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
SEC Adopts Tailored Registration Form for Offerings of Registered Index-Linked and Registered Market-Value Adjustment Annuities
The SEC adopted tailored disclosure requirements and offering processes for offerings of registered index-linked annuities and registered market value adjustment annuities. The final rule will require issuers of non-variable annuities to register offerings on Form N-4, the form currently used to register offerings of most variable annuities. The amendments will become effective 60 days after publication in the Federal Register. Filers will have until May 1, 2026, to comply with most of the final amendments to Form N-4 and the related rule and form amendments. For the amendments to Rule 156, insurance companies will be required to comply on the effective date.
Statement on the Spring 2024 Regulatory Agenda
The SEC released a statement by Chair Gary Gensler regarding the Spring 2024 Regulatory Agenda. The Office of Information and Regulatory Affairs released the Spring Unified Agenda of Regulatory and Deregulatory Actions, which includes contributions related to the SEC and short- and long-term regulatory actions that administrative agencies plan to take.
SEC Updates Questions and Answers for Compliance and Disclosure Interpretations (CD&Is) of Asset-Backed Securities
The SEC updated the following C&DIs for the rules and forms adopted under Regulation AB, the Securities Act, and the Exchange Act with respect to asset-backed securities: Section 103. Securities Act Rule 192
- 103.01 Securitization Participant – Information publicly available on EDGAR
Section 112. Form SF-1
- 112.01 Form Eligibility for Public Utility Securitizations
Section 301. Item 1101 of Regulation AB
- 301.04 Item 1101(c) – Single Asset Securitizations
A New Staff Spotlight Shares Observations From PCAOB Staff Outreach Related to the Use of Generative Artificial Intelligence (GenAI) in Audits and Financial Reporting
The PCAOB posted a new report, Spotlight: Staff Update on Outreach Activities Related to the Integration of Generative Artificial Intelligence in Audits and Financial Reporting. In recent months, PCAOB staff conducted limited outreach to several audit firms and companies to understand their perspectives on the integration of GenAI in audits and financial reporting. The purpose of this Spotlight is to provide greater transparency regarding the use of GenAI in audits and financial reporting by sharing observations from that outreach.
The PCAOB’s Report on 2023 Broker-Dealer Audits Provides Good Practices and Reminders to Address High Deficiency Rates
The PCAOB released its Annual Report on the Interim Inspection Program Related to Audits of Brokers and Dealers. The annual report provides:
- Information about its 2023 inspections approach;
- A summary of its 2023 inspections observations;
- A description of “good practices,” which include brief scenarios and possible procedures that may be effective to address those scenarios; and
- Reminders for firms of the requirements of certain PCAOB standards
PCAOB Seeks Nominations for Advisory Groups
The PCAOB announced that it is seeking nominations for members of its Investor Advisory Group (IAG) and Standards and Emerging Issues Advisory Group (SEIAG). Appointments are expected to be announced by the end of the year. Appointed members would serve from January 1, 2025 to December 31, 2026. The deadline for submissions is September 6, 2024.
Small Business Advisory Committee (SBAC) Meeting Recap: June 25, 2024
The Financial Accounting Standards Board (FASB) posted a recap of its Small Business Advisory Committee (SBAC) meeting that took place on June 25, 2024. At the meeting, the SBAC members received an update on the Board’s tentative decisions reached to date on the following projects:
- Disaggregation—Income Statement Expenses
- Accounting for Environmental Credit Programs
FASB Issues New and Final Chapter of Its Conceptual Framework: Measurement
The FASB issued a new chapter of its Conceptual Framework related to the measurement of items recognized in financial statements. The new chapter becomes Chapter 6 of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting, and represents the completion of the FASB’s Conceptual Framework. The new chapter provides concepts for the Board to consider when choosing a measurement system for an asset or a liability recognized in general purpose financial statements. It describes:
- Two relevant and representationally faithful measurement systems: the entry price system and the exit price system and
- Considerations when selecting a measurement system.
