Public Policy and Technical Alert, June 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. 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.

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SEC | PCAOB | FASB | International | AICPA | CAQ Updates

SEC

SEC announces removal of William D. Duhnke III from the PCAOB; Duane M. DesParte to serve as Acting Chair

The SEC announced that it has removed William D. Duhnke III from the PCAOB and designated Duane M. DesParte to serve as Acting Chairperson. The PCAOB was established by the Sarbanes-Oxley Act of 2002 and oversees the audits of the financial statements of public companies and brokers and dealers through registration, standard setting, inspection, and disciplinary programs. Under the Act, the Commission selects members and the Chairperson of the Board.

Statement on the commencement of appointment process for five PCAOB seats

SEC Chair Gary Gensler issued a statement asking for nominations for five PCAOB seats. “Each seat is associated with a set five-year term; any nominee selected by the Commission to fill a board seat will serve for the remainder of the term associated with that seat,” Gensler said. Under the Sarbanes-Oxley Act of 2002, the PCAOB is governed by a board of five members. Two of those members must be CPAs, while three cannot be CPAs.

SEC announces annual regulatory agenda

The U.S. Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions. The report, which includes contributions related to the SEC, lists short- and long-term regulatory actions that administrative agencies plan to take. Notable proposed and final SEC rulemaking areas include:

• Disclosure relating to climate risk, human capital — including workforce diversity and corporate board diversity — and cybersecurity risk;
• Transparency around stock buybacks, short sale disclosure, securities-based swaps ownership, and the stock loan market; and
• Special purpose acquisition companies.

Renee Jones to join SEC as Director of Corporation Finance

The SEC announced the appointment of Renee Jones as its Director of the Division of Corporation Finance. She most recently served as Professor of Law and Associate Dean for Academic Affairs at Boston College Law School, where she taught courses in corporations, securities regulation, startup company governance, and financial regulation. Jones also previously represented private and public companies on corporate and securities matters at the Hill & Barlow law firm.

SEC appoints New Jersey Attorney General Gurbir S. Grewal as Director of Enforcement

The SEC announced that Gurbir S. Grewal has been appointed Director of the Division of Enforcement, effective July 26. Grewal is currently the Attorney General for the State of New Jersey. SEC Chair Gary Gensler said Grewal has “the ideal combination of experience, values, and leadership ability to helm the Enforcement Division at this critical time.”

PCAOB

PCAOB Acting Chairperson announces reassessment of stakeholder engagement, advisory groups

PCAOB Acting Chairperson Duane DesParte announced that he has directed staff to reassess the organization’s stakeholder engagement efforts, including revisiting for Board consideration the structure and membership of its advisory groups. Given this reassessment, the nominations process for membership in the recently-announced Standards Advisory Group has been paused.

FASB

FASB appoints two new members to the Emerging Issues Task Force

FASB Chair Richard R. Jones announced the appointment of two new members to the Emerging Issues Task Force (EITF). The EITF assists the FASB in improving financial reporting through the timely identification, discussion, and resolution of financial accounting issues. Members are chosen from a cross section of FASB stakeholders, including users of financial statements, public accounting firms, and preparers of financial statements. The two new members are:

• Jack Ciesielski, CPA, CFA, Founder, R.G. Associates; and
• Brandon Coleman, Partner—National Office Accounting & Reporting Services, Deloitte.

International

Newly published stakeholder feedback indicates broad support for IAASB auditor reporting standards

The International Auditing and Assurance Standards Board (IAASB) published a feedback statement after a public consultation on auditor reporting standards designed to enhance the communicative value, transparency, and relevance of the auditor’s report in the public interest. The stakeholder feedback statement summarizes key themes and views shared with the IAASB through the 2020 Auditor Reporting Post-Implementation Survey as well as a roundtable discussion held in September 2020. Three of the key areas of focus for stakeholders were key audit matters, going concern and other information in the auditor’s report.

IAASB: New quality management implementation guides now available

The IAASB released two guides to help stakeholders implement its suite of quality management standards. The guides seek to help stakeholders understand the standards and properly implement the requirements in the manner intended. The IAASB will also issue an implementation guide for International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements, in the third quarter of 2021.

IOSCO: Paul Munter appointed Co-Chair of the Monitoring Group

The Monitoring Group of the International Organization of Securities Commissions (IOSCO) announced the appointment of Paul Munter as its Co-Chair for a two-year term. Munter, the Acting Chief Accountant of the SEC and the Vice Chair of the IOSCO Committee on Issuer Accounting, Audit, and Disclosure, joins co-chair Jean-Paul Servais, Chairman of Belgium’s Financial Services and Markets Authority.

