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 Proposes Joint Data Standards Under the Financial Data Transparency Act of 2022
The SEC proposed joint data standards under the Financial Data Transparency Act of 2022 that would establish technical standards for data submitted to certain financial regulatory agencies. Eight additional agencies have proposed or are expected to propose the joint standards. The proposed joint standards would promote interoperability of financial regulatory data across the agencies by establishing common identifiers for entities, geographic locations, dates, and certain products and currencies. The public comment period for the proposed joint standards will remain open until October 21, 2024.
Addressing Investor Needs Through Application of the Updated Conceptual Framework in Financial Accounting Standards Board (FASB) Standard Setting
The SEC released a statement by Paul Munter, Chief Accountant, about addressing investor needs through application of the updated Conceptual Framework in FASB standard setting. According to the statement, as the FASB embarks on its agenda consultation process later this year and considers its standard-setting agenda, application of the Conceptual Framework will be a critically important component of the FASB Board’s process. For example, the Conceptual Framework can assist the FASB Board both in prioritizing potential projects to revise and improve accounting requirements and in determining:
- Whether a potential project is consistent with the objectives of general purpose financial reporting;
- How to scope a potential project, including whether a potential project should focus on disclosures-only or rather should address recognition and measurement of financial statement elements, in light of the FASB Board’s stated concept that “disclosure of an amount . . . is not a substitution for recognition”; and
- Whether the resulting financial reporting is expected to have the qualitative characteristics of useful financial information for users.
Conflicts of Interest in Artificial Intelligence: Office Hours With Gary Gensler
The SEC posted the transcript of a video in which Chair Gary Gensler discusses how evolving artificial intelligence could affect market participants and why the agency proposed a rule last year regarding potential conflicts across a range of investor interactions, from robo-advisors to brokers.
SEC Approves New and Updated PCAOB Audit Standards and an Amendment to the PCAOB’s Contributory Liability Rule
The SEC announced that it has approved two PCAOB proposals updating audit standards regarding general responsibilities of the auditor and use of technology-assisted analysis in conducting an audit. The SEC also approved a proposal amending a PCAOB ethics rule governing the liability of an associated person when they directly and substantially contribute to audit firm violations. The amendments to Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations, will become effective in 60 days. AS 1000, General Responsibilities of the Auditor in Conducting an Audit, along with related amendments to other PCAOB standards, will take effect for audits of financial statements for fiscal years beginning on or after December 15, 2024, except that, for registered public accounting firms that provide audit opinions for 100 or fewer issuers during the calendar year ending December 31, 2024, the amendment relating to the documentation completion date will take effect for audits of financial statements for fiscal years beginning on or after December 15, 2025. The technology-assisted analysis amendments to AS 1105, Audit Evidence, and AS 2301, The Auditor’s Response to the Risks of Material Misstatement, and other conforming amendments, will take effect for audits of financial statements for fiscal years beginning on or after December 15, 2025.
PCAOB Member Kara M. Stein to Host Forum for Auditors of Small Businesses and Auditors of Broker-Dealers in Denver
The PCAOB announced that it will hold the third of its in-person 2024 forums on auditing in the small business environment and on auditing broker-dealers in Denver on September 12, 2024. Board Member Kara M. Stein will host the one-day event at the Grand Hyatt. In addition to remarks from Stein, the agenda includes the following:
- Presentations by PCAOB staff from the Office of the Chief Auditor, the Division of Registration and Inspections, and the Division of Enforcement and Investigations;
- Presentation of illustrative examples related to audit risks associated with revenue, the auditor’s responsibility to identify and communicate critical audit matters to investors, and heightened risk of fraud, the importance of journal entry testing; and
- Presentations by staff of the Financial Industry Regulatory Authority and the SEC.
There is no fee to attend the forum, but advance registration is required.
PCAOB Posts 2023 Annual Inspection Reports Alongside Staff Observations and New Charts to Boost Transparency
The PCAOB posted inspection reports for all 2023 annually inspected firms, including the six U.S. Global Network Firms (GNFs). The inspection reports are accompanied by a new staff Spotlight publication, which provides an overview of staff observations from the 2023 inspections. The PCAOB also published new charts on its website illustrating much of the data in the U.S. GNF and U.S. annual Non-Affiliate Firms inspection reports for the first time as part of ongoing efforts to increase transparency in inspection data and make it easier for stakeholders to understand and compare inspection results both across firms and over time.
FASB Issues 2024 Investor Outreach Report
The FASB issued its 2024 Investor Outreach Report. Investor engagement continued to help the FASB efficiently complete or make significant progress on its entire agenda, including the top seven priorities identified by investors during the recent agenda consultation. Those priorities include projects that address disaggregation of financial reporting information; income tax disclosures; accounting for environmental, social, and governance-related (ESG) transactions (e.g., environmental credits and ESG-linked financial instruments); digital assets; intangible assets, including software; statement of cash flows; and financial key performance indicators or non-GAAP metrics. The report also provides updates on the FASB’s Investor Advisory Committee.
