Public Policy and Technical Alert | November 2021
Monday, December 6, 2021
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 updates electronic filing requirements
The SEC published proposed amendments to update electronic filing requirements. The SEC currently permits and sometimes requires certain forms to be filed or submitted in paper format. The proposed rule and form amendments would require certain forms to be filed or submitted electronically. The proposed amendments also would make technical amendments to certain forms to require structured data reporting and remove outdated references.
SEC approves PCAOB rule to establish a framework for determinations under the Holding Foreign Companies Accountable Act
The SEC announced that it has approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 will establish a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. SEC Chair Gary Gensler described the approval as “an important step to protect U.S. investors.”
SEC appoints new chairperson and board members to the PCAOB
The SEC announced the appointments of Erica Y. Williams as Chairperson and Christina Ho, Kara M. Stein, and Anthony (Tony) C. Thompson as Board members of the PCAOB. “Finance is about trust, and the PCAOB has a critical role to play in ensuring that public company financial disclosures can be trusted by investors,” said SEC Chair Gary Gensler. “With these additions to the Board, the PCAOB will have the leadership to meet the mission given to it by Congress.”
Christina Ho and Kara M. Stein sworn in as PCAOB board members
The PCAOB announced that Christina Ho and Kara M. Stein were sworn in as board members on November 9 and 18, 2021, respectively. Ho will fill the 2nd CPA seat and has 28 years of broad experience in public finance, policy development, accounting and auditing, disclosure modernization, data analytics, and technology innovation. Stein was previously a Distinguished Policy Fellow and Lecturer-in-Law at the University of Pennsylvania Carey Law School, the Director of the AI, Data, and Capital Markets Initiative at the Center on Innovation, University of California Hastings Law, and served as an SEC Commissioner from 2013 to 2019.
PCAOB approves 2022 budget
The PCAOB approved its fiscal year 2022 budget at an open meeting. The 2022 budget is $310.3 million (funding 891 positions), as compared to the 2021 budget of $287.3 million (funding 859 positions). The 2022 budget includes investments to enhance the PCAOB’s oversight activities, stakeholder engagement, business processes, and IT infrastructure. The PCAOB’s budget is subject to approval by the SEC.
FASB proposes changes to interim disclosure requirements
The FASB issued a proposed Accounting Standards Update (ASU) that would modify the disclosure requirements for interim financial reporting. The proposed ASU is part of the FASB’s disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements. Broadly, the proposed ASU would:
- Incorporate a requirement that was previously included in SEC Regulation S-X that requires disclosure at interim periods when a significant event or transaction has occurred since the prior year-end that has a material effect on an entity;
- Clarify the presentation and disclosure alternatives for interim financial statements and notes in accordance with GAAP; and
- Address feedback from stakeholders who requested that interim reporting requirements be clarified and consolidated into one Topic of the Codification.
FASB improves discount rate guidance for lessees that are not public business entities
The FASB issued an ASU that improves discount rate guidance for lessees that are not public business entities, including private companies, not-for-profit organizations, and employee benefit plans. The amendments in the ASU are intended to reduce the cost of implementing the lease standard (Topic 842) for those entities while retaining the expected benefits for users of financial statements. Topic 842 currently provides lessees that are not public business entities with a practical expedient that allows them to make an accounting policy election to use a risk-free rate as the discount rate for all leases.
FAF trustees reappoint Marsha L. Hunt to the FASB
The Board of Trustees of the Financial Accounting Foundation (FAF) announced the reappointment of Marsha L. Hunt to the FASB. Originally appointed to her first five-year term on July 1, 2017, her second term will be effective July 1, 2022, and conclude in 2027. FAF Chair Kathleen L. Casey said she is “pleased” with Hunt’s reappointment. “Her commitment to high-quality, decision-useful standards and her insight and experience as a preparer of financial statements has made her an important contributor on the FASB,” Casey said.
FASB proposes expanded disclosures and improved accounting related to the credit losses standard
The FASB issued a proposed ASU intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings, and writeoffs. The proposed ASU addresses areas identified by the FASB as part of its Post-Implementation Review process, which evaluates whether a standard is achieving its objective by providing investors with relevant information. The amendments in this proposed ASU would eliminate the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.
IAASB announces new board member appointments for 2022
The International Auditing and Assurance Standards Board (IAASB) announced the following new appointments and reappointments to take effect on January 1, 2022:
- William Edge, Chair, Australian Auditing and Assurance Board;
- Warren Maroun, Professor, School of Accountancy, University of the Witwatersrand, South Africa;
- Kai Morten Hagen, Technical Director at Den norske Revisorforening (Norwegian Institute of Public Accountants);
- Sachiko Kai, Technical Director, Japanese Institute of Certified Public Accountants; and
- Eric Turner, Former Director, Canadian Auditing and Assurance Standards Board.
IOSCO: IFRS Foundation’s International Sustainability Standards Board on the right track
Ashley Alder, the chairman of the International Organization of Securities Commissions (IOSCO) and the CEO of the Hong Kong SFC, welcomed the publication by the International Financial Reporting Standards (IFRS) Foundation of the prototype for a climate disclosure standard. Alder also told delegates at the COP26 conference that the IFRS Foundation is making good progress towards issuing the climate disclosure standard in 2022. The setting up of the IFRS Foundation’s International Sustainability Standards Board (ISSB) and the issuance of the international climate disclosure standard are key pillars of IOSCO’s overall sustainable finance strategy.
