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Snapshot | March 2021

Wednesday, March 31, 2021

March Madness: ESG Edition

Basketball isn’t the only thing dominating the news cycle this March. Environmental, Social and Governance (ESG) continues to receive global attention, with policymakers, investors and companies making it a top priority.

Still filling out their bracket: The SEC

While Gary Gensler is yet to be confirmed by the Senate, there is plenty of speculation that once confirmed, he will make climate a priority.

In the meantime, the SEC has stayed busy. Just in March:

  • The SEC announced the creation of the Climate and ESG Task Force in the Division of Enforcement. The taskforce will develop initiatives to proactively identify ESG-related misconduct.
  • Acting Chair Allison Herren Lee requested public input on climate disclosures. Among other things, the SEC wants to know the advantages and disadvantages of developing a single set of global standards for climate change disclosures and if disclosures should be subject to audit.
  • The SEC launched a new page that brings together agency actions and the latest information on climate and ESG risks and opportunities.

Bringing their skills to the game: Public company auditors

As the SEC evaluates the current climate risk disclosure requirements and public companies increasingly incorporate ESG into their commitments and practices, public company auditors are well positioned to enhance the reliability of ESG information.

This month, the CAQ released a publication, The Role of Auditors in Company-Prepared ESG Information: A Deeper Dive on Assurance, to provide information about the range of assurance services that can be provided to enhance confidence in company prepared ESG information, explain why assurance on ESG information might be needed, and provide questions that boards should consider when planning to obtain assurance on ESG.

ICYMI: For more information on how auditors can inform their clients’ approach to ESG disclosures, check out this ESG Roadmap that the AICPA and CAQ released last month.

CAQ Publishes Guide to PCAOB Inspections

Following major financial reporting failures in the early aughts, the PCAOB was created to protect the interests of investors and further public interest in the preparation of audit reports.

The PCAOB has responsibility for overseeing the auditors of public companies, which includes performing regular inspections of public company audits and audit firm quality control systems. The CAQ has updated its Guide to PCAOB Inspections to share information on the PCAOB’s inspection program.

Why the Guide is important: PCAOB inspections are an important element of effective regulation but stakeholders don’t have a lot of visibility into how inspections are performed. The Guide to PCAOB Inspections answers the following questions:

  • What are the PCAOB’s inspection responsibilities?
  • How does the PCAOB select engagements for inspection?
  • How do audit firms approach the remediation of deficiencies identified in PCAOB inspections?
  • What questions should audit committees ask the auditor regarding PCAOB inspection reports?

Our favorite takeaway: Audit quality is strong.

While the PCAOB has acknowledged that inspection report results are not necessarily comparable over time or among firms, the 2019 inspection report results, together with other measures of audit quality, suggest an improving trend. In fact, 97%  of the audits inspected by the PCAOB in 2019 contained an appropriate audit opinion.

Role of the Audit Committee: External auditor assessment

As the financial reporting season comes to an end for many calendar year-end companies, it’s a good time to evaluate the external auditor. The CAQ has developed a tool with suggested questions and a sample form focused on four key areas:

  • ​​​​Quality of services and sufficiency of resources provided by the engagement team;
  • Quality of services and sufficiency of resources provided by the audit firm;
  • Communication and interaction with the external auditor; and
  • Auditor independence, objectivity, and professional skepticism.

Observations: Three COVID-19 Non-GAAP Reporting Insights from Q4

The CAQ updated its analysis of non-GAPP financial measures that were directly adjusted for COVID-19 impacts. This updated analysis, which included reviewing public company earnings releases filed in 2021 through early March for the S&P 100 and a sample of other Q4 calendar earnings releases, also reviewed recent SEC comment letters issued to public companies related to COVID-19 and non-GAAP financial measures.

Here are the takeaways:

  • By and large, it appears that the S&P 100 continues to be mindful of the requirements and interpretations related to the use of COVID-19 related non-GAAP adjustments.
  • The SEC continues to monitor non-GAAP financial measures.
  • There continues to be a range of detail in the COVID-19 non-GAAP adjustment disclosures.

Read the updated analysis here.

Audit in Action: CAQ, BDO and KPMG Discuss Fraud

Financial reporting fraud can harm our capital markets. The CAQ’s Executive Director Julie Bell Lindsay, BDO’s National Assurance Managing Partner Phillip Austin and KPMG’s National Managing Partner, Audit Quality and Professional Practice, Christian Peo, discuss how auditing firms are fighting and preventing fraud through new data and technology.

Watch the video here.

Register Now: 2021 Global Ethics Summit

Don’t miss your chance to register for the Global Ethics Summit, a virtual event that will bring together senior executives and compliance officers from multinational companies to share best practices, tactical approaches, and practical examples on how to address today’s most pressing issues, including:

  • Equity and social justice
  • ESG disclosure challenges and human rights strategies
  • M&A tools and processes
  • Crisis response lessons from 2020
  • More

Be sure to tune in for a panel on “The Ongoing Challenge of Effective ESG Reporting and Data Disclosure” with CAQ’s Margot Cella and a panel of experts on April 15th from 1 p.m. – 2 p.m. Eastern Time.

Get 25% off your registration by using this promo code: caq.

ICYMI: Leading the Headlines