June 8, 2022

Public Policy and Technical Alert | May 2022



Public Policy and Technical Alert | May 2022

Wednesday, June 8, 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.


Sample letter to companies regarding disclosures pertaining to Russia’s invasion of Ukraine and related supply chain issues

Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that Russia’s invasion of Ukraine and the international response have had or may have on their business. To satisfy these obligations, the Division of Corporation Finance believes that companies should provide detailed disclosure, to the extent material or otherwise required regarding direct or indirect exposure to Russia, Belarus, or Ukraine. The division has issued a sample letter.

SEC extends comment period for proposed rules on climate-related disclosures

The SEC announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors until June 17.

Resolving the lack of audit transparency in China and Hong Kong: Remarks at the International Council of Securities Associations annual general meeting

YJ Fischer, director of the SEC’s Office of International Affairs, spoke recently at the International Council of Securities Associations’ annual general meeting about resolving the lack of audit transparency in China and Hong Kong. Fischer said PCAOB-registered public accounting firms must provide the PCAOB with access to their audit work papers. Further, should the issuers or the relevant Chinese authorities wish, they can effectuate the voluntary delisting of China-based issuers that they deem “too sensitive to comply” with PCAOB requirements, but allow other companies and audit firms to comply fully with the PCAOB inspection and investigative processes, thereby allowing the remainder of China-based issuers to avoid potential trading prohibitions in the U.S. The views Fischer expressed do not necessarily reflect the views of the SEC.

SEC proposes to enhance disclosures by certain investment advisers and investment companies about environmental, social, and governance (ESG) investment practices

The SEC proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds and advisers incorporation of ESG factors. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies. The proposed amendments seek to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. The proposal would require certain ESG reporting on Forms N-CEN and ADV Part 1A.

SEC posts meeting agenda for investor advisory committee meeting

On June 9, 2022, the SEC will host its Investor Advisory Committee (IAC) meeting. The agenda contains panel discussions regarding accounting of non-traditional financial information and climate disclosure.


The future of auditing

Christina Ho, PCAOB Board Member provided remarks at the 2022 Deloitte/University of Kansas Auditing Symposium about the future of auditing. She provided insights into the capital market ecosystem, the ultimate auditors goal, and how auditors can be prepared.

PCAOB updates standard-setting and research agendas

The Office of the Chief Auditor of the PCAOB published updated standard-setting and research agendas. The standard-setting projects are divided into short-term and mid-term categories. Short-term standard-setting projects are those that are being actively developed by the staff and where Board action is anticipated in fewer than 12 months. Mid-term standard-setting projects are projects where the staff is actively engaged but Board action is not anticipated in the next 12 months. Short term projects include other auditors, quality control, noncompliance with laws and regulations, attestation standards update, going concern, and confirmations. Midterm projects include substantive analytical procedures, fraud, interim ethics and independence standards, and interim standards. Research projects include data and technology and audit evidence.

PCAOB announces members of new advisory groups, sets dates for first meetings

The PCAOB announced the members of its two new advisory groups—the Investor Advisory Group (IAG) and the Standards and Emerging Issues Advisory Group (SEIAG). Information about the operation of these groups can be found in the respective charters for the IAG and SEIAG, which the PCAOB approved in March. The first public meeting of the IAG is scheduled for June 8. The first public meeting of the SEIAG is scheduled for June 15.


Q&A: Accounting standard setters serve the public interest

AICPA posted a Q&A with Sara Lord, CPA and chair of the AICPA Auditing Standards Board (ASB), who describes how this critical standard-setting board serves the public, investors, audit clients, and the audit profession. Lord also serves as chief auditor and a member of the board of directors at RSM US.


New IAASB fact sheet addresses engagement team definition

The International Auditing and Assurance Standards Board (IAASB) released a new fact sheet to help users of its standards adapt to the clarified and updated definition of “engagement team.” The new fact sheet addresses the clarified definition and its possible impacts. The fact sheet also includes a diagram that walks users through who specifically is included and excluded. This new engagement team definition applies to the International Standards on Auditing and International Standards on Quality Management.

Accountancy Europe issues factsheet on audit quality indicators: a global overview of initiatives

Accountancy Europe issued a factsheet presenting an overview of selected recent initiatives on audit quality indicators from European Union (EU) member states, other European jurisdictions, and jurisdictions beyond the EU.