IESBA welcomes launch of eCode 2.0 and eIS; IAASB publishes fully-digital handbook of pronouncements on eIS
The International Ethics Standards Board for Accountants (IESBA) announced that the eCode — a digital tool to access and navigate the International Code of Ethics for Professional Accountants (including International Independence Standards) — will be moving to the recently-announced eIS, or e-International Standards, platform. eIS is a web-based platform that provides electronic access to the authoritative standards developed by the IESBA, IAASB, and the International Public Sector Accounting Standards Board.
Additionally, the IAASB published its first fully-digital handbook of pronouncements on eIS. The first iteration of the platform marks a milestone in the IAASB’s commitment to improving the usability of and access to its standards by harnessing technology.
IAASB and IFAC release less complex entities consultation survey
The IAASB, in conjunction with the International Federation of Accountants (IFAC), developed a survey to offer an alternative way to participate in a six-month public consultation on a landmark new proposed standard for audits of financial statements of less complex entities. The survey is open until January 14 and is available in English, French, and Spanish.
FRC report sets out what it expects from audit firms to deliver high quality audit
The Financial Reporting Council (FRC) for the first time published a blueprint for what is required by UK audit firms to deliver high-quality audit. The FRC’s report sets out the key elements required by audit firms to ensure they are delivering high quality audit. Specifically, the report highlights the six key attributes that contribute to the running of high-quality audit practices, such as the culture, governance, and leadership of the firms, alongside their investment in well-qualified people, training, and processes. It also includes the key elements that contribute to high quality individual audits, from the planning phase through to the delivery and completion of audits.
IESBA announces new board member appointments for 2022
The IESBA announced new board appointments and reappointments to take effect on January 1. The five new board members are Mark Babington, Christelle Martin, Felicien Muvunyi, Luigi Nisoli, and Channa Wijesinghe. The board members who have been reappointed to another term are Sanjiv Chaudhary and Andrew Mintzer.
FRC publishes latest edition of Developments in Audit
The FRC published its latest edition of Developments in Audit, which sets out the FRC’s annual assessment of UK audit and ongoing expectations for how audit firms should deliver audit quality improvements to deliver a more effective audit market in the public interest. In this year’s Developments in Audit, professional skepticism and challenge of management remain the two key areas where deficiencies continue and improvement still needs to be made. The report also includes an overview of the FRC’s supervisory work, audit market trends, and new UK auditing standards, including the auditor’s responsibilities relating to fraud, which are designed to further improve assurance for users of accounts.
AICPA welcomes new International Sustainability Standards Board
The Association of International Certified Professional Accountants, representing the AICPA and the CIMA, issued a statement welcoming the creation of the new International Sustainability Board (ISSB) as a means for developing consistent, reliable, and comprehensive global sustainability standards to create purposeful, resilient organizations and a more sustainable future. The association also believes this move will enable a necessary evolution for corporate reporting standards and ensure that corporate reporting remains fit for purpose in the post-pandemic world.
Statement of support for the International Sustainability Standards Board
The CAQ applauded the IFRS Foundation’s decision to develop the International Sustainability Standards Board (ISSB) to serve as a global foundation for sustainability disclosures for the world’s financial markets. “Investors are clear that climate and other ESG-related disclosures are integral to their investment decisions,” said Julie Bell Lindsay, CAQ CEO, adding that the “ISSB announcement is a positive step forward to providing a global baseline to deliver consistent and comparable sustainability standards.”
2021 audit committee transparency barometer
The CAQ published its 2021 Audit Committee transparency barometer. In its eighth year of analyzing disclosures of audit committee oversight in proxy statements of companies in the S&P Composite 1500 (S&P 1500), the CAQ observed slight increases with some stagnation among disclosures that have been tracked over the years. One exception was cybersecurity. These disclosures continue to be the biggest mover year-over-year increasing by five to seven percentage points among S&P 500 companies each year since 2016.
PCAOB: Supervision of audits involving other auditors
The CAQ posted a comment letter providing views to the PCAOB related to its Release No. 2021-005, Rulemaking Docket Matter No. 042: Second Supplemental Request for Comment: Proposed Amendments Relating to the Supervision of Audits Involving Other Auditors and Proposed Auditing Standard – Dividing Responsibility for the Audit with Another Accounting Firm. In the letter, the CAQ expressed support for the PCAOB’s continued consideration of revisions to auditing standards guiding the supervision of other auditors. The CAQ also provided specific recommendations regarding changes in the ways lead auditors and other auditors or referred-to auditors interact since the initial release of the Proposed Amendments and Proposed Rule, including the evolution of the workplace resulting from the COVID-19 pandemic.
The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high-quality performance by public company auditors; convenes and collaborates with other stakeholders to advance the discussion of critical issues that require action and intervention; and advocates policies and standards that promote public company auditors’ objectivity, effectiveness, and responsiveness to dynamic market conditions. Based in Washington, DC, 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).