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 Chair Gensler to Depart Agency on January 20
The SEC announced that its 33rd Chair, Gary Gensler, will step down from the SEC effective on January 20, 2025.
Commissioner Lizarraga Statement on His Planned Departure From the Commission
The SEC released a statement by Commissioner Jaime Lizárraga announcing that he notified President Joe Biden of his intent to step down as SEC Commissioner, effective January 17, 2025.
PCAOB Updates Standard-Setting and Rulemaking Agendas Following Significant Modernization Progress in 2024
The staff of the PCAOB posted updated standard-setting and rulemaking agendas, reflecting the significant progress that the Board has made in 2024 to further advance its strategic goal of modernizing standards and rules to better protect investors.
PCAOB Held November 12 Meeting of Its Standards and Emerging Issues Advisory Group
The PCAOB held a meeting of its Standards and Emerging Issues Advisory Group (SEIAG) on November 12, 2024. The agenda included a standard-setting update, a discussion of the consideration of a company’s information technology risks and control environment, breakout sessions on artificial intelligence, a discussion of subsequent events, and the SEIAG Chair’s wrap-up. A recording of the SEIAG meeting is available on the PCAOB’s event page.
A New Staff Spotlight Publication Focuses Auditors on Relevant Considerations When Performing Procedures to Detect, Evaluate, and Make Communications About Illegal Acts by a Company Under Audit
The PCAOB posted a new report, Spotlight: Auditor Responsibilities for Detecting, Evaluating, and Making Communications About Illegal Acts. This staff publication focuses auditors on relevant considerations when performing procedures to detect, evaluate, and make communications about illegal acts by a company under audit.
The PCAOB Has Launched a New Series of Staff Publications, Audit Focus, With a First Edition Providing Insights on Critical Audit Matters
The PCAOB announced the launch of Audit Focus, a series of PCAOB staff publications that aims to provide easy-to-digest information to auditors, especially those who audit smaller public companies. This edition of Audit Focus highlights key reminders for auditors from the PCAOB standards and staff guidance related to critical audit matters (CAMs), provides the staff’s perspectives on common deficiencies made by auditors, and shares good practices that the staff has observed. The PCAOB has a research project focused on the communication of CAMs. Observations described within this Audit Focus are being considered by the CAMs research project team as they advance their analysis.
PCAOB Adopts Rule Amendment to Enhance the Usefulness of Audit Firm Registration Information
The PCAOB adopted a rule amendment to the Board’s registration program. Specifically, the amendment enables the Board to address situations in which a registered firm has ceased to exist, is nonoperational, or no longer wishes to remain registered, as demonstrated by its failures to file annual reports (via PCAOB Form 2) and pay annual fees for at least two consecutive reporting years. The amendment creates a new procedural mechanism that would permit the Board, under specified conditions, to:
- Treat a PCAOB-registered firm’s failures both to file annual reports with the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration; and
- Deem the firm’s registration withdrawn.
If approved by the SEC, the amended rule will take effect initially for annual reports and annual fees that are due in 2025.
PCAOB Forums for Auditors of Smaller Businesses and Broker-Dealers Reflect Renewed Focus on Outreach to Smaller Audit Firms
The PCAOB concluded its run of Forums on Auditing in the Small Business Environment and on Auditing Broker-Dealers planned for this year. The fourth of its 2024 forum events took place in Jersey City on November 20, 2024. To date in 2024, this series of in-person forums – each of which was hosted by a PCAOB Board Member – has enabled the PCAOB to engage with hundreds of participants face-to-face and online. An in-person forum in Miami, hosted by Board Member Christina Ho, was scheduled for October 9, 2024, but was disrupted by Hurricane Milton. The event has been rescheduled for March 18, 2025. Beyond the knowledge-sharing and engagement at the 2024 forums, the PCAOB has advanced other initiatives to support smaller firms, including the following:
- Adopting standards and rules designed to be scalable
- Sharing more insights from PCAOB inspections
- Launching the Audit Focus series of publications
Guided by Mission to Protect Investors, PCAOB Approves 2025 Budget
The PCAOB approved its fiscal year 2025 budget at an open meeting held on November 21, 2024. The 2025 budget reflects the resources expected to be required in 2025 for the PCAOB to carry out its statutorily-mandated responsibilities under the Sarbanes-Oxley Act and to achieve the goals and objectives set forth in its 2022-2026 Strategic Plan. That plan is built around four key goals to help the PCAOB fulfill its investor-protection mission:
- Modernize standards
- Enhance inspections
- Strengthen enforcement
- Improve organizational effectiveness
The budget is $399.7 million and provides funding for 945 positions. The PCAOB budget is subject to approval by the SEC.
