Public Policy and Technical Alert | July 2022

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.

Jaime Lizarraga sworn in as SEC Commissioner

The SEC announced that Jaime Lizárraga has been sworn into office as a Commissioner by Chair Gary Gensler. Commissioner Lizárraga was nominated by President Joe Biden earlier this year and confirmed by the U.S. Senate on June 16. Commissioner Lizárraga fills a term that expires on June 5, 2027.

Comment on the Financial Accounting Foundation Draft Strategic Plan

The SEC posted a comment on the Strategic Plan Draft for Public Comment of the Financial Accounting Foundation (FAF) by Commissioner Hester M. Peirce and Commissioner Mark T. Uyeda. Peirce and Uyeda urge the FAF to approach with care Goal #6. Introducing sustainability standard-setting to the FAF runs the risk of degrading the independence and effectiveness of the Financial Accounting Standards Board and the Governmental Accounting Standards Board. The FAF’s interest in conversations regarding sustainability reporting is understandable, but should be tempered by an appreciation for the fundamental differences between accounting and sustainability standards.

Prepared remarks at Center for Audit Quality ‘Sarbanes-Oxley at 20: The Work Ahead’

The SEC released Chair Gary Gensler’s prepared remarks for the CAQ’s ‘Sarbanes-Oxley at 20: The Work Ahead.’ Gensler said a central goal of Sarbanes-Oxley was to restore trust in the financial system. In the last 20 years, a lot has been learned from the law with regard to auditing standards; auditing inspections, investigations, and enforcement; auditor independence; accounting standards; corporate governance; and coverage of foreign issuers in the U.S. The quality of public company audits has improved, but the core lessons should not be forgotten. There’s more work to be done, he said. If Sarbanes-Oxley meets its full potential, trust in our markets can grow — and that benefits investors and issuers alike.

PCAOB Chair Williams remarks on 20th anniversary of Sarbanes-Oxley Act and establishment of the PCAOB

The PCAOB published the remarks delivered by Chair Erica Y. Williams at a virtual event hosted by Council on Institutional Investors on the 20th anniversary of the Sarbanes-Oxley Act. As a result of the law, Williams said for the first time, investors would have an independent audit watchdog putting their interests first. Since the PCAOB’s creation, Williams said the Board has:

• Registered over 3,800 audit firms,
• Completed more than 4,300 firm inspections in 55 countries – reviewing more than 15,000 audits of public companies and over 1,000 broker-dealer engagements,
• Issued more than 330 settled orders, and
• Sanctioned more than 230 firms and 270 individuals.

Williams said today’s Board has identified three key areas where it plans to further the PCAOB’s investor-protection mission:

• Modernizing its standards,
• Enhancing inspections, and
• Strengthening enforcement.

FASB proposes to improve certain transition requirements in long-duration insurance guidance

The FASB issued a proposed Accounting Standards Update (ASU) that would amend transition guidance in Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), for contracts that have been derecognized because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date. Stakeholders are encouraged to review and provide comments on the proposed ASU by August 8, 2022.

AICPA solicits feedback on CPA Exam Exposure Draft

The AICPA announced that it is soliciting feedback on the Exposure Draft of the new design of the CPA Exam. Developed through research and input from the profession, the Exposure Draft informs the content and scope of the CPA Exam expected to launch in January 2024. Stakeholders are asked to provide feedback through September 30, 2022. A final report, including the final CPA Exam Blueprints, will be published in early 2023.

Jeremy Osborn appointed AICPA & CIMA’s lead on ESG

The AICPA and The Chartered Institute of Management Accountants (CIMA) appointed Dr. Jeremy Osborn to the newly created role of global head of environmental, social, and governance (ESG) matters. Osborn will lead AICPA’s ESG strategic initiative, which will enhance the skillsets of global accounting, auditing, and finance professionals. Osborn’s hire represents AICPA & CIMA’s continued commitment to provide all accounting and finance professionals with the resources, tools, and skills they need to support the transition to more responsible business practices, enhance the reliability of ESG-related disclosures, and place long-term value creation at the heart of corporate activities and reporting. Osborn joins AICPA from the Value Reporting Foundation, for which he served as director of accountancy relationships.

Artificial intelligence is a game changer for auditors

The AICPA posted an article on how artificial intelligence (AI) is being used in the audit process. Risk assessment is one of the most important areas where AI is paying significant dividends. AI software enables auditors to make judgments about which areas need the most scrutiny, based on a sophisticated, thorough analysis of the client’s data and financial statements. In addition to risk assessment, auditors are using AI to:

• Analyze complete groups of data and transactions rather than relying on sampling.
• Automate tasks that once were performed manually, permitting the auditor to focus more on tasks that require their judgment.
• Converge financial statement auditing with forensic auditing in circumstances where fraud is discovered.

