments guidance, including the current expected credit losses standard issued in 2016.
For public business entities, ASU 2020-03 is effective upon issuance of the ASU. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early application is permitted.
- ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.
Guidance in the ASU is applicable immediately. However, the guidance only will be available for a limited time (generally through December 31, 2022).
FASB names new members to its Small Business Advisory Committee
On March 24, the FASB announced the appointment of two new members to its Small Business Advisory Committee (SBAC). The new members of the SBAC are:
- Michael J. Phillips, executive vice president and chief strategy officer, Planters First Bank, and
- Geoffrey R. Morgan, partner, Croke Fairchild Morgan & Beres.
FASB announces SEC acceptance of 2020 GAAP Financial Reporting Taxonomy and SEC Reporting Taxonomy
On March 10, the FASB announced that the SEC has accepted the 2020 GAAP Financial Reporting Taxonomy (Taxonomy) and the 2020 SEC Reporting Taxonomy (SRT).
The 2020 Taxonomy contains updates for accounting standards and other recommended improvements. The 2020 SRT contains improvements to the dimensional elements whose underlying recognition and measurement are not specified by GAAP.
FRC publishes a report and discussion paper on technology in the audit
- A new report from the FRC, The Use of Technology in the Audit, highlights that audit firms have invested considerably in the infrastructure required to efficiently capture, collate and organize data. The FRC also notes that emerging technologies such as machine learning and predictive analysis, although in their infancy, can potentially help to identify unusual transactions or challenge judgements around going concern or impairment that would not otherwise be found by a human auditor.
- On March 25, the FRC issued a discussion paper on Technological Resources: Using Technology to Enhance Audit Quality. Building on the FRC’s recent report referenced above, the FRC is seeking further insight into the use of technology and its potential impact on audit quality.
Responses should be submitted by May 29, 2020.
FRC launches consultation to adopt ISAE 3000
The FRC launched a consultation on the proposed adoption in the UK of International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information. ISAE 3000 was developed by the IAASB and contains requirements and application and other explanatory material specific to reasonable and limited assurance attestation engagements, other than audits or reviews of historical financial information.
Responses should be submitted by May 22, 2020.
FRC publishes 2020/21 strategy for reform
On March 23, the FRC published its strategy for 2020/21 with a new purpose – serving the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them. The FRC is promoting a more resilient audit market and will develop its longer-term strategy once the government has finalized its position on key public policy issues related to the audit market.
IOSCO report examines how existing regulatory principles could apply to stablecoins
The Board of the International Organization of Securities Commissions (IOSCO) published a report identifying the possible implications of global stablecoin initiatives for securities markets regulators. The report entitled Global Stablecoin Initiatives examines the regulatory issues arising from the use of global stablecoins and explores how existing IOSCO Principles and Standards could apply to these arrangements. IOSCO´s Fintech Network prepared the report as part of an effort to evaluate global stablecoin proposals from a securities market regulator´s perspective.
IASB reviews accounting for goodwill
On March 19, the International Accounting Standards Board (IASB) published a discussion paper for public comment on Business Combinations – Disclosures, Goodwill and Impairment. The IASB’s preliminary view is that it should retain the impairment-only approach to accounting for goodwill and develop proposals to improve disclosures about acquisitions.
Responses should be submitted by September 15, 2020.
IFRS Foundation issues 2020 IFRS XBRL taxonomy
On March 17, the International Financial Reporting Standards (IFRS) Foundation issued its 2020 IFRS Taxonomy. The IFRS Taxonomy is a translation of IFRS Standards into eXtensible Business Reporting Language (XBRL). The IFRS Taxonomy 2020 is consistent with as issued by the IASB at January 1, including those issued but not yet effective.
IAASB releases a consultation paper on proposed Extended External Reporting non-authoritative guidance
The IAASB is consulting on its draft non-authoritative Extended External Reporting (EER) guidance, part of the second phase of its EER assurance project. EER encapsulates many different forms of reporting including, but not limited to, integrated reporting, sustainability reporting and other reporting by entities about financial and non-financial matters, including environmental, social and governance matters, related to an entity’s activities.
Responses should be submitted by July 13, 2020.
AICPA issues SAS 139 to align existing standards with new auditors’ reporting standards
In March 2020, the AICPA Auditing Standards Board issued Statement on Auditing Standards (SAS) No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134. SAS 139 aligns these three AU-C sections (the AU-C 800 series) with the relevant auditor reporting standards in SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements updating the form and content of auditors’ reports addressed in the AU-C 800 series to be more consistent with the standards of the IAASB and recent updates to PCAOB standards.
SAS 139 is effective for periods ending on or after December 15, 2020. Early implementation is not permitted.
AFC publishes Assessing Corporate Culture: A Proactive Approach to Deter Misconduct
In Assessing Corporate Culture: A Proactive Approach to Deter Misconduct, the Anti-Fraud Collaboration (AFC) shares insights into the importance of assessing culture as well as considerations around cultureassessment process ownership. The paper also details resources specifically targeted to the unique role auditors and other stakeholders play in the financial reporting process.
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USC SEC Conference, Los Angeles, CA
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ACFE Global Fraud Conference, Boston, MA
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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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