PCAOB Adopts New Requirements to Standardize Disclosure of Firm and Engagement Metrics and to Modernize the PCAOB’s Reporting Framework
The PCAOB adopted a set of new requirements regarding public reporting of standardized firm and engagement metrics, as well as a separate but complementary set of amendments regarding the PCAOB framework for collecting information from audit firms. PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer will be required to publicly report specified metrics relating to such audits and their audit practices. These metrics cover the following eight areas:
- Partner and manager involvement
- Workload
- Training hours for audit personnel
- Experience of audit personnel
- Industry experience
- Retention of audit personnel (firm-level only)
- Allocation of audit hours
- Restatement history (firm-level only)
The amendments are subject to approval by the SEC and, if approved by the SEC, will become effective in stages thereafter.
The PCAOB Has Posted Two Staff Guidance Documents Related to the Implementation of the PCAOB’s New Quality Control Standard
The PCAOB posted two staff guidance documents related to the implementation of the PCAOB’s new quality control standard. The new resources are:
- Staff Guidance – QC 1000: A Firm’s System of Quality Control
- Staff Guidance – AS 2901: Responding to Engagement Deficiencies After Issuance of the Auditor’s Report
FASB Issues Standard That Improves Disclosures About Income Statement Expenses
The FASB published an Accounting Standards Update (ASU) that improves financial reporting and responds to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements.
The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted.
FASB Seeks Public Comment on Proposal to Improve Interim Reporting Guidance
The FASB published a proposed Accounting Standards Update (ASU) that would improve the navigability of the disclosures that are required to be provided in interim reporting periods and clarify when that guidance is applicable and what disclosures are required to be provided in interim reporting periods. Stakeholders are encouraged to review and provide input on the proposed ASU by March 31, 2025.
FASB Stakeholders Invited to Share Their Views on Financial Key Performance Indicators
The FASB published an Invitation to Comment (ITC) that gives stakeholders the opportunity to provide feedback on financial key performance indicators (Financial KPIs). This ITC is being issued as part of the FASB’s research project on Financial KPIs for business entities. Stakeholders are asked to review and provide comment on the ITC by April 30, 2025.
FASB Seeks Public Comment on Proposal to Add Guidance on Accounting for Government Grants by Businesses
The FASB published a proposed Accounting Standards Update (ASU) to establish authoritative guidance on the accounting for government grants received by business entities. Stakeholders are encouraged to review and provide input on the proposed ASU by March 31, 2025.
FASB Issues Post-Implementation Review Report for Its Revenue Recognition Standard
The FASB issued the report on Post-Implementation Review: Revenue from Contracts with Customers (Topic 606). The report discusses how the FASB staff conducted the Revenue Post-Implementation Review (PIR) process, which included outreach with more than 2,200 stakeholders from diverse backgrounds, key implementation support provided throughout the adoption of the revenue standard, and using what was learned during the PIR process to improve the revenue standard and, more broadly, the standard-setting process.
FASB Seeks Public Comment on Clarification to Interim Effective Date for New Disaggregation of Income Statement Expenses Standard
The FASB published a proposed Accounting Standards Update (ASU) that, for public business entities that do not have an annual reporting period that ends on December 31, 2024, clarifies the interim effective date of Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The proposed ASU is open to public comment for 15 days.
FASB Issues Standard That Improves Accounting Guidance for Induced Conversions of Convertible Debt Instruments
The FASB published an Accounting Standards Update (ASU) that improves the relevance and consistency in application of the induced conversion guidance in FASB Accounting Standards Codification Subtopic 470-20, Debt—Debt with Conversion and Other Options. The amendments in the ASU clarify requirements for determining whether certain settlements of convertible debt instruments, including convertible debt instruments with cash conversion features or convertible debt instruments that are not currently convertible, should be accounted for as an induced conversion. The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted.
Integrated Reporting and Thinking Conference 2024: Key Takeaways
The International Financial Reporting Standards (IFRS) Foundation shared six takeaways from the discussions on the future of integrated reporting at the 2024 IFRS Foundation Integrated Thinking and Reporting Conference. The takeaways were:
- The Integrated Reporting Framework is a powerful tool for aiding companies to adopt IFRS S1 and IFRS S2
- Integrated thinking helps companies break down silos and strengthen governance
- Using IFRS S1 and IFRS S2 has benefits for preparers who already publish integrated reports
- Integrated reports provide a useful location for investor-focused information
- The Integrated Reporting Framework remains an important resource for the International Accounting Standards Board (IASB) and ISSB
- The Integrated Reporting stakeholder community is wide and active
International Forum of Independent Audit Regulators (IFIAR) Announces Next Step in Audit Quality Initiative
The IFIAR announced the next step in an initiative to drive improvements in audit quality.