FRC Issues Consultation on Going Concern Guidance
The FRC issued a consultation on revisions to its Guidance on the Going Concern Basis of Accounting and Related Reporting, including Solvency and Liquidity Risks. The draft guidance is intended to help companies prepare high-quality, company-specific disclosures about their going concern conclusions and how they were reached. The guidance will be non-mandatory and will serve as a proportionate and practical guide to all U.K. companies within its scope. The draft guidance brings together the requirements or provisions of company law, accounting standards, auditing standards, listing rules, the U.K. Corporate Governance Code and other relevant regulation. The FRC looks forward to hearing views by the consultation closing date on October 28, 2024. The FRC expects to publish the final guidance in early 2025.
International Accounting Standards Board (IASB) Proposes International Financial Reporting Standards (IFRS) Accounting Taxonomy Update for Contracts for Renewable Electricity
The IASB published a proposed update to the IFRS Accounting Taxonomy 2024 to reflect the proposed disclosure requirements for renewable electricity contracts. In May 2024, the IASB published an Exposure Draft with proposed amendments to ensure that financial statements faithfully reflect the effects that renewable electricity contracts have on a company. These proposed amendments relate to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The IASB aims to finalize any changes in these Standards by the end of 2024. The IASB’s Proposed IFRS Taxonomy Update is based on these proposed amendments. The IASB is inviting feedback on the proposed update. The deadline for submitting comments is October 14, 2024.
New Guidance Available From International Auditing and Assurance Standards Board (IAASB) on Using the International Standard on Auditing for Less Complex Entities
The IAASB issued new guidance on the application of the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (known as the ISA for LCE). The Authority Supplemental Guidance will help users in determining the appropriate situations to use the standard.
IASB Proposes Updates to IFRS Accounting Taxonomy 2024
The IASB published a proposed update to the IFRS Accounting Taxonomy 2024 to reflect these new and amended IFRS Accounting Standards:
- IFRS 19 Subsidiaries without Public Accountability: Disclosures, which was issued in May 2024;
- Amendments to the Classification and Measurement of Financial Instruments, which amended IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures and was issued in May 2024; and
- Annual Improvements to IFRS Accounting Standards—Volume 11, which was issued in July 2024.
The proposed IFRS Taxonomy update includes changes to the IFRS Accounting Taxonomy to reflect the new and amended disclosure requirements introduced in these Standards. The deadline for submitting comments is October 28, 2024.
Now Available: International Ethics Standards Board for Accountants (IESBA) Handbook 2024 Edition
The IESBA released the 2024 Handbook of the International Code of Ethics for Professional Accountants (including International Independence Standards). This handbook replaces the 2023 edition and incorporates the following:
- The revisions relating to the definition of a public interest entity which, among other matters, specifies a broader list of mandatory public interest entity categories, including a new category “publicly traded entity” to replace the category of “listed entity.”
- 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 public interest entity.
- Technology-related provisions of the Code.
August 2024 Supplementary IASB Update Now Available
The IASB announced that the August 2024 supplementary Update is now available. This IASB Update highlights preliminary decisions of the IASB.
IESBA Q&A Update: Clarifying PIE Definition for Global Compliance
The Staff of the IESBA released an update to its Questions and Answers (Q&As) publication, originally published in March 2023, on the IESBA revisions to the definitions of listed entity and public interest entity (PIE) in the IESBA Code of Ethics. This update includes a new Q&A (16) to address the scenario where a jurisdiction has no PIE definition or excluded one or more of the mandatory categories in the IESBA PIE definition. In addition, Q&A 20 has been updated following the finalization of Track 1 of IAASB’s PIE project and the IAASB’s agreement to update ISA 700 (Revised) so that the auditor’s report can be used as a mechanism for firms to comply with the transparency requirement set out in the IESBA PIE revisions.
Comment Letter on the PCAOB’s Firm and Engagement Metrics and Firm Reporting Proposals; Supplemental Data from Audit Committee Members and Investors
The CAQ posted a comment letter that supplements comment letters submitted to the PCAOB on June 7, 2024, in response to recent Board Proposals, Firm and Engagement Metrics and Firm Reporting. The supplemental letter shares the results of two surveys conducted by the CAQ to gather data to understand how audit committee members and investors currently evaluate the quality of the external audit and oversee and evaluate the auditor. When taken together, there are five key findings:
- More research is necessary to establish whether evidence supports the need for and benefits of proposed metrics.
- Audit committees and many investors already have the information they need.
- Any reporting should be voluntary.
- Any changes to the PCAOB’s standards should promote auditor-audit committee discussion.
- A majority of investors and audit committee members are of the view that the PCAOB’s auditing standards and rules have kept pace with change and require only targeted updating.
Comment Letter on PCAOB Substantive Analytical Procedures Proposal
The CAQ submitted a comment letter that details its views regarding support for modernizing AS 2305 with principles-based requirements, and the importance of risk assessment and professional judgment in designing and performing substantive analytical procedures. Specific feedback includes:
- More clearly defining the term “company’s amount” within the Proposed Standard to better differentiate the term from other recorded balances and company-prepared information.
- Removing the maximum threshold of tolerable misstatement for evaluating differences between the auditor’s expectation and the company’s amount.
- Eliminating the requirement to examine relevant information from external sources when the company’s account or disclosure depends on information the company received from one or more external sources.
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).