PUBLIC POLICY AND TECHNICAL ALERT, OCTOBER 2019
Friday, November 1, 2019
As part of the Center for Audit Quality’s 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 announces PCAOB Board member changes
- Commissioner Hester Peirce to lead the SEC’s coordination efforts with the PCAOB Board
- Division of Corporation Finance realigns disclosure program
- Open Meeting to discuss shareholder engagement and modernization of the regulatory framework on November 5
- Investor Advisory Committee will hold a public meeting on November 7
- FASB votes to delay effective dates for major standards
- FASB announces upcoming CECL implementation workshops
- IAASB issues update on efforts to incorporate professional skepticism in standards
- IFAC report highlights accountancy profession as key driver of progress in adoption of international standards
- FRC announces new leadership team
- ASB addresses compliance with GAAS, PCAOB standards related to critical audit matters
- Banking regulators finalize changes to simplify the Volcker Rule
- FRB finalizes rules that tailor its regulations for domestic and foreign banks
- Federal financial regulatory agencies seek comment on two proposals
- CAQ issues new ‘Profession in Focus’ video featuring BDO USA LLP’s Christopher Tower
- CAQ announces CPE Webcast on Assessing Corporate Culture
SEC announces PCAOB Board member changes
The SEC announced that Kathleen M. Hamm will leave the PCAOB after completing her term as a Board member. Hamm’s term began in January 2018 and expired in October 2019. During her Board service, Hamm’s efforts centered on protecting investors by applying her expertise and experience in technology and compliance to upgrade and modernize the PCAOB’s approach to cybersecurity and emerging technologies, both at the Board and among the audit firms it oversees. Her work spanned across all PCAOB programs – registration, inspections, standard setting, and enforcement.
The SEC announced the appointment of Rebekah Goshorn Jurata as a PCAOB Board member for a term ending October 24, 2024 replacing Hamm. Jurata currently serves as Special Assistant to the President for Financial Policy and is responsible for advising the President and the National Economic Council Director on an array of financial services policy matters.
Commissioner Hester Peirce to lead the SEC’s coordination efforts with the PCAOB Board
SEC Chairman Jay Clayton announced that Commissioner Hester Peirce has agreed to lead the SEC’s coordination efforts with the PCAOB Board, in coordination with the SEC’s Chief Accountant and the Office of the Chief Accountant.
Division of Corporation Finance realigns disclosure program
The SEC’s Division of Corporation Finance (CorpFin) realigned the work of its disclosure program to promote collaboration, transparency, and efficiency as it carries out its mission to facilitate capital formation and protect investors. As a result of the realignment, the disclosure program staff will focus their efforts through one of four groups:
- Disclosure Review Program
- Specialized Policy and Disclosure
- Office of Risk and Strategy
- Office of Assessment and Continuous Improvement
CorpFin will continue to assign companies and filings to review offices by their principal industry focus using Standard Industrial Classification codes and will reassign all companies from the previous eleven Associate Director (AD) offices to one of the following seven AD offices:
- Energy and Transportation
- Life Sciences
- Real Estate and Construction
- Trade and Services
Open Meeting to discuss shareholder engagement and modernization of the regulatory framework on November 5
The SEC will hold an Open Meeting on November 5th. The subject matter of the Open Meeting will be the Commission’s continued efforts to facilitate constructive shareholder engagement and enhance transparency, improve disclosures, and increase confidence in the proxy process. The specific matters to be considered are:
- Whether to propose amendments to the proxy solicitation rules that would provide for disclosure of material conflicts of interest and set forth procedures to facilitate issuer and shareholder engagement, to provide clarity to market participants, and to improve the information provided to investors.
- Whether to propose amendments to the shareholder proposal rules to modernize the submission and resubmission requirements and to update procedural requirements.
- Whether to propose amendments under the Investment Advisers Act of 1940 to rules 206(4)-1 and 206(4)-3, the rules that prohibit certain investment adviser advertisements and payments to solicitors, respectively.
Investor Advisory Committee will hold a public meeting on November 7
The SEC’s Investor Advisory Committee will hold a public meeting on November 7th. The committee will hold two panel discussions on:
- whether investors use environmental, social, and governance data in investment/capital allocation decisions; and
- the SEC’s Concept Release on Harmonization of Securities Offering Exemptions.