FASB Seeks Public Comment on Proposed Derivatives Scope Refinements
The FASB published a proposed Accounting Standards Update (ASU) to address stakeholder feedback related to:
- The application of derivative accounting to contracts with features based on the operations or activities of one of the parties to the contract
- The diversity in accounting for a share-based payment from a customer that is consideration for the transfer of goods or services.
The proposed ASU would clarify the applicability of FASB Accounting Standards Codification Topic 815, Derivatives and Hedging, and Topic 606, Revenue from Contracts with Customers. Stakeholders are encouraged to review and provide input on the proposed ASU by October 21, 2024.
International Accounting Standards Board (IASB) Publishes Its Review of Impairment Requirements Relating to Financial Instruments
The IASB concluded its Post-implementation Review (PIR) of the impairment requirements in IFRS 9 Financial Instruments—Impairment. Overall, feedback and research carried out during the PIR show that the impairment requirements in IFRS 9 are working as intended and provide useful information to users of financial instruments. Specifically, the requirements:
- have led to more timely recognition of credit losses;
- provide useful information to investors about expected credit losses, although targeted improvements to credit risk disclosures were suggested; and
- can generally be applied consistently, with some areas requiring further clarification and guidance.
In response to the feedback, the IASB will explore whether requirements for modification, derecognition and write-off of financial instruments, and the consequential effects on recognition of expected credit losses, can be clarified as part of its project on Amortized Cost Measurement. Furthermore, the IASB has added a new project to its pipeline to investigate targeted improvements to the credit risk disclosure requirements in IFRS 7 Financial Instruments: Disclosures.
International Financial Reporting Standards (IFRS) Foundation Conference 2024: Key Highlights
The IFRS Foundation shared key highlights from the IFRS Foundation Conference 2024, held on June 24-25.
Now Available From the International Auditing and Assurance Standards Board (IAASB): New Guidance for Audits of Financial Statements of Less Complex Entities
The IAASB released new supplemental guidance on auditor reporting as it relates to the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities, (known as the ISA for LCE). Meant to be read with the ISA for LCE, the new supplemental guidance provides assistance for auditors about modifications to the auditor’s report when using the standard. The guidance also includes information on using emphasis of matter and other matter paragraphs, reporting on other information, and reporting on a material uncertainty related to going concern. Additionally, the guidance features eight illustrative auditor’s reports, including examples of adverse opinions, disclaimer of opinions, and opinions when there is a material uncertainty related to going concern.
July 2024 IASB Agenda and Meeting Papers Now Available
The IASB posted the agenda and papers for its July 2024 meeting. Agenda items include:
- Dynamic Risk Management
- Financial Instruments with Characteristics of Equity
- Post-implementation Review of IFRS 15 Revenue from Contracts with Customers
- Rate-regulated Activities
- Maintenance and consistent application
- Second Comprehensive Review of the IFRS for SMEs Accounting Standard
IASB Issues Annual Improvements to IFRS Accounting Standards
The IASB issued narrow amendments to IFRS Accounting Standards and accompanying guidance as part of its regular maintenance of the Standards. These amendments, published in a single document Annual Improvements to IFRS Accounting Standards—Volume 11, include clarifications, simplifications, corrections, and changes aimed at improving the consistency of several IFRS Accounting Standards. The amended Standards are:
- IFRS 1 First-time Adoption of International Financial Reporting Standards;
- IFRS 7 Financial Instruments: Disclosures and its accompanying Guidance on implementing IFRS 7;
- IFRS 9 Financial Instruments;
- IFRS 10 Consolidated Financial Statements; and
- IAS 7 Statement of Cash Flows.
The amendments are effective for annual periods beginning on or after January 1, 2026, with earlier application permitted.
IASB Completes Technical Decisions on Three Projects
The IASB concluded its technical decision-making on three projects:
- the Second Comprehensive Review of the IFRS for Small and Medium-sized entities (SMEs) Accounting Standard project;
- the Rate-regulated Activities project; and
- the Post-implementation Review (PIR) of IFRS 15 Revenue from Contracts with Customers project.
