Public Policy and Technical Alert | August 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.

Statement on the SEC’s approval of Nasdaq’s proposal for disclosure about board diversity and proposal for board recruiting service

SEC Chair Gary Gensler commented on the commission’s approval of Nasdaq’s proposed rule changes requiring issuers to disclose certain information about the diversity of the company’s board and to offer certain companies access to a complimentary board recruiting service. The rule changes require companies to have at least two diverse directors on their boards or explain why they are not in compliance. Nasdaq will also give its listed companies one year of complimentary access to a board recruiting service to help identify diverse candidates. “As the order discusses, the rules are consistent with the requirements of the Exchange Act,” Gensler said, adding that the rules “reflect calls from investors for greater transparency about the people who lead public companies.” Gensler also noted that “a broad cross-section of commenters supported the proposed board diversity disclosure rule.”

SEC enhances access to financial disclosure data

The SEC announced open data enhancements that provide public access to financial statements and other disclosures made by publicly-traded companies on its Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). For the first time, the SEC is releasing Application Programming Interfaces (APIs) that aggregate financial statement data, making corporate disclosures quicker and easier for developers and third-party services to use. “These new APIs make important information about public companies more accessible and usable than ever before,” said Jed Hickman, Director, EDGAR Business Office.

Chair Gensler announces addition of Barbara Roper to senior staff

The SEC announced the appointment of Barbara Roper as Senior Advisor to the Chair. Roper will focus on issues relating to retail investor protection, including matters relating to policy, broker-dealer oversight, and examinations.

SEC requests information and comment on broker-dealer and investment adviser digital engagement practices, related tools and methods, and regulatory considerations and potential approaches

The SEC requested information and public comment on matters related to the use of digital engagement practices by broker-dealers and investment advisers. These tools include behavioral prompts, differential marketing, game-like features (commonly referred to as gamification), and other design elements or features designed to engage with retail investors on digital platforms (e.g., websites, portals, and applications), as well as the analytical and technological tools and methods (collectively called digital engagement practices (DEPs)). The Commission is issuing the Request, in part, to develop a better understanding of the market practices associated with firms’ use of DEPs and the related analytical and technological tools and methods.

Joint public statement by board members Rebekah Goshorn Jurata and Megan Zietsman

PCAOB board members Rebekah Goshorn Jurata and Megan Zietsman notified the SEC that they plan to resign from the PCAOB on the earlier of October 1 or on the date of the appointment of new board members. In a joint statement, they expressed “sincere gratitude and appreciation” for the PCAOB staff, writing, “Thanks to their efforts and adaptability, the PCAOB has been able to advance key initiatives and accomplish its statutory mandate in very challenging times.” Goshorn Jurata and Zietsman described their time on the PCAOB as “an honor” and “a privilege.”

FASB issues 2021 Investor Outreach Report

The FASB issued its 2021 Investor Outreach Report, which is available through the FASB investor web portal. The report highlights the expansive investor outreach completed by the FASB staff over the last year, including engaging in more than 430 investor interactions. “The report explains our investor outreach program, activities over the last year, how we’ll continue to build on those initiatives to enhance our investor outreach efforts, and, perhaps most importantly, how investors can share their views with us,” said FASB Chair Richard R. Jones.

IESBA proposes conforming amendments to the code following issuance of IAASB’s suite of quality management standards

The International Ethics Standards Board for Accountants (IESBA) released for public comment the Exposure Draft, Proposed Quality Management-related Conforming Amendments to the Code. The proposal is intended to align the Code with the International Auditing and Assurance Standards Board’s (IAASB) suite of quality management standards through conforming amendments so that the Code is consistent and interoperable with these IAASB standards.

FRC: Illustrative auditors reports – updated bulletin

The Financial Reporting Council (FRC) issued an updated Bulletin of Illustrative Auditor’s Reports which includes updated references to legislative changes post-EU exit transition period.

FRC announces proposals to strengthen significantly the United Kingdom’s Audit Firm Governance Code

The FRC announced a consultation on proposals to update and strengthen significantly the Audit Firm Governance Code in support of the FRC’s objectives to promote high-quality audit and audit market resilience. The code applies to the Big Four and to other firms auditing Financial Times Stock Exchange 350 companies. Moving forward, it will also apply to firms that audit significant numbers of other types of public interest entities. The FRC is hoping to strengthen the code in key areas of accountability and firm resilience.

FRC: Guidance – addressing exceptions in the use of audit data analytics

The FRC issued guidance for auditors on addressing potential exceptions when using data analytics in an audit. The guidance outlines general principles for dealing with outliers when using Audit Data Analytics (ADA) to respond to identified risks in an audit, suggests a potential approach auditors can take, and includes an illustrative example based on a real-world scenario.

New IAASB outreach plan for audits of less complex entities consultation published

The IAASB published a targeted outreach plan detailing its focused efforts to facilitate feedback on its public consultation on a proposed new standard for audits of financial statements of less complex entities (LCE). The IAASB plans to solicit feedback from different stakeholder groups through roundtables, presentations, and other related activities. The proposed new standard for audits of financial statements of LCEs aims to provide a globally consistent approach at a time when several jurisdictional-specific LCE standards or related initiatives are being introduced.

S&P 500 and ESG reporting

The CAQ posted a summary and analysis of the most recent publicly-available ESG data for S&P 500 companies. The information the CAQ examined was primarily outside of an SEC submission in a standalone ESG, sustainability, corporate responsibility, or similar report. The CAQ found that the timing and frequency at which companies report ESG information varies. As of June 18, 2021, roughly 54% of S&P 500 companies had published ESG data for periods ending in 2020. About 37% of S&P 500 companies published ESG data for periods ending in 2019.

Discussion document: Monitoring inflation in certain countries, May 2021

The CAQ posted a discussion guide about data measuring inflation in certain countries. The CAQ’s International Practices Task Force compiled cumulative inflation data by country (for those countries for which the International Monetary Fund publishes data), and then categorized the countries based on their cumulative inflation rates and the implementation guidance in ASC 830. The task force also identified countries where projected cumulative inflation rates would have been categorized into categories considering the guidance in ASC 830 and in circumstances where there was not consistent reliable data.

Questions and comments about the Public Policy & Technical Alert can be addressed to Matt Sickmiller, Senior Manager, Professional Practice (msickmiller@thecaq.org).

This newsletter is intended as general information and should not be relied upon as being definitive or all-inclusive. The CAQ encourages readers to refer to applicable rules, standards, guidance, and other resources in their entirety. All entities should carefully evaluate which requirements apply to their respective organizations.

About the Center for Audit Quality
​​​​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.