FASB votes to delay effective dates for major standards
The FASB voted to delay the effective dates for the following standards:
- Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses);
- ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Hedging); and
- ASU No. 2016-02, Leases (Topic 842) (Leases).
Under the proposed ASU, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, effective dates for the Credit Losses, Hedging, and Leases standards will be affected as follows:
- SEC filers: The Hedging and Leases effective dates would remain for fiscal years beginning after December 15, 2018, and the Credit Losses effective date would remain for fiscal years beginning after December 15, 2019, except for smaller reporting companies, whose effective date would be extended to fiscal years beginning after December 15, 2022.
- All other public business entities: The Hedging and Leases effective dates would remain for fiscal years beginning after December 15, 2018, while the Credit Losses effective date would change from fiscal years beginning after December 15, 2020, to fiscal years beginning after December 15, 2022. The effective date of fiscal years beginning after December 15, 2018 for Leases also would apply to employee benefit plans that file or furnish financial statements with or to the SEC as well as not-for-profit entities that have issued or are conduit bond obligors for securities that are traded, listed, or quoted on an exchange or over-the-counter market.
- Private companies and all others: The Hedging and Leases effective dates would be delayed one year to fiscal years beginning after December 15, 2020. The Credit Losses effective date would be delayed two years to fiscal years beginning after December 15, 2022.
The FASB also affirmed its previous decisions on the effective date of ASU 2018-12, Financial Services – Insurance (Topic 944): Effective Date, on accounting for long-duration insurance contracts (ASU 2018-12):
- For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies, the amendments in ASU 2018-12 should be effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.
- For all other entities, the amendments in ASU 2018-12 should be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
FASB announces upcoming CECL implementation workshops
The FASB announced upcoming workshops designed to help community banks and credit unions of all sizes implement the Credit Losses standard (commonly referred to as the current expected credit losses standard or “CECL”). The CECL Implementation Workshops are a series of 90-to 120-minute interactive sessions presented by FASB staff experts at various conferences and other venues around the country. The workshops focus on credit loss reserve estimation techniques, including the weighted average remaining maturity method; answers to frequently asked questions; and other common implementation issues banks may face.
IAASB issues update on efforts to incorporate professional skepticism in standards
The International Auditing and Assurance Standards Board (IAASB) recently published its third update to stakeholders highlighting the IAASB’s efforts to appropriately reflect professional skepticism in its standards. The Professional Skepticism Communiqué also includes other relevant news and information and recent activities of the International Ethics Standards Board for Accountants related to professional skepticism.
IFAC report highlights accountancy profession as key driver of progress in adoption of international standards
The International Federation of Accountants (IFAC) released a report, International Standards: 2019 Global Status Report, detailing how and where international accountancy standards – which focus on audit and assurance, ethics, education, and private and public sector accounting – are being adopted and implemented globally. The report shows strong and sustained support for both the adoption and implementation of international standards, especially in areas where IFAC member organizations are involved in the process from start to finish.
FRC announces new leadership team
The UK’s Financial Reporting Council (FRC) announced that Simon Dingemans and Sir Jon Thompson have taken up their respective leadership roles as Chair and Chief Executive. They join the FRC at a pivotal stage as the transition to a new regulator – the Audit, Reporting and Governance Authority – progresses.
ASB addresses compliance with GAAS, PCAOB standards related to critical audit matters
The AICPA Auditing Standards Board (ASB) issued a new interpretation that provides guidance on how an auditor complies with AU-C Section 700A, Forming an Opinion and Reporting on Financial Statements, when the communication of critical audit matters in accordance with PCAOB standards is required.
Banking regulators finalize changes to simplify the Volcker Rule
Revisions to Section 619 of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Volcker Rule or Rule) that were jointly developed by the Federal Reserve Board (FRB), Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and SEC have been finalized. The revisions simplify compliance requirements relating to the Rule. By statute, the Volcker Rule generally prohibits banking entities from engaging in proprietary trading or investing in or sponsoring hedge funds or private equity funds.
