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 Appoints George Botic to the Public Company Accounting Oversight Board
The SEC has appointed George Botic, CPA to a term as a Board Member of the PCAOB. Mr. Botic will replace current Board member Duane DesParte, CPA whose term will end October 24, 2023. Mr. DesParte became a PCAOB Board member in April 2018 and served as its Acting Chair from June 2021 to January 2022. Mr. Botic was most recently the Director of the PCAOB’s Division of Registration and Inspections, which includes the Global Network Firm Inspection Program, the Non-Affiliate Firm Inspection Program, the Broker-Dealer Auditor Interim Inspection Program, and the registration program. The PCAOB applauded appointment of Mr. Botic.
SEC Division of Corporation Finance Updates CD&Is
The SEC’s Division of Corporation Finance updated the following Compliance and Disclosure Interpretations (CD&Is): Regulation S-K Section 118. Item 402(b) — Executive Compensation; Compensation Discussion and Analysis
- Question 118.08
Regulation S-K Section 128D. Item 402(v) — Pay Versus Performance
- Question 128D.14
- Question 128D.15
- Question 128D.16
- Question 128D.17
- Question 128D.18
- Question 128D.19
- Question 128D.20
- Question 128D.21
- Question 128D.22
PCAOB Issues Proposal to Strengthen Accountability for Contributing to Firm Violations
The PCAOB issued for public comment a proposal to amend PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations. The rule, originally enacted in 2005, governs the liability of associated persons who contribute to registered public accounting firms’ violations of the laws, rules, and standards that the PCAOB enforces.
The deadline for public comment on the proposal is November 3, 2023.
On October 26, PCAOB to Host Livestreamed Forum for Auditors of Small Businesses and Broker-Dealers
The PCAOB announced that its 2023 Forum on Auditing in the Small Business Environment and on Auditing Broker-Dealers will be livestreamed on Thursday, October 26, 2023. The forum is tailored for PCAOB-registered firms that audit smaller public companies or broker-dealers. The agenda includes the following:
- A Q&A with Board Member Anthony C. Thompson, who will share thoughts on how the PCAOB is executing on its strategic goals and key auditing issues for auditors of small public companies and broker-dealers;
- Presentations by PCAOB staff from the Office of the Chief Auditor, the Division of Registration and Inspections, and the Division of Enforcement and Investigations; and
- Presentations by staff of the Financial Industry Regulatory Authority and the SEC.
PCAOB Adopts New Standard, Modernizing Requirements for Auditors’ Use of Confirmation
The PCAOB adopts a new standard to modernize the requirements for the auditor’s use of confirmation. The new standard reflects changes in technology, communications, and business practices since the interim standard was first adopted by the PCAOB in 2003 after being issued by the AICPA in 1991. The new standard will apply to all audits conducted under PCAOB standards. Subject to approval by the SEC, the new standard will take effect for audits of financial statements for fiscal years ending on or after June 15, 2025.
A New PCAOB Spotlight Publication Provides Highlights From Conversations With More Than 200 Audit Committee Chairs
The PCAOB posted a new report, Spotlight: 2022 Conversations With Audit Committee Chairs. In 2022, more than 200 audit committee chairs accepted the PCAOB’s invitation to discuss topics related to the 2021 audit of their company’s financial statements. PCAOB staff took notes during those conversations and analyzed them for recurring themes, which are presented as high-level observations and takeaways in this publication.
Project Update: Accounting for and Disclosure of Crypto Assets (Formerly Known as Accounting for and Disclosure of Digital Assets)
The FASB discussed comment letter feedback and issues for redeliberations on the proposed ASU, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets at its meeting on September 6, 2023. The objective of this project is to improve the accounting for and disclosure of certain crypto assets. The Board directed the staff to draft a final ASU for vote by written ballot. The FASB decided that the final Update should be effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, for all entities.
Emerging Issues Task Force Meeting Recap: September 14, 2023
The FASB’s Emerging Issues Task Force met on September 14, 2023, and deliberated Issue No. 23-A, “Induced Conversions of Convertible Debt Instruments.” The Task Force reached a consensus-for-exposure to amend the induced conversions guidance to improve its relevance. The Task Force also reached a consensus-for-exposure to permit either (a) prospective or (b) retrospective transition for convertible debt instruments settled after the adoption of the amendments in Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The Task Force also reached a consensus-for-exposure on certain transition disclosures. The Board will consider for ratification the consensus-for-exposure on Issue 23-A on October 4, 2023.
AICPA Endorses Key Legislation Recognizing the Link Between Accounting and STEM
AICPA voiced its strong support for bipartisan, bicameral legislation establishing the accounting profession as a STEM career pathway and supporting long-standing efforts to diversify the future accounting workforce. In the House of Representatives, H.R. 3541, the Accounting STEM Pursuit Act of 2023 was introduced by Representatives Haley Stevens (D-MI) and Young Kim (R-CA); in the Senate, Senators Susan Collins (R-ME) and Jacky Rosen (D-NV) introduced S. 1705, the STEM Education in Accounting Act. These bills, which would allow federal grant funding to be used for K-12 accounting education, highlight the clear and logical integration between accounting and technology and note the value of accounting professionals, including CPAs, as technological leaders.