November 2024 International Accounting Standards Board (IASB) Agenda and Meeting Papers Now Available
The IFRS Foundation posted the agenda and papers for the November 2024 meeting of the IASB. Agenda items include:
- Management Commentary
- IFRS Accounting Taxonomy 2024—Proposed Update 1 IFRS 18 Presentation and Disclosure in Financial Statements
- Second Comprehensive Review of the IFRS for SMEs Accounting Standard
IASB Proposes Targeted Improvements to Requirements for Provisions
The IFRS Foundation announced the IASB published a consultation aimed at improving the requirements for recognizing and measuring provisions on company balance sheets. The IASB’s targeted improvements would help companies apply the requirements more consistently and provide investors with more useful information. The proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets would clarify how companies assess when to record provisions and how to measure them. The amendments would also require companies to provide more information about the measurement.
International Organization of Securities Comissions (IOSCO) Issues Statement of Support on the IAASB’s ISSA 5000
The Board of IOSCO congratulated the International Auditing and Assurance Standards Board (IAASB) on achieving an important milestone of finalizing ISSA 5000, General Requirements for Sustainability Assurance Engagements and Proposed Conforming and Consequential Amendments to Other IAASB Standards. IOSCO notes the extensive and thorough outreach program conducted by the IAASB throughout the lifecycle of the development of ISSA 5000 and was pleased to have actively participated in many of the activities over this period. IOSCO reiterates its support for this work and commends the IAASB for its timely development of the Standard in response to the public need for assurance standards to cover all sustainability assurance providers. IOSCO believes the Standard can support high-quality assurance over sustainability-related information and may enhance consistency, comparability, and reliability of sustainability-related information provided to the market.
IOSCO Publishes Report on Transition Plans Disclosures
The IOSCO published a Report on Transition Plans Disclosures. The Report sets out how transition plans disclosures can support the objectives of investor protection and market integrity, and shares challenges and key findings that point towards a series of coordinated actions for IOSCO and other stakeholders to consider in the future, which concern four main aspects:
- Where transition plans are published, encouraging consistency and comparability through guidance on transition plan disclosures;
- promoting assurance of transition plans disclosures;
- enhancing legal and regulatory clarity and oversight; and
- building capacity.
IASB Update November 2024 Now Available
The IFRS Foundation announced that the November 2024 Update is now available. This IASB Update highlights preliminary decisions of the IASB.
December 2024 IASB Agenda and Meeting Papers Now Available
The IFRS Foundation announced the agenda and papers for the December 2024 meeting of the IASB. Agenda items include:
- Work plan
- Management Commentary
- Business Combinations—Disclosures, Goodwill, and Impairment
- IFRS Accounting Taxonomy
CAQ Comment Letter in Response to PCAOB Updates to Standard-Setting and Rulemaking Agendas
The CAQ shared its comment letter in response to proposed projects by the PCAOB. On November 5, 2024, the PCAOB updated its standard setting and rulemaking agendas.
Annual Audit Committee Disclosure Barometer Finds Increase in Disclosure of Areas of Oversight and Expertise
The CAQ and Ideagen Audit Analytics released the 11th iteration of the annual Audit Committee Transparency Barometer Report. The report analyzes audit committee disclosures of companies in the S&P 1500. Some key toplines of the report include:
- The majority of S&P 500 companies (85%) and S&P midcap companies (75%) disclosed the board of directors’ skills matrix.
- 64% of S&P 500 boards disclosed the audit committee is responsible for cybersecurity oversight, while 34% of S&P 500 boards disclosed the audit committee is responsible for oversight of ESG information.
- 60% of S&P 500 boards disclosed they have a cybersecurity expert compared with 51% in 2023. ESG or sustainability expertise on the boards of S&P 500 companies also increased by five percentage points since 2023 to 59%.
- A plateau in disclosure rates was observed across several measures, including considerations in appointing or (re) appointing the external auditor, considerations of the length of tenure, and considerations around how the audit committee evaluates audit fees in relation to audit quality.
CAQ Comment Letter to the SEC in Response to PCAOB’s Adoption of Final Rules
The CAQ shared its comment letter to the SEC in response to the PCAOB’s vote on November 21, 2024, to adopt its Firm and Engagement Metrics and Firm Reporting rules and send them to the SEC for approval. The Board adopted these rules despite concerns expressed by more than 70% and 85% of commenters. Given these concerns, the CAQ respectfully requested that the SEC consider the options it has to afford sufficient time for stakeholders to review the rules and participate in a robust comment process.
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).