Under the revised Rule, firms that do not have significant trading activities will have simplified and streamlined compliance requirements, while firms with significant trading activity will have more stringent compliance requirements. Community banks generally are exempt from the Volcker Rule by statute. The revisions continue to prohibit proprietary trading, while providing greater clarity and certainty for activities allowed under the law. With the changes, the agencies expect that the universe of trades that are considered prohibited proprietary trading will remain generally the same as under the agencies’ 2013 Rule.
The rules will be effective on January 1, 2020, with a compliance date of January 1, 2021.
FRB finalizes rules that tailor regulations for domestic and foreign banks
The FRB finalized rules that tailor its regulations for domestic and foreign banks to more closely match their risk profiles. The rules reduce compliance requirements for banks? with less risk while maintaining the most stringent requirements for the largest and most complex banks.
The rules establish a framework that sorts banks with $100 billion or more in total assets into four different categories based on several factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure.
The rules will be effective 60 days after being published to the Federal Register.
Federal financial regulatory agencies seek comment on two proposals
The FRB, FDIC, National Credit Union Administration, and OCC (collectively, the agencies) requested comment on a proposed Interagency Policy Statement on Allowances for Credit Losses (Policy Statement). The proposed Policy Statement is intended to promote consistency in the interpretation and application of the Credit Losses standard, which introduces the CECL methodology.
The proposed Policy Statement describes the measurement of expected credit losses using the CECL methodology and updates concepts and practices detailed in existing supervisory guidance that remain applicable. The Credit Losses standard is effective for most public financial institutions beginning in 2020. The proposed Policy Statement would be effective at the time of each institution’s adoption of the Credit Losses standard.
The agencies also requested comment on the proposed Interagency Guidance on Credit Risk Review Systems. The guidance presents principles for establishing a system of independent, ongoing credit risk review in accordance with safety and soundness standards.
The deadline for submitting comments on both proposals is December 16, 2019.
CAQ issues new ‘Profession in Focus’ video featuring BDO USA LLP’s Christopher Tower
This edition of Profession in Focus features Christopher Tower, National Assurance Managing Partner for Audit Quality and Professional Practice at BDO USA LLP. Tower provides an overview of the many ways that BDO communicates the firm’s strong commitment to audit quality, both externally and internally. He also provides insights into how BDO developed its 2019 Audit Quality Report, including its use of the CAQ’s Audit Quality Disclosure Framework to help inform the report’s structure and content.
CAQ announces CPE Webcast on Assessing Corporate Culture
For stakeholders in financial reporting, an assessment of corporate culture allows for early detection of fraud warning signs—and an opportunity to take action. A December 3rd webcast, hosted by the Anti-Fraud Collaboration, will highlight leading qualitative and quantitative practices that companies can use to conduct a robust culture assessment.
Moderated by CAQ Executive Director Julie Bell Lindsay, the webcast will provide expert insights from the following panelists: Joe Dettmann, Principal in EY’s People Advisory Services; Melody Jones, independent board director and founder of 32-80 Advisors; Stacey Schabel, Vice President and Chief Audit Executive at Jackson Holdings, LLC; and Caroline Sullivan, Senior Vice President and Corporate Controller at Moody’s Corporation.
The webcast will take place from 1:00 p.m. to 2:30 p.m. ET. It is offered free of charge, with the opportunity to earn 1.5 Behavioral Ethics CPE credits. Register today.
AICPA Women’s Global Leadership Summit, San Diego, CA
SEC’s Investor Advisory Committee, Public meeting
PLI 35th Annual SEC Reporting and FASB Forum, Dallas, TX
AICPA Oil and Gas Conference, Denver, CO
FEI Corporate Financial Reporting Insights Conference, New York, NY
FT-ODX (Outstanding Directors Exchange), New York, NY
IASB Board Meeting, London, UK
SIFMA Annual Meeting, Washington, DC
PLI Directors’ Institute on Corporate Governance, New York, NY
ICGN 2019 Global Stewardship Forum, London, UK
PLI 35th Annual SEC Reporting and FASB Forum, San Francisco, CA
AICPA Construction & Real Estate Conference, Nashville, TN
AICPA Conference on Current SEC and PCAOB Developments, Washington, DC
IASB Board Meeting, London, UK
IAASB Board Meeting, New York, NY
PLI 35th Annual SEC Reporting and FASB Forum, New York, NY and Webcast
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.