The IASB decided that the third edition of the IFRS for SMEs Accounting Standard will be effective for annual reporting periods beginning on or after January 1, 2027. The IASB plans to issue the third edition of the Standard in the first half of 2025. Regarding the Rate-regulated Activities project, the IASB expects to issue a new Accounting Standard in the second half of 2025 with a recommended effective date of January 1, 2029. For its PIR of IFRS 15, the IASB intends to publish a project summary and feedback statement of the review in the third quarter of 2024.
IASB Proposes Amendments for Translating Financial Information into Hyperinflationary Currencies
The IASB published proposals in an Exposure Draft to address accounting issues that affect companies that translate financial information from a non-hyperinflationary currency to a hyperinflationary currency. These proposals, which are narrow-scope amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates, introduce translation requirements for these companies.
The Exposure Draft is open for comment until November 22, 2024.
July 2024 IASB Update Now Available
The IASB announced that its July 2024 Update is now available. The IASB met on July 22–24, 2024. This IASB Update highlights preliminary decisions of the IASB.
IASB Proposes Amendments to IFRS 19 Subsidiaries without Public Accountability: Disclosures
The IASB published an Exposure Draft proposing amendments to its newest Standard, IFRS 19. The proposals would reduce or simplify the disclosure requirements related to:
- lack of exchangeability (amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates);
- international tax reform—Pillar Two Model Rules (amendments to IAS 12 Income Taxes);
- supplier finance arrangements (amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures);
- primary financial statements (IFRS 18 Presentation and Disclosure in Financial Statements); and
- non-current liabilities with covenants (amendments to IAS 1 Presentation of Financial Statements).
The Exposure Draft also includes indicative disclosure requirements from the prospective Accounting Standard Regulatory Assets and Regulatory Liabilities and asks for feedback on whether these requirements would be practical for eligible subsidiaries. The IASB is inviting feedback on these proposals until November 27, 2024.
IASB Proposes Illustrative Examples to Improve Reporting of Climate-Related and Other Uncertainties in Financial Statements
The IASB published a consultation document, proposing eight examples to illustrate how companies apply IFRS Accounting Standards when reporting the effects of climate-related and other uncertainties in their financial statements. The IASB’s proposed examples aim to:
- improve transparency of information in financial statements; and
- strengthen the connection between financial statements and other parts of a company’s reporting, such as sustainability disclosures.
The eight illustrative examples focus on areas such as materiality judgements, disclosures about assumptions and estimation uncertainties, and disaggregation of information. The IASB invites all stakeholders to provide feedback on the proposed illustrative examples. The comment period is open until November 28, 2024. The IASB will consider stakeholders’ feedback and decide whether to proceed with the proposed illustrative examples to accompany IFRS Accounting Standards.
Comment Letter on AS 1000, General Responsibilities of the Auditor in Conducting an Audit and Amendments to PCAOB Standards
The CAQ posted its comment letter on AS 1000, General Responsibilities of the Auditor in Conducting an Audit and Amendments to PCAOB Standards, as adopted by the PCAOB Board. In the letter, the CAQ details its views on the following:
- The CAQ welcomes the efforts of the PCAOB Board to understand the feedback provided and concerns raised by stakeholders through the comment letter process, and to thoughtfully address that feedback in the Final Standard. The CAQ is supportive of the SEC approving the Final Standard.
- Based on the initial reviews of the Final Standard, implementation resources will be necessary to promote consistent implementation and application of the new standard and amendments. The CAQ suggests that the SEC encourage the PCAOB to provide such support to ensure a successful implementation of the Final Standard.
Comment Letter on SEC QC 1000, A Firm’s System of Quality Control and Other Amendments to PCAOB Standards, Rules, and Forms
The CAQ shared its comment letter on QC 1000, A Firm’s System of Quality Control and Other Amendments to PCAOB Standards, Rules, and Forms, as adopted by the PCAOB Board. In the letter, the CAQ details its views on the following:
- The CAQ has consistently stated it believes a firm’s quality control system is foundational to audit quality and that an effective quality control system is important to strengthening auditing practices and continuously improving audit quality. The CAQ also support the Board’s efforts to modernize existing auditing standards, and in particular quality control standards.