IOSCO elaborates on its vision and expectations for the IFRS Foundation’s work towards a global baseline of investor-focused sustainability standards to improve the global consistency, comparability, and reliability of sustainability reporting

The Board of the IOSCO published a report on issuers’ sustainability-related disclosures. According to the report, there is an urgent need to improve the consistency, comparability, and reliability of sustainability reporting for investors. The IOSCO is seeking to support investors’ evolving informational needs and the ability of markets to price sustainability-related risks and opportunities and support capital allocation. The report comes amid growing global momentum in both public and private-sector initiatives on sustainability-related disclosures.

New Non-Executive Directors appointed to the FRC Board

The Financial Reporting Council (FRC) announced the appointment of Hannah Nixon and Ruwan Weerasekera as Non-Executive Directors to the FRC Board. Nixon and Weerasekera are joining the FRC Board as the agency transitions into the Audit, Reporting, and Governance Authority.

AICPA

AICPA FinREC requests feedback on a proposed enhancive update to the AICPA Accounting Guide ‘Brokers and Dealers in Securities’

The AICPA issued a working draft of proposed enhancive updates to the AICPA Accounting Guide Brokers and Dealers in Securities. The proposed update includes:

• A new section “Current Expected Credit Losses” in Note 2, “Significant Accounting Policies,” in the notes to consolidated financial statements;
• An update to Note 9 in the notes to consolidated financial statements; and
• New considerations for SEC-registered broker-dealers as they develop an accounting policy footnote related to FASB ASC Topic 326.

Interested parties are encouraged to submit their informal feedback on the draft note by July 17.

AICPA’s new auditing standard provides additional guidance on the use of specialists and pricing information

The AICPA’s Auditing Standards Board issued Statement on Auditing Standards (SAS) No. 144, Amendments to AU-C Sections 501, 540, and 620 Related to the Use of Specialists and the Use of Pricing Information Obtained From External Information Sources. The SAS provides guidance in AU-C section 501 on applying SAS No. 143, Auditing Accounting Estimates and Related Disclosures when:

• Management has used the work of a specialist in developing accounting estimates;
• Evaluating management’s estimates related to the fair value of financial instruments; and
• Using the work of an auditor’s specialist.

New study reveals lack of standardization in sustainability assurance

The AICPA published the results of a study on global practices for sustainability reporting and assurance it conducted with the International Federation of Accountants and the Chartered Institute of Management Accountants. The new study provides a comprehensive global picture of the current status of sustainability reporting and related assurance and contextualizes this analysis with data on how and where sustainability-related information is reported, and how this relates to assurance practices.

CAQ Updates

Profession in focus: Diversity in focus with Shannon Schuyler

In this video, PwC Chief Purpose and Inclusion Officer Shannon Schuyler sits down with CAQ Vice President of Operations and Talent Initiatives Liz Barentzen to discuss PwC’s diversity and inclusion strategy.

CAQ alert 2021-02: Amendments to SEC independence rules

The CAQ posted an alert about SEC amendments to certain auditor independence requirements. The amendments, which took effect June 9, sought to modernize the rules and more effectively focus the independence analysis on relationships and services that may pose threats to an auditor’s objectivity and impartiality. The CAQ Alert provides an overview of the amendments to assist auditors and other stakeholders with understanding and applying the independence rules and the key changes included in the amendments.

SEC request for input on climate change disclosures

The CAQ submitted a comment letter to the SEC regarding climate change disclosures. In the letter, the CAQ voiced support for the SEC’s efforts to seek input on climate disclosures and other environmental, social, and governance (ESG) matters to meet investors’ information needs. The letter also:

• Emphasizes the need for any climate-related or other ESG disclosure requirements to be focused on the information needs of investors;
• Voices support for a globally-accepted ESG reporting system built from existing standards and frameworks that can be adapted to meet the needs of investors in different jurisdictions; and
• Highlights the CAQ’s view that a global standard setter is likely necessary for a globally-accepted ESG reporting system to be implemented and to operate effectively.

Value of the audit: A brief history and the path forward

The CAQ published a document exploring the value of an independent audit. The report:

• Examines the importance of well-functioning capital markets to the economy, the historical importance of audited financial statements, and the roles and responsibilities of each key stakeholder in the U.S. financial reporting supply chain;
• Discusses two key cornerstones of audit quality — the expertise and independence of the external public company auditor;
• Discusses the pitfalls of public policy proposals that seek to apply more stringent requirements on auditor independence to the potential detriment of needed expertise and audit quality; and
• Explores the growing demand for company-reported information outside of the historical financial statements, and how the independent public company audit construct can be — and in some cases already is — applied to these other key areas of information.

Audit committee insights | June 2021

The CAQ posted the latest financial reporting news and insights for audit committees. Topics included climate change disclosures, ESG standards, auditor independence, regulatory developments, and more.

Questions and comments about the PPTA can be addressed to: msickmiller@thecaq.org.

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. 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.