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 Division of Examinations Announces 2025 Priorities
The SEC’s Division of Examinations announced its 2025 examination priorities. This year’s examinations will prioritize perennial and emerging risk areas, such as fiduciary duty, standards of conduct, cybersecurity, and artificial intelligence. For fiscal year 2025, in addition to conducting examinations in core areas, such as disclosures and governance practices, the Division will also examine for compliance with new rules, the use of emerging technologies, and the soundness of controls intended to protect investor information, records, and assets. The 2025 examination priorities cover a broad landscape of potential risks to investors that firms should consider as they review and strengthen their compliance programs.
PCAOB 2024 Conference on Auditing and Capital Markets Attracts Over 200 Participants From Across Academia
The PCAOB announced the conclusion of its two-day 2024 Conference on Auditing and Capital Markets, held in Washington, D.C. Open to academics and Ph.D. students, the research conference attracted more than 200 participants from around the world. At this year’s conference, academics presented research during panels focused on the following topics:
- Auditor-Client Matching
- Impacts of Audit Regulation
- Machine Learning and the Audit
- The Labor Market for Accountants
- Transparency and Auditing
PCAOB Member Anthony C. Thompson to Host Forum for Auditors of Small Businesses and Auditors of Broker-Dealers in Jersey City
The PCAOB announced that it will hold the fourth of its in-person 2024 forums on auditing in the small business environment and on auditing broker-dealers in Jersey City, New Jersey, on November 20, 2024. Board Member Anthony C. Thompson will host the one-day event at the Hyatt Regency Jersey City. In addition to remarks from Thompson, the agenda includes the following:
- Presentations by PCAOB staff from the Office of the Chief Auditor, the Division of Registration and Inspections, and the Division of Enforcement and Investigations;
- Presentation of illustrative examples related to audit risks associated with revenue, the auditor’s responsibility to identify and communicate critical audit matters to investors, heightened risk of fraud, and the importance of journal entry testing; and
- Presentations by staff of the Financial Industry Regulatory Authority (FINRA) and the SEC.
There is no fee to attend the forum, but advance registration is required. The forum will be livestreamed for those looking to attend virtually. As with the previous forums, recordings from the event will be made available on the PCAOB’s website.
The PCAOB Posts Initial Resources Related to the Implementation of the PCAOB’s New Quality Control Standard
The PCAOB posted three initial resources – a practice aid, comparison document, and webinar – related to the implementation of the PCAOB’s new quality control standard, QC 1000, A Firm’s System of Quality Control. The resources and tools for implementation are:
- Practice Aid: Providing a High-Level Overview of Certain Features Unique to QC 1000, A Firm’s System of Quality Control
- Comparison of QC 1000 with ISQM 1 and SQMS 1
- Webinar: PCAOB Staff Provide an Overview of QC 1000, A Firm’s System of Quality Control
The new standard and amendments are effective on December 15, 2025.
Investor Bulletin: Audit Committee and Independent Auditor Dialogue
The PCAOB posted a document by the PCAOB Office of the Investor Advocate (OIAD), Investor Bulletin: Audit Committee and Independent Auditor Dialogue. OIAD is providing this bulletin to encourage investors to reference the informative publications that the staff of the PCAOB issues from time to time to keep stakeholders apprised of the PCAOB’s activities and observations. In particular, this Investor Bulletin highlights resources that investors may consider as they engage with audit committees concerning the audit committees’ dialogues with their independent auditors.
PCAOB Publishes New Supplement to Staff Guidance Concerning the Remediation Process
The PCAOB published a supplement to its Staff Guidance Concerning the Remediation Process. The supplement provides audit firms with additional guidance regarding remediation, including making the most of the remediation period, the potential influence of non-technical factors on persistent quality control criticisms, and more. The supplement highlights that audit firms, when addressing quality control criticisms, may benefit by:
- Starting the remediation process sooner to take advantage of the full remediation period;
- Planning ahead in order to get the benefit of inspections staff feedback;
- Implementing actions early enough to be able to monitor their operation and include in the submission evidence that they are effective;
- Considering whether certain quality control criticisms persist due to the influence of non-technical factors, such as a firm’s culture; and
- Understanding the limits of acceptable supplemental submissions after the submission deadline.