- The CAQ has specific concerns and questions about the Final Standard, particularly the new External Quality Control Function (EQCF), that it believes requires further consideration. The comment letter focuses specifically on concerns related to this new EQCF requirement.
S&P 500 ESG Reporting and Assurance Analysis
The CAQ conducted an analysis of ESG reporting and assurance by S&P 500 companies. Among the key takeaways:
- 98% of S&P 500 companies reported ESG information in 2022, remaining steady in relation to the 99% that did so in 2021.
- 70% of S&P 500 companies that reported ESG information in 2022 obtained assurance over certain of that information (up from 65% in 2021).
- The scope of information being subject to assurance continued to increase.
- 21% of companies that obtained assurance did so from public company auditors (up from 18% in 2021).
- 95% of companies that obtained assurance from a public company auditor in 2022 used the same firm that performed their financial statement audit (up from 90% in 2021).
- There is inconsistency in how other assurance and verification providers describe their compliance with IAASB assurance standards.
Investor Decision-Making: Why CPAs Are the Preferred Practitioners for Sustainability Assurance Services
The CAQ posted a report on sustainability assurance. With the growing interest in high-quality sustainability-related information, companies worldwide, especially publicly listed ones, are seeking third-party assurance on sustainability-related information. The report explores:
- The sustainability reporting and assurance landscape
- Assurance-related considerations for institutional investors and investors in the private sector, and
- The benefits of third-party assurance of ESG information performed by CPAs
Comment Letter to the SEC re Technology-Assisted Analysis Amendments Adopted by the PCAOB
The CAQ posted its comment letter that responds to the SEC’s notice to solicit comments on the Amendments Related to Aspects of Designing and Performing Audit Procedures that Involve Technology-Assisted Analysis of Information in Electronic Form. The CAQ brings to the SEC’s attention its concern related to the revised requirements in AS 1105.10A of the Final Standard, which significantly differs from the Proposal. To the extent the CAQ’s presumption and understanding are correct and the SEC were to affirm this intent, the CAQ supports approval of the Final Standard by the SEC, subject to clarification by the PCAOB. If more extensive audit procedures are now required to address the risk of modification, the CAQ believes the economic analysis has underestimated the costs to implement the final standard, and further outreach and consideration would be necessary before the SEC should approve it.
Audit Committee Oversight in the Age of Generative AI
The CAQ posted a publication, Audit Committee Oversight in the Age of Generative AI. The rise of GenAI is raising important questions about when and how to invest in appropriate technologies that may have an impact on the finance organization and the speed of transformation. This resource will aid audit committee members looking to dedicate more time discussing AI governance by providing an overview of GenAI and questions audit committees can ask to better understand company management’s approach to the use of GenAI and oversee the related risks.
Document for Discussion: Monitoring Inflation in Certain Countries
The CAQ posted a Document for Discussion: Monitoring Inflation in Certain Countries as of May 2024. Registrants are responsible for monitoring inflation in countries where they operate and there are fundamental accounting implications for companies operating in countries that are considered highly inflationary. The information in the discussion document may be helpful to management in applying US GAAP (ASC 830, Foreign Currency Matters), in conjunction with its internal controls over financial reporting to reach a conclusion on whether a country’s economy should be considered highly-inflationary.
The Center for Audit Quality is a nonpartisan public policy organization serving as the voice of U.S. public company auditors and matters related to audits of public companies. The CAQ promotes high quality performance by U.S. public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions. Based in Washington, DC, 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.
Questions and comments about the Public Policy & Technical Alert can be addressed to Donnie Heinerichs, Manager, ESG Initiatives (dheinerichs@thecaq.org) or Annette Schumacher, Senior Director, Professional Practice (ashumacher@thecaq.org).