Assurance in the Digital Age

The International Auditing and Assurance Standards Board (IAASB) posted an article by IAASB Chair Tom Seidenstein and IAASB Fellow Danielle Davies on how technology is, and will continue to, disrupt the audit and assurance profession. The IAASB continues to commit dedicated resources to research the issue, and has set up a Digital Advisory Group to help influence the Board’s thinking about the technology environment, different technologies, and how those technologies may require standard setters to act. Over the coming years, the IAASB will translate this work into real standard-setting inputs. In its ongoing work on audit evidence, fraud, and going concern, the IAASB will account for the impact of new technologies.

IAASB proposes narrow scope amendments to operationalize changes to the IESBA Code that enhance transparency about independence

The IAASB released proposed narrow scope amendments to International Standard on Auditing 700 (Revised), Forming an Opinion and Reporting on Financial Statements and ISA 260 (Revised), Communication with Those Charged with Governance. The proposed amendments will help operationalize recently approved changes to the International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) related to listed and public interest entities. The changes to the IESBA Code require firms to publicly disclose when the independence requirements for public interest entities have been applied in an audit of financial statements. The IAASB invites all stakeholders to comment on the Exposure Draft via the IAASB website. Comments are requested by October 4, 2022.

IOSCO published its Crypto-Asset Roadmap for 2022-2023

IOSCO published its Crypto-Asset Roadmap for 2022-2023 that sets out its regulatory policy agenda and work program for the sector over the next 12 to 24 months. The IOSCO Board-level Fintech Taskforce (FTF), established in March this year, has been mandated to develop, oversee, deliver, and implement IOSCO’s regulatory agenda for Fintech and crypto-assets. The FTF will prioritize policy-focused work on crypto-asset markets and activities in its initial 12 to 24 months of operation, while continuing to monitor market developments associated with broader Fintech-related trends and innovation.

IESBA staff releases Q&As to spotlight key changes to the non-assurance services provisions of the IESBA Code

The Staff of the IESBA released a questions and answers (Q&As) publication to explain key revisions to the non-assurance services (NAS) provisions of the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code). The publication complements the Basis for Conclusions for the final NAS pronouncement and is intended to assist national standards setters, professional accountancy organizations, and professional accountants in public practice as they adopt and implement the revised NAS provisions. The Q&As will also help other stakeholders, including regulators and audit oversight bodies, those charged with governance, investors, preparers, and academics and other educators better understand the key changes to the NAS provisions of the Code.

FRC sets out next steps in transition to new regulator

The FRC published a Position Paper setting out the next steps to reform the UK’s audit and corporate governance framework. The paper follows the Government Response to the consultation on strengthening the UK’s Corporate Governance, Corporate Reporting and Audit systems, including the creation of the Audit, Reporting and Governance Authority (ARGA), to replace the FRC. The document builds on the areas of the Government Response that fall within the FRC’s remit, providing advanced clarity for stakeholders on how the work of reform will be delivered ahead of government legislation. The FRC published its Annual Report and Accounts. The report outlines the substantial progress and impact that has been achieved over the past year, and the work towards transitioning to the new robust and independent regulator, the ARGA.

FRC seeks assurances from audit firms and professional bodies on exams cheating

The FRC released a statement expressing its concern about recent incidents around the world that have involved cheating on external professional exams in addition to cheating on internal assessments, and the potential impact on UK audits if such an issue was identified in the UK. The FRC has written to the Tier 1 audit firms and professional bodies that are Recognized Qualifying Bodies to seek assurances that such a situation could not materialize in the UK.

Spearheading change to enhance confidence in audits and assurance

The IAASB published its Public Report detailing its support for the public interest for the year ended December 31, 2021. During this 12-month period, the IAASB approved the final revised standard on group audits, approved its Work Plan for 2022-2023 that included a dedicated workstream on enhanced sustainability assurance standards, and developed and implemented its Framework for Activities, among other actions. The IAASB also launched its first fully digital handbook, in collaboration with the International Federation of Accountants. The new online platform, e-International Standards (eIS), highlights the IAASB’s commitment to improving the usability of, and access to, its standards by harnessing technology.

FRC publishes latest audit quality review results

The FRC published its annual inspection and supervision results of the largest audit firms (BDO, Deloitte, EY, Grant Thornton, KPMG, Mazars, and PwC). Overall, 75% of audits inspected were good or required limited improvement (compared to 71% in 2021 and 67% in 2020). The number of audits considered good or requiring limited improvement has improved on the previous two years. Five of the largest firms had no audits requiring significant improvements. The inspection results at Mazars and BDO remain unacceptable. Specific supervisory plans have been developed to closely monitor BDO and Mazars’ priority actions.