AICPA & CIMA Introduce Career Launchpad, an AI-Guided Tool for Students Pursuing Careers in Accounting and Finance
AICPA & CIMA announced they are rolling out Career Launchpad, an artificial intelligence-guided program for students interested in accounting and finance. The global offering provides insight and guidance to kickstart careers within the profession. Career Launchpad offers AICPA & CIMA student members an opportunity to access real-world career stories, expert advice, and behind-the-scenes information from seasoned accounting professionals on subjects including salaries, résumé preparation, personal branding, career choices in the accounting industry, and interview skills.
IASB Proposes Annual Improvements to IFRS Accounting Standards
The International Accounting Standards Board (IASB) published proposed narrow-scope amendments to IFRS Accounting Standards and accompanying guidance as part of its periodic maintenance of the Accounting Standards. The proposed amendments include clarifications, simplifications, corrections, or changes to improve consistency in 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 comment deadline is December 11, 2023.
Now Available: IESBA Handbook 2023 Edition
The International Ethics Standards Board for Accountants released the 2023 Handbook of the International Code of Ethics for Professional Accountants (including International Independence Standards). This handbook replaces the 2022 edition and incorporates the following revisions:
- The revisions relating to (a) the definition of engagement team, and (b) group audits
- The upcoming expiry of the “jurisdictional provision” addressing long association of personnel with an audit client
The back of the 2023 Handbook contains the IESBA-approved revisions to the Code which are not yet effective. These revisions will become effective in December 2024 and include:
- Revisions to the definition of a public interest entity (PIE)
- Changes to the definitions of “audit client” and “group audit client” in the Glossary arising from the approved revisions to the definitions of listed entity and PIE
- The technology-related revisions
IASB to Explore Ways to Improve Reporting of Climate-Related and Other Uncertainties in the Financial Statements
The IASB decided to explore targeted actions to improve the reporting of climate-related and other uncertainties in financial statements. The possible actions include development of educational materials, illustrative examples, and targeted amendments to IFRS Accounting Standards to improve application of existing requirements. The IASB will also continue to monitor developments to determine whether to take further action. The IASB technical staff will continue to work closely with the International Sustainability Standards Board technical staff to facilitate connections in the boards’ work. As part of this project, which is named Climate-related and Other Uncertainties in the Financial Statements, the IASB has brought together in one place all its available materials supporting companies in their reporting of the effects of climate-related and other uncertainties in the financial statements.
UKEB Publishes Climate-Related Matters Research
The Financial Reporting Council announced the UK Endorsement Board published two reports arising from its Climate-related Matters Research Project. The “Climate-Related Matters: Summary of Connectivity Research” provides an overview of recent third-party research into connectivity challenges between TCFD disclosures (a proxy for the disclosures required by IFRS S2) and the financial statements. “A Study in Connectivity: Analysis of 2022 UK Company Annual Reports” provides a deep-dive analysis from an investor’s perspective of potential connectivity challenges and includes stakeholder feedback on possible causes. Both reports can be accessed on the UKEB Connectivity webpage, which includes links to the UKEB’s work on connectivity between sustainability related financial disclosures and financial reporting accounting standards.
IASB Amends the IFRS for SMEs Accounting Standard Related to International Tax Reform
The IASB issued amendments to the IFRS for SMEs Accounting Standard—the Standard for companies that do not have public accountability. The amendments to the IFRS for SMEs Accounting Standard are based on the amendments to IAS 12 Income Taxes issued in May 2023. The amendments:
- provide a temporary relief from accounting for deferred taxes arising from the implementation of the Pillar Two model rules; and
- clarify that the Standard requires companies that apply the Standard to disclose information that enables users of their financial statements to evaluate the nature and financial effect of income tax consequences of the Pillar Two legislation.
Companies can benefit from the temporary exception in this amendment immediately. They are required to provide the disclosures set out in the amendments for annual reporting periods beginning on or after January 1, 2023.
Comment Letter: International Sustainability Standards Board: Consultation on Agenda Priorities
The CAQ posted a comment letter that shares its views related to the May 2023 International Sustainability Standards Board: Consultation on Agenda Priorities. In the letter, the CAQ highlights the importance of market acceptance and market adoption of the IFRS Sustainability Disclosure Standards. The CAQ believes that continuing the momentum generated from IFRS S1 and S2 by focusing on interoperability, implementation, new research and standards, connectivity, and outreach with stakeholders, including investors and the IASB, will position the ISSB well to make these important decisions.
What Management Needs to Know About the New SEC Cybersecurity Disclosure Rules
The AICPA and the CAQ jointly released a cybersecurity resource to help assist company management and other financial reporting stakeholders with what they need to know about the new cybersecurity disclosure rules adopted by the SEC earlier this year and how might they impact reporting and an organization’s cybersecurity program. The resource covers:
- Certifications regarding disclosure controls and procedures for cybersecurity disclosures
- Cybersecurity incident disclosures
- Disclosing cybersecurity risk management and strategy
- Cybersecurity governance and board oversight
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 Vanessa Teitelbaum, Senior Director, Professional Practice (vteitelbaum@thecaq.org).