Public Policy and Technical Alert, May 2020

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

• SEC provides temporary, conditional relief to allow small businesses to pursue expedited crowdfunding offerings
• SEC’s Chairman, Jay Clayton, announces additions to executive staff
• COVID-19 Market Monitoring Group — update and current efforts
• SEC announces new Investor Advisory Committee members
• SEC staff to host July 9 roundtable on Emerging Markets
• SEC adopts amendments to financial disclosures about acquisitions and dispositions of businesses

PCAOB

• PCAOB update on operations in light of COVID-19
• PCAOB posts Spotlight on Data and Technology Research Project
• PCAOB posts Spotlight on audits involving Cryptoassets

FASB

• FAF issues 2019 Annual Report
• FASB: Hillary H. Salo named Technical Director of the FASB

International

• FRC: Update on the transformation program
• IESBA: Stavros Thomadakis extends term as Chairman
• IASB proposes deferring IAS 1 amendments’ effective date due to COVID-19
• FRC: COVID-19 update May 2020
• IESBA staff release COVID-19 Q&As highlighting ethics and independence considerations
• FRC issues editorial updates to 2018 Guidance on the Strategic Report
• FRC: Guidance for companies on interim reports
• IASB: Sustainability reporting and its relevance to the IFRS Foundation
• IASB issues package of narrow-scope amendments to IFRS Standards
• FRC: Corporate governance update
• FRC: Additional information on company filings and AGMs during COVID-19
• IAASB publishes COVID-19 related Guidance on Audit Considerations for Subsequent Events
• IAASB releases revised Work Plan Table for 2020-2021
• FRC: Additional company guidance on reporting of exceptional items and APMs
• FRC: Chair to step down
• FRC: Government introduces Corporate and Insolvency Bill
• IAASB releases COVID-19 related guidance for auditor reporting
• IOSCO: Financial policymakers discuss responses to COVID-19 with the private sector
• IASB issues amendment to IFRS Standard on leases to help lessees accounting for COVID-19-related rent concessions
• IOSCO consults on outsourcing principles to ensure operational resilience
• FRC: Amendments to UK accounting standards
• IAASB: ISA 540 (Revised) implementation: Illustrative examples for auditing simple and complex accounting estimates
• IOSCO encourages issuers’ fair disclosure about COVID-19 related impacts

CAQ Updates

• CAQ COVID-19 Resources
• CAQ Statement on recent ESG disclosure discussions at the SEC

Upcoming Events

SEC

SEC Provides Temporary, Conditional Relief to Allow Small Businesses to Pursue Expedited Crowdfunding Offerings

The SEC announced that it is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. The relief will apply to offerings launched between the effective date of the temporary rules (May 4, 2020) and Aug. 31, 2020.

SEC’s Chairman, Jay Clayton, Announces Additions to Executive Staff

The SEC released an updated roster of the executive staff of Chairman Jay Clayton, including several individuals who have recently joined the office.

COVID-19 Market Monitoring Group — Update and Current Efforts

The SEC announced the formation of an internal, interdisciplinary COVID-19 Market Monitoring Group. This temporary, senior-level group was formed to assist the Commission and its various divisions and offices in (1) developing Commission and staff analyses and actions related to the effects of COVID-19 on markets, issuers and investors—including in particular the SEC’s long-term Main Street investors, and (2) responding to requests for information, analyses and assistance from other regulators and other public sector partners on market matters arising from the effects of COVID-19.

SEC Announces New Investor Advisory Committee Members

The SEC announced the appointment of six new members to its Investor Advisory Committee. The new members of the Investor Advisory Committee are:

• Cien Asoera, Financial Advisor, Edward Jones
• Theodore “Ted” Daniels, Founder and President, Society for Financial Education and Professional Development
• Elissa Germaine, Professor, Pace Law School; Executive Director, John Jay Legal Services, and Director, Investor Rights Clinic, at Pace Law School
• Satyam Khanna, Resident Fellow, NYU School of Law Institute for Corporate Governance and Finance (who will join the Committee on July 5, 2020)
• Lori Lucas, CFA, President and CEO, Employee Benefit Research Institute
• Christopher Mirabile, Senior Managing Director and Board Member, Launchpad Venture Group; Chair Emeritus, Angel Capital Association

SEC Staff to Host July 9 Roundtable on Emerging Markets

The SEC announced July 9 as the date for its roundtable to hear the views of investors, other market participants, regulators, and industry experts on the risks of investing in emerging markets, including China. The roundtable will explore ways to raise investor awareness of these risks and potential additional steps that can be taken to mitigate them. The roundtable will be held by remote means, will be open to the public via live webcast, and will be archived for later viewing.