IAASB issues new non-authoritative guidance on fraud in an audit of financial statements

The IAASB released non-authoritative guidance, The Fraud Lens – Interactions Between ISA 240 and Other ISAs. The guidance illustrates the relationship and linkages between International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, and other ISAs when planning and performing an audit engagement and reporting thereon. The IAASB recently approved a project proposal to revise ISA 240 to enhance or clarify an auditor’s responsibilities on fraud in an audit of financial statements. In the interim, this non-authoritative guidance illustrates how extant ISA 240 is to be applied in conjunction with the full suite of ISAs.

IESBA staff releases benchmarking report comparing the international independence standards with US SEC and PCAOB independence standards

The IESBA released a report, Benchmarking International Independence Standards Phase 1 Report: Comparison of IESBA and US SEC/PCAOB Frameworks. The publication details the findings of a study comparing the provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards)—in particular the independence provisions applicable to audits of financial statements of public interest entities —with the relevant rules of the SEC and the PCAOB. The IESBA launched the benchmarking study to promote awareness and further adoption of the Code. The IESBA will consider the findings of the benchmarking analysis in developing its 2024-2027 Strategy and Work Plan.

Path to global baseline: International Sustainable Standards Board (ISSB) outlines actions required to deliver global baseline of sustainability disclosures

The IFRS Foundation’s ISSB outlined the necessary steps required to establish a comprehensive global baseline of sustainability disclosures. The ISSB’s global baseline presents a unique opportunity to reduce the existing and further fragmentation of sustainability disclosure requirements. The ambition of the ISSB is to have completed by the end of 2022 the necessary institutional and technical standard-setting work to establish the core elements of the global baseline, subject to feedback received from its ongoing consultation. Work to establish the global baseline has been welcomed by the G7, G20, the International Organization of Securities Commissions, the Financial Stability Board, and by companies and investors from around the world.

Watch now – IESBA discussion on sustainability and ethics

The IESBA posted a video that provides key insights about the applicability of the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) to the preparation and presentation of sustainability information and the provision of assurance thereon. The video features IESBA Chair, Gabriela Figueiredo Dias; IESBA Sustainability Working Group Chair and UK Financial Reporting Council (FRC) Executive Director, Mark Babington; and Financial Conduct Authority Director of ESG, Sacha Sadan.

Updated international standards on auditing

The FRC released 29 updated ISAs (UK), amended to include conforming amendments arising from the revision of ISA (UK) 315 (Revised July 2020) Identifying and Assessing the Risks of Material Misstatement. ISQC (UK) 1 has also been updated.

FRC publishes inspection key findings and good practices

The FRC published anonymized key findings and good practices reported by its Audit Quality Review (AQR) team in relation to its 2020/21 audit quality inspections at the seven largest audit firms. The FRC believes that publishing this material will facilitate informed dialogue with audit committee chairs and others regarding the FRC’s inspection approach, assessment of the significance of AQR findings, and its reporting on them, both privately and publicly.

FRC welcomes government plans to bring forward audit and corporate governance reforms

The FRC announced that it welcomes the U.K. government’s response to its consultation ‘Restoring trust in audit and corporate governance,’ which sets out the next steps to reform the UK’s audit and corporate governance framework. Ahead of government legislation, the FRC will shortly be outlining an extensive work plan to advance reforms that can be developed through existing powers or on a voluntary basis.


NABA, Inc. and CAQ form strategic partnership to build pipeline for historically Black colleges and universities (HBCUs)

NABA and the CAQ announced a new programmatic partnership centered on supporting community college students’ successful transition to HBCUs. The partnership will support students seeking to continue their education in the accounting and finance fields.

SEC: Cybersecurity risk management, strategy, governance, and incident disclosure

The CAQ submitted a comment letter that provides views to the SEC related to its Proposed Rule, Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure. The comment letter provides information and certain recommendations which would provide for improved clarity of the Proposed Rule related to board of directors expertise and composition, definitional clarity, the aggregation of immaterial undisclosed cybersecurity incidents, and the determination of cybersecurity incident materiality.

​​​​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 (msickmiller@thecaq.org).