FASB Seeks Public Comment on Targeted Improvements to Internal-Use Software Guidance
The FASB published a proposed Accounting Standards Update (ASU) to update the guidance on accounting for software. The proposed ASU would remove all references to a prescriptive and sequential software development method (referred to as “project stages”) throughout Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software. The proposed amendments would specify that a company would be required to start capitalizing software costs when both of the following occur:
- Management has authorized and committed to funding the software project.
- It is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”).
The proposed amendments also would require a company to separately present cash paid for capitalized internal-use software costs as investing cash outflows in the statement of cash flows. Stakeholders are encouraged to review and provide comments on the proposed ASU by January 27, 2025.
FASB Seeks Public Comment on Proposal to Clarify Guidance for Identifying the Accounting Acquirer in a Business Combination
The FASB published a proposed Accounting Standards Update intended to improve the requirements for identifying the accounting acquirer in FASB Accounting Standards Codification Topic 805, Business Combinations. The proposed ASU would establish more consistent requirements for determining the accounting acquirer when a business is acquired in a transaction achieved by exchanging equity interests. Stakeholders are encouraged to review and provide input on the proposed ASU by December 16, 2024.
Basis for Conclusions for the AICPA Professional Ethics Executive Committee’s (PEEC) Public Interest Entities Project
The AICPA released the basis for conclusions for its Professional Ethics Executive Committee’s public interest entities project. In December 2023, PEEC released the following changes to the AICPA Code of Professional Conduct:
- A new definition of publicly traded entity (ET sec. 0.400.45)
- A revised definition of public interest entity (ET sec. 0.400.43)
PEEC is releasing this basis for conclusions to summarize considerations the committee deemed significant in the development of the definitions.
AICPA and CIMA, Together as the Association of International Certified Professional Accountants (the Association), Appoint Mark Koziel as Next CEO
The Board of Directors of the Association announced the appointment of Mark Koziel, CPA, CGMA, as the organization’s next CEO. Koziel will succeed Barry Melancon, CPA, CGMA, who will retire at the end of 2024. Koziel is currently president and CEO of Allinial Global, an association of independent accounting and advisory firms. He will begin the role in January following a handover period.
Renewed Investment Needed to Ease Accountant Shortage in the Public Sector, Report Finds
The AICPA released a joint report with the National Association of State Auditors, Comptrollers, and Treasurers that finds state and local governments are being squeezed by a shortage of accounting professionals. The report says addressing this problem will require a multifaceted approach. Among the report’s recommendations:
- Make Government More Competitive with the Private Sector
- Align and Simplify Standards
- Provide Support for Smaller Governmental Entities
- Get Accounting Graduates Interested Early in Government Work
- Get Buy-in from Audit Firms
Webcast: Exposure Draft Climate-Related and Other Uncertainties in the Financial Statements
On a recent webcast, International Accounting Standards Board (IASB) technical staff Gustavo Olinda and Karen Robson discussed the IASB’s proposals that aim to improve the reporting of climate-related and other uncertainties in financial statements. The webcast covers the project’s background, key research findings, and an overview of the illustrative examples that the IASB developed in response to strong demand from stakeholders, particularly investors. The deadline for submitting comments to the Exposure Draft Climate-related and Other Uncertainties in the Financial Statements is November 28, 2024.
International Auditing and Assurance Standards Board (IAASB) Unveils New Technology Position to Shape the Future of Audit and Assurance Standards
The IAASB announced the adoption of a new Technology Position that will guide how the IAASB adapts its work to embrace the intersection of audit, assurance, and technology.
The International Organization of Securities Commissions (IOSCO) Announces Final Report on Investor Education on Crypto-Assets
The IOSCO announced the release of its final report on Investor Education surrounding Crypto-Assets. This report summarizes the results of a survey distributed to members of IOSCO’s Committee for Retail Investors (C8) in autumn last year about retail investor behavior, demographics, and experiences with crypto-assets.