SEC Adopts Amendments to Financial Disclosures about Acquisitions and Dispositions of Businesses

The SEC announced that it has voted to adopt amendments to its rules and forms related to financial information about acquired or disposed businesses. The amendments to the rules and forms impact determinations of whether a subsidiary or an acquired or disposed business is significant and updates the financial disclosure requirements applicable to acquisitions and dispositions of businesses, including real estate operations and investment companies.

The amendments will be effective on Jan. 1, 2021; however, voluntary compliance will be permitted in advance of the effective date.

PCAOB

PCAOB Update on Operations in Light of COVID-19

The PCAOB provided an update on current operations and activities in light of COVID-19. This update included a statement that the previously announced 45-day relief period, which provided audit firms the opportunity to pause inspection activity in full or in part, has now concluded.

PCAOB Posts Spotlight on Data and Technology Research Project

The PCAOB’s Office of the Chief Auditor previously established a research project on data and technology to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions. The work also is informed by the PCAOB Data and Technology Task Force, whose members provide additional insights into the use of technology by auditors and preparers. This Spotlight document shares certain observations from the PCAOB’s research and outreach activities related to data and technology.

PCAOB Posts Spotlight on Audits Involving Cryptoassets

The PCAOB posted a Spotlight document on Audits Involving Cryptoassets – Information for Auditors and Audit Committees. The document highlights considerations for addressing certain responsibilities under PCAOB standards for auditors of issuers who are transacting in, or who hold cryptoassets. The document also suggests questions that audit committee members could consider asking their auditors when transactions involving cryptoassets or holdings of cryptoassets are material to the issuer’s financial statements.

FASB

FAF Issues 2019 Annual Report

The Financial Accounting Foundation (FAF) released its 2019 Annual Report online. The annual report provides an overview of the FASB’s key activities for 2019 and FAF’s 2019 financial statements.

FASB: Hillary H. Salo Named Technical Director of the FASB

The FASB announced the appointment of Hillary H. Salo to the role of director of technical activities and chair of the Emerging Issues Task Force. Ms. Salo, will join the FASB in August from the New York City office of KPMG LLP, where she was a partner in the audit practice and engagement partner for a large global financial services organization.

International

FRC: Update on the transformation program

The Financial Reporting Council (FRC) provided an update on its progress towards becoming the Audit Reporting and Governance Authority. This update provides some details about the progress made so far and the expected next steps.

IESBA: Stavros Thomadakis extends term as Chairman

The International Ethics Standards Board for Accountants (IESBA) announced the extension of Dr. Stavros Thomadakis as IESBA Chairman until the end of 2021. This appointment was proposed by the International Federation of Accountants Nominating Committee and recently approved by the Public Interest Oversight Board.

IASB proposes deferring IAS 1 amendments’ effective date due to COVID-19

The International Accounting Standards Board (IASB) has proposed to defer by one year the effective date, for annual reporting periods beginning on or after January 1, 2022, of Classification of Liabilities as Current or Non-current, which amends IAS 1 Presentation of Financial Statements. IASB is not proposing any changes to the original amendments other than the deferral of the effective date.

Comments were due by June 3, 2020.

FRC: COVID-19 update May 2020

The FRC provided a COVID-19 update on their range of activities during the COVID-19 crisis. FRC staff continue to work from home. The Audit Quality Review, Corporate Reporting and Professional Oversight teams resumed their full program of supervisory work beginning May 11. This includes correspondence from the Corporate Reporting Team to companies in relation to their financial statements. The FRC l also resumed their inspection and supervisory work with audit firms.

