Public Policy and Technical Alert | January 2023

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.

SEC Updates Agency Rule List (Reg. Flex Agenda)

The SEC updated its Agency Rule List. Rules in the proposed rule stage include Corporate Board Diversity, Disclosure of Payments by Resource Extraction Issuers, Human Capital Management Disclosure, Digital Engagement Practices for Broker-Dealers, and Cybersecurity. Rules in the final rules stage include Prohibition Against Fraud, Manipulation, and Deception in Connection With Security-Based Swaps; Climate Change Disclosure; Special Purpose Acquisition Companies; Amendments to NMS Plan for the Consolidated Audit Trail-Data Security; Further Definition of Dealers; and Short Sale Disclosure Reforms.

Paul Munter Named Chief Accountant

The SEC announced that Paul Munter has been appointed Chief Accountant. He has served as Acting Chief Accountant since January 2021. As Chief Accountant, Munter will continue to lead the Office of the Chief Accountant (OCA) and serve as the principal advisor to the Commission on accounting and auditing matters. He also will be responsible for assisting the Commission in discharging its oversight of both the FASB and the PCAOB.

SEC Updates Compliance and Disclosure Interpretations (C&DI) for Exchange Act Rules

The SEC updated the following C&DIs of the Exchange Act rules for Section 121H. Requirements Under Section 10D: Rule 10D-1—Listing standards relating to recovery of erroneously awarded compensation. See the Q&As at:

• Question 121H.01
• Question 121H.02
• Question 121H.03
• Question 121H.04

SEC updates C&DI for Exchange Act Forms

The SEC updated the following C&DIs of Exchange Act Forms for Section 104. Form 10-K; Section 110. Form 20-F; and Section 112. Form 40-F. See the Q&As at:

• Question 104.19
• Question 110.08
• Question 110.09
• Question 112.03
• Question 112.04

SEC Division of Corporation Finance Updates the Financial Reporting Manual (FRM)

The revisions to the FRM include updating contact information for the staff, updating the financial disclosures about guarantors and issuers of guaranteed securities and affiliates whose securities collateralize a registrant’s securities, updates for ASU 2018-12, Financial Services – Insurance, and removal of information no longer applicable.

Changes to Online Access to Accounting Standards Codification and Governmental Accounting Research System

The Financial Accounting Foundation (FAF) announced it will provide free, enhanced online access to the Accounting Standards Codification and the Governmental Accounting Research System in an effort to make financial accounting standards even more widely accessible to stakeholders and the public. The FAF has not yet determined the firm date for this change to online access to the accounting standards, but it is expected to occur this spring.

Perform Effective Risk Assessments to Improve Audit Quality

The AICPA announced a new risk assessment guide that helps auditors identify and assess the risks of material misstatements and allows them to scale their approach depending on the entity’s complexity. The AICPA Audit Guide Risk Assessment in a Financial Statement Audit complements the new auditing standard, Statement on Auditing Standards (SAS) No. 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement. Together, the guide and standard aim to strengthen the risk assessment process and make the audit more efficient and effective.

International Accounting Standards Board (IASB) Proposes Temporary Relief From Deferred Tax Accounting for OECD Pillar Two taxes

IASB proposed amendments to IAS 12 Income Taxes. The proposed amendments aim to provide temporary relief from accounting for deferred taxes arising from the imminent implementation of the Pillar Two model rules published by the Organization for Economic Co-operation and Development (OECD). The proposed amendments would introduce:

• a temporary exception to the accounting for deferred taxes arising from the implementation of the rules; and
• targeted disclosure requirements for affected companies.

The Exposure Draft International Tax Reform—Pillar Two Model Rules is open for comment until March 10, 2023. The IASB aims to finalize any amendments in the second quarter of 2023, subject to comments on the Exposure Draft.

International Auditing and Assurance Standards Board (IAASB) Launches Consultation on Proposed Strategy and Work Plan for 2024-2027

IAASB issued a public consultation for its 2024-2027 proposed strategy and work plan. The proposed strategy outlines four strategic objectives:

• Support the consistent performance of quality audit engagements by enhancing our auditing standards in areas where there is the greatest public interest need;
• Establish globally accepted standard(s) for assurance on sustainability reporting;
• Strengthen coordination with the International Ethics Standards Board for Accountants and other leading standard setters and regulators to leverage better collective actions in the public interest; and
• Create more agile, innovative ways of working in line with the Monitoring Group’s reform vision.

The IAASB’s 2024-2027 work plan describes the technical standard-setting work required to support the strategy. The IAASB invites all stakeholders to comment on the proposed strategy and work plan by April 11, 2023.