Big Four Audit Firms Conclude Transition Period of Operational Separation
The Financial Reporting Council (FRC) announced the four largest audit firms (Deloitte, EY, KPMG, and PwC) have concluded the transition period of operational separation. All four firms have met the 2024 deadline set by the FRC to implement the principles of operational separation. As set out in the Operational Separation Principles, the FRC will publish an assessment of the firms’ compliance each year, following the transition period.
October 2024 IASB Agenda and Meeting Papers Now Available
The International Financial Reporting Standards (IFRS) Foundation posted the agenda and papers for the October meeting of the IASB. Agenda items include:
- Power Purchase Agreements
- Dynamic Risk Management
- Financial Instruments with Characteristics of Equity
- Work plan
- Maintenance and consistent application
- Intangible Assets
- Business Combinations—Disclosures, Goodwill and Impairment
- 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
FRC Publishes Emerging Findings From Sustainability Assurance Market Study
The FRC published initial feedback on its market study into assurance of sustainability reporting. The FRC invites stakeholders to provide further input by responding to the questions set out in the emerging findings by November 29, 2024.
October 2024 IASB Update Now Available
The IFRS Foundation announced that the October 2024 Update is now available. The IASB Update highlights preliminary decisions of the IASB.
Call for Investors and Other Stakeholders to Help Shape the IASB’s Project on Accounting Requirements for Intangibles
The IFRS Foundation announced that the IASB is asking investors, companies, and other stakeholders to take part in its short survey on the accounting requirements for reporting on intangibles in company financial statements. This survey is part of the IASB’s project to assess whether the requirements in IAS 38 Intangible Assets remain relevant and continue to reflect current business models, or whether the IASB should improve the requirements. The survey will help the IASB to determine:
- the problem that the IASB needs to solve;
- the scope of the project; and
- how the IASB should best stage the work to deliver timely improvements.
The survey is open until November 30, 2024.
The Role of the Auditor: Assessing and Responding to Fraud Risk
The CAQ shared a publication, The Role of the Auditor: Assessing and Responding to Fraud Risk, that provides insights into practices, tools, and considerations to help auditors enhance their professional skepticism and overall approach to assessing and responding to the risks of material misstatement resulting from fraud during the audit. The publication also provides clarity and understanding of the auditor’s current role and responsibilities related to fraud, which may provide insights for those who are involved in evaluating and using financial reporting information, as well as for policymakers and regulators.
Transforming the Audit Experience With AI
The CAQ shared a blog post by Thomas Makenzie, KPMG U.S. and Global Audit Chief Technology Officer, on how artificial intelligence (AI) is transforming the audit experience. KPMG is accelerating its use of AI in the audit, anchored by its Trusted AI framework, to continue enhancing quality and uncovering deeper insights for audit committees and management. AI is freeing up resources for KPMG’s auditors to spend more time on the areas of highest risk, sector-specific risks, and challenges. The Trusted AI approach ensures KPMG is deploying AI in the audit with a human-in-the-loop mindset to maintain quality and accuracy. KPMG says AI will augment, not replace, the role of the auditor, and the audit will always be people-driven. As KPMG’s technology teams and auditors gain more experience with Generative AI, the firm expects to accelerate innovation across its audits.
Audit Partners’ 2025 Economic Outlook Highlights Recession, U.S. Election Concerns
The CAQ shared the results of its Fall 2024 Audit Partner Pulse Survey. The Audit Partner Pulse Survey provides independent and objective perspectives on a range of topics, including economic risks and business transformation. Going into 2025, a potential recession, ongoing inflation, and geopolitical instability are just some of the top concerns of audit partners and the companies they audit. Key findings from their observations include:
- Partners Neutral on the Economy Despite Perceived Risks
- Businesses are Concerned for the U.S. Election
- Labor Strategies Signal Mixed News for Workers
- Technology Shifts in AI and Cryptocurrency
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).