IESBA staff release COVID-19 Q&As highlighting ethics and independence considerations

The staff of IESBA released a Question and Answer publication, COVID-19: Ethics and Independence Considerations, which highlights aspects of the International Code of Ethics for Professional Accountants (including International Independence Standards) that can be relevant in navigating ethics and independence challenges as a result of the COVID-19 pandemic.

FRC issues editorial updates to 2018 Guidance on the Strategic Report

The FRC issued an editorial change to Appendix II and Appendix III of the 2018 Guidance on the Strategic Report. It includes a clarification that a public company must include a section 172(1) statement in its Strategic Report, even if it meets the medium sized company size criteria.

FRC: Guidance for companies on interim reports

The FRC has updated its guidance for companies in relation to interim results. The guidance highlights some key areas of focus for boards in maintaining strong corporate governance and provides high-level guidance on some of the most significant issues when preparing annual reports and other corporate reporting.

IASB: Sustainability reporting and its relevance to the IFRS Foundation

IFRS Foundation Trustee Teresa Ko provided the following prepared remarks at the inaugural meeting of the Green and Sustainable Finance Cross-Agency Steering Group earlier in May. The group was established by the Hong Kong Monetary Authority and the Securities and Futures Commission to coordinate the management of climate and environmental risks to the financial sector in Hong Kong. In her remarks, she outlines possible future roles the IFRS Foundation could play in supporting progress towards the development of high-quality, internationally recognized standards for sustainability reporting.

IASB issues package of narrow-scope amendments to IFRS Standards

The IASB issued several amendments to IFRS standards. The package of amendments includes narrow-scope amendments to three standards as well as the Board’s Annual Improvements, which are changes that clarify the wording or correct minor conflicts between requirements in the standards. The three standards impacted by the narrow-scope amendments are as follows:

• IFRS 3 Business Combinations
• IAS 16 Property, Plant and Equipment
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets

All amendments are effective January 1, 2022.

FRC: Corporate governance update

The FRC’s Corporate Governance and Stewardship team is currently monitoring corporate governance and Audit General Meeting (AGM) reporting and practices, and in the summer will publish its initial assessment of good practice. This will be followed by the FRC’s annual review of corporate governance later in the year, which will focus on evaluating the quality of reporting and practice on the main areas of change to the UK Corporate Governance Code.

FRC: Additional information on company filings and AGMs during COVID-19

To provide companies with additional information upon which to plan activities over the coming months with respect to company filings, AGMs and other general meetings during COVID-19, a Q&A has been jointly produced by the UK Department for Business, Energy & Industrial Strategy and the FRC.

IAASB publishes COVID-19 related guidance on Audit Considerations for Subsequent Events

The International Auditing and Assurance Standards Board (IAASB) published guidance on auditor considerations when undertaking procedures relating to subsequent events in light of the changing environment due to the COVID-19 pandemic.

IAASB releases revised Work Plan Table for 2020-2021

To account for COVID-19’s impact on the IAASB’s work, the IAASB has reconsidered the timelines for its projects in 2020. The revised Detailed Work Plan Table for 2020-2021 sets out a description of the changes that have been made and the revised timelines for 2020 and 2021 (as applicable).

FRC: Additional company guidance on reporting of exceptional items and APMs

The FRC updated its guidance for companies on corporate reporting to explain how they should report exceptional items and alternative performance measures (APMs) in their reports and accounts, in the context of the COVID-19 crisis.

FRC: Chair to step down

Mr. Simon Dingemans intends to step down from his role as the Chair of the FRC at the end of May.

FRC: Government introduces Corporate and Insolvency Bill

The UK Government has introduced the Corporate and Insolvency Bill to put in place a series of measures to amend insolvency and company law to support businesses impacted by COVID-19.

IAASB releases COVID-19 related guidance for auditor reporting

The IAASB released COVID-19 pandemic-related guidance for auditors to consider when issuing an auditor’s report.