New implementation guide available for identifying and assessing the risks of material misstatement in an audit of financial statements

The IAASB released its First-Time Implementation Guide for ISA 315 (Revised 2019), Identifying and Assessing the Risks of Material Misstatement. The guide focuses on the more substantial changes that were made to International Standard on Auditing (ISA) 315 (Revised 2019) and will help stakeholders understand and apply the revised standard as intended. ISA 315 (Revised 2019) is effective for audits of financial statements for periods beginning on or after December 15, 2021. This publication does not amend or override ISA 315 (Revised 2019), the text of which alone is authoritative. Reading this publication is not a substitute for reading the standard.

International Accounting Standards Board (IASB) sets out its 2022-2026 priorities

The IASB published its Third Agenda Consultation Feedback Statement and Snapshot outlining its priorities for the next five years. The Feedback Statement explains the reasons for the IASB’s decisions and shows how the IASB responded to the extensive feedback from its stakeholders. This feedback has helped to shape the IASB’s activities and work plan. The three main strategic priorities are to:

• maintain the strategic direction and balance of the IASB’s activities while increasing slightly efforts to develop digital financial reporting and improving the understandability and accessibility of IFRS Accounting Standards;
• progress current projects; and
• add intangibles, statement of cash flows, and climate-related risk in financial statements to the work plan.

Audit Partner Pulse Survey, Q2 2022

The CAQ posted a letter from CEO Julie Bell Lindsay regarding the CAQ’s inaugural edition of the Audit Partner Pulse Survey, a first of its kind survey that delivers U.S. public company audit partner observations on a range of topics, including the overall outlook on the economy, business transformation, and quality of corporate disclosures. The report is based on a survey of 700 audit partners from among the eight CAQ Governing Board firms. The report provides insights from a well-informed stakeholder group not typically canvassed on a range of issues affecting the U.S. economy, including:

• Economic risks and outlook
• Business transformation
• Business readiness on cybersecurity
• Emerging corporate reporting priorities

BlackRock’s Dalia Blass, EY’s Julie Boland appointed to CAQ Governing Board

The CAQ announced its Governing Board has added two new members. Dalia Blass was appointed as an independent board member effective July 18, 2022. Blass is Senior Managing Director, Head of External Affairs, at BlackRock, where she serves on the firm’s Global Executive Committee. Julie Boland joined the Governing Board as of July 1, 2022 in tandem with becoming EY’s US Chair and Managing Partner and Americas Managing Partner. The Governing Board provides oversight for the CAQ and leads the development of the organization’s strategic agenda. The CAQ’s Governing Board is comprised of chief executive officers from eight of the largest public company auditing firms and the American Institute of CPAs, as well as three independent board members.

Financial Accounting Foundation: Strategic Plan Draft for Public Comment

The CAQ released a comment letter that provides views related to the May 2022 Financial Accounting Foundation (FAF) Strategic Plan for Public Comment (the Plan). The CAQ supports the Plan the Trustees have drafted and commends the Trustees for seeking input on the Plan. The letter provides supportive comments on certain aspects of the Plan.

SOX: The Evolution of Corporate Reporting

The CAQ posted the video for SOX: The Evolution of Corporate Reporting. The CAQ hosted SOX to mark the 20th anniversary of the Sarbanes-Oxley Act. SOX features remarks from SEC Chair Gary Gensler and a discussion with CAQ CEO Julie Bell Lindsay and Deloitte US CEO Joe Ucuzoglu. The CAQ’s top takeaways are:

• Sarbanes-Oxley has had a positive impact on audit quality.
• Diversity and inclusion are the future.
• Critical auditing standards updates.
• Public company auditors are prepared.
• An emphasis on enforcement.

International Sustainability Standards Board: IFRS S1 and S2 for public comment

The CAQ posted its comment letter on the March 2022 International Sustainability Standards Board (ISSB) exposure drafts: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. The CAQ supports the ISSB’s efforts to develop a globally accepted baseline for ESG reporting. In the letter, the CAQ highlights areas for consideration that it believes will help support widespread adoption and the goal of achieving a global baseline of sustainability information. Further, the CAQ highlights areas where greater clarity could be provided to indicate whether and how concepts in the ISSB’s exposure drafts relate to similar concepts in the IFRS accounting standards and vice versa.

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

The Center for Audit Quality is an autonomous, nonpartisan, nonprofit organization dedicated to enhancing investor confidence and public trust in the global capital markets by fostering high-quality public company audits; collaborating with other stakeholders to advance the discussion of critical issues; and advocating policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions. Based in Washington, D.C., the CAQ is affiliated with the American Institute of CPAs. 

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).