IAASB Digital Technology Market Scan: Robotic process Animation

The IAASB posted a Market Scan bulletin that explores Robotic Process Automation, a technology used for executing repetitive tasks that has applications across the audit process, from data transformation to workpaper creation, as well as potential for forming part of an audited entity’s IT environment. The IAASB’s Disruptive Technology team covers:

• What is Robotic Process Automation and why is it important
• The latest developments
• What this might mean for the IAASB

January 2023 IASB Agenda and Meeting Papers

The IASB announced its January 2023 IASB agenda and meeting papers are now available. Agenda items include:

• Maintenance and Consistent Application
• Equity Method
• Business Combinations—Disclosures, Goodwill and Impairment
• Primary Financial Statements
• IFRS Accounting Taxonomy Update—Amendments to IFRS 16 and IAS 1
• Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures

IAASB Begins Work on Global Standards for ESG Assurance

The IAASB published a public consultation for its 2024-27 proposed strategy and work plan, with it wishing to develop an overarching standard for assurance on sustainability reporting. The new globally accepted standards aim to improve investor confidence and “reduce the risk of material misstatements.”

IAASB Opens Public Consultation on Less Complex Group Audits

The IAASB announced it opened the public consultation for a group audit-specific section of the proposed auditing standard for less complex entities (LCEs). The proposed section, Part 10, Audits of Group Financial Statements, is intended to form part of the proposed International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE). The exposure draft is open for public comment until May 2, 2023.

FRC Updates 2021 Statement of Intent on Environmental, Social, and Governance (ESG)

The FRC published an update to its 2021 Statement of Intent on ESG, setting out areas where there remain ongoing challenges in ESG reporting, suggesting actions for preparers to produce decision relevant information, and offering its plans to engage with the market to ensure that stakeholder needs are being met as demand for ESG information continues to evolve. The FRC’s key areas of focus regarding ESG reporting during 2023 include projects and thematics on:

• ESG Data – how and where to find it and use it effectively
• Materiality disclosures – what should be considered when determining what are material issues?
• Support for FRS102 Preparers
• What are the ESG reporting requirements of the Corporate Governance Code?
• The link between investors and ESG reporting

IASB Gives Insights into Decisions Made on Merger and Acquisition Disclosures and Goodwill Accounting

The IASB published an ‘In Brief’ article to explain two major decisions that have been made in the Business Combinations—Disclosures, Goodwill and Impairment project. Rika Suzuki, IASB member, discusses the reasons for the IASB’s decisions about how companies could disclose better information about mergers and acquisitions (business combinations), and whether to retain the impairment-only model to account for goodwill or to explore reintroducing amortization of goodwill. Business Combinations—Disclosures, Goodwill and Impairment is now a standard-setting project, which involves the preparation of an exposure draft that contains proposals of amendments.

Leading Accounting Organizations Partner to Diversify the Accounting Profession

The CAQ announced a partnership pilot program in California that will encourage Black students to pursue accounting as a profession and Black professionals to consider sharing their experiences in the accounting classroom. The CAQ, IMA (Institute of Management Accountants), AAA (American Accounting Association), NABA Inc. (formerly the National Association of Black Accountants), CalCPA (California Society of Certified Public Accountants), and Gleim Exam Prep will combine their resources for outreach to Black students and to professionals for teaching roles in California. The program will look to increase the number of Black and African American individuals who are fluent in accounting, the language of money, business, and wealth. Pending the success of this pilot program, it can eventually expand to other demographic groups and geographies.

Audit Committee Practices Report: Priorities and Committee Composition

The CAQ announced the second edition of the Audit Committee Practices Report, a collaborative effort between Deloitte’s Center for Board Effectiveness and the CAQ. A total of 164 individuals participated in the entire survey from predominantly large U.S.-based public companies. The survey inquired about:

• audit committee composition
• areas of oversight
• key risks
• audit committee practices

This report provides insight into shifting priorities as well as trends and practices related to audit committee composition. The survey results and related analysis can also serve as a benchmarking resource for gauging an audit committee’s development.

CAQ Alert 2023-01: Updates to SEC Non-GAAP Financial Measures Compliance and Disclosure Interpretations (C&DIs)

The CAQ posted an alert regarding an update to the SEC’s Non-GAAP Financial Measures Compliance & Disclosure Interpretations (C&DI) Questions 100.01, 100.04 – 100.06, and 102.10(a)(b)(c). The updates emphasize the Division of Corporation Finance staff’s position that the determination of whether an adjustment results in a misleading non-GAAP measure depends on a company’s individual facts and circumstances. The purpose of this alert is to provide an overview of the updates as well as a detailed comparison of the previous and new C&DIs.

​​​​Missed something? Read up on past PPTA Newsletters.

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 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 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 Joseph Bailey, Manager, Professional Practice (jbailey@thecaq.org).