IOSCO: Financial policymakers discuss responses to COVID-19 with the private sector

Financial policymakers which included the International Organization of Securities Commissions (IOSCO) and other international standard setters met virtually with private sector executives to discuss international policy responses to COVID-19. The meeting explored the effectiveness of prudential and other financial policy measures taken to date, including experiences with their implementation. Participants also discussed policy issues going forward, notably how financial institutions can better cope with the challenges resulting from rising solvency risks and exchanged views on potential areas that may warrant further policy coordination.

IASB issues amendment to IFRS Standard on leases to help lessees accounting for COVID-19-related rent concessions

The IASB issued an amendment to IFRS 16 Leases to make it easier for lessees to account for COVID-19-related rent concessions such as rent holidays and temporary rent reductions. The amendment exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the COVID-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. It applies to COVID-19-related rent concessions that reduce lease payments due on or before June 30, 2021.

IOSCO consults on outsourcing principles to ensure operational resilience

IOSCO is requesting feedback on proposed updates to its principles for regulated entities that outsource tasks to service providers.

The consultation period ends on October 1, 2020.

FRC: Amendments to UK accounting standards

The FRC completed its annual review of Financial Reporting Standard (FRS) 101 Reduced Disclosure Framework and made amendments to the disclosure exemptions relating to the statement of cash flows.

The FRC has also issued Financial Reporting Exposure Draft 74 Draft amendments to FRS 102 – Interest rate benchmark reform (Phase 2). The effective date proposed is January 1, 2021 with early application permitted.

The comment period ends on September 30, 2020.

IAASB: ISA 540 (Revised) implementation: Illustrative examples for auditing simple and complex accounting estimates

The IAASB’s International Standard on Auditing (ISA) 540 (Revised) Implementation Working Group has prepared illustrative examples for auditing simple and complex accounting estimates. The examples are designed to illustrate how an auditor could address certain requirements of ISA 540 (Revised), and have been developed to assist the auditor in understanding how ISA 540 (Revised) may be applied to a:

• Simple Accounting Estimate – Provision on Inventory Impairment, and
• Complex Accounting Estimate – Provision on Property, Plant and Equipment Impairment.

IOSCO encourages issuers’ fair disclosure about COVID-19 related impacts

IOSCO issued a public statement highlighting the importance to investors and other stakeholders of having timely and high-quality information about the impact of COVID-19 on issuers´ operating performance, financial position and prospects. IOSCO states that the pandemic and the uncertainty it has caused have material implications for financial reporting and auditing, including issuers’ disclosures of current and reliable information material to investment decisions. IOSCO acknowledges that the current circumstances may make disclosures outside the financial statements more challenging and hence make high quality disclosures that much more important.

CAQ Updates

CAQ COVID-19 Resources

In May, the CAQ published two COVID-19 specific resources:

• Auditing Accounting Estimates in the COVID-19 Environment: This publication is intended to assist auditors in navigating through the complexities of auditing accounting estimates during COVID-19 by providing a high-level overview of auditor’s responsibilities related to the auditing of estimates and to highlight COVID-19 related considerations.
• Data Ethics and Governance with COVID-19 Considerations: This publication explores the implications of data ethics and governance for mitigating fraud risk, protecting data privacy, and navigating disruption during the COVID-19 crisis.

CAQ Statement on recent ESG disclosure discussions at the SEC

The SEC’s Investor Advisory Committee recently issued a recommendation stating that the time has come for the Commission to begin in earnest an effort to update public company reporting requirements to include material, decision-useful information on environmental, social, and governance (ESG) practices. Read the CAQ Statement in response to the SEC’s Investor Advisory Committee activities.

Upcoming Events

June 11-12

PLI 35th Midyear SEC Reporting & FASB Forum, Virtual Conference

June 15-19

IAASB Board Meeting, Virtual Conference

June 22-24

ACFE Global Fraud Conference, Virtual Conference

August 7-12

AAA Annual Meeting, Virtual Conference

September 14-18

IAASB Board Meeting, New York, NY

November 9-10

FEI Corporate Financial Reporting Insights Conference, New York, NY

December 7-9

AICPA Conference on Current SEC and PCAOB Developments, Washington, DC

December 7-11

IAASB Board Meeting, Madrid, Spain

December 14-16

ICGN Annual Conference, Toronto, Canada

 

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.

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