Public Policy and Technical Alert | September 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.

Audit quality and investor protection under the Holding Foreign Companies Accountable Act

The SEC published a statement by acting chief accountant Paul Munter regarding audit quality and investor protection under the Holding Foreign Companies Accountable Act. In light of uncertainty involving the PCAOB’s recent agreement with Chinese authorities, certain China- and Hong Kong-based issuers may be attempting to structure audit engagements with registered public accounting firms located either in the U.S. or elsewhere to avoid the potential of consecutive PCAOB HFCAA determinations and a potential resultant trading prohibition. Attempts to engage in an efficient breach of applicable legal and audit requirements may result in investigations and enforcement actions, and liabilities may extend not only to accounting firms and associated persons, but also to issuers, their audit committees, and officers and directors.

SEC Division of Corporation Finance to add industry offices focused on crypto assets and industrial applications and services

The SEC announced plans to add an Office of Crypto Assets and an Office of Industrial Applications and Services to the Division of Corporation Finance’s Disclosure Review Program (DRP). The two new offices will join the seven existing offices that provide focused review of issuer filings and that are grouped by industry expertise to further the Division’s work to promote capital formation and protect investors. The DRP anticipates the new offices will be established later this fall.

Inflation Adjustments Under Title I and III of the JOBS Act

To effectuate inflation adjustments required under Title I and Title III of the Jumpstart Our Business Startups Act the SEC adopted amendments to adjust the thresholds in the definition of “emerging growth company” (EGC) as well as dollar amounts in Regulation Crowdfunding, effective September 20, 2022. The EGC revenue threshold will be $1,235,000,000, and Regulation Crowdfunding rules thresholds are set at $124,000 (17 CFR 227.201(t)(1)), $618,000 (17 CFR 227.201(t)(2)), and $1,235,000 (17 CFR 227.201(t)(3)).

PCAOB staff requests information and comment on application and use of the PCAOB’s interim attestation standards

The PCAOB issued a staff request for information and comment on matters related to the application and use of the Board’s interim attestation standards. Input from the public will help inform any potential recommendation the staff may make to the Board regarding updates to the interim attestation standards. PCAOB attestation standards apply to attest engagements, which generally involve issuing a report on subject matter, or an assertion about subject matter, that is the responsibility of another party. In April 2003, the Board adopted on an interim basis certain attestation standards from the AICPA. These standards have continued in effect substantially as they were adopted. Comments are due by Oct. 26, 2022.

FASB issues standard to enhance transparency around supplier finance programs

The FASB issued an Accounting Standards Update (ASU) that enhances the transparency about the use of supplier finance programs for investors and other allocators of capital. Under the new ASU, a company that uses a supplier finance program in connection with the purchase of goods or services will be required to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The buyer will be required to provide the key terms of the program as well as certain information regarding the obligations that the buyer has confirmed as valid to the finance provider or intermediary.

IASB publishes proposals to update its Accounting Standard for small and medium-sized entities

The International Accounting Standards Board (IASB) published proposals to update the IFRS for SMEs Accounting Standard to reflect improvements made to full IFRS Accounting Standards, while keeping the Standard suitable for small and medium-sized entities. The IASB’s proposals include updating the principles of the Standard to align to those of The Conceptual Framework for Financial Reporting issued in 2018 and simplified requirements based on IFRS 13 Fair Value Measurement and IFRS 15 Revenue from Contracts with Customers. The IASB is also proposing to update the Standard for new requirements in IFRS 3 Business Combinations, IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, and IFRS 11 Joint Arrangements. Comments are due by March 7, 2023.

Now available: IESBA handbook 2022 edition

The International Ethics Standards Board for Accountants (IESBA) released the 2022 edition of the Handbook of the International Code of Ethics for Professional Accountants (including International Independence Standards). This handbook replaces the 2021 edition and incorporates the following revisions that will become effective in December 2022:

• The revisions to the non-assurance services (NAS) and fee-related provisions of the Code.
• The revisions to address the objectivity of an engagement quality reviewer (EQR) and other appropriate reviewers.
• The quality management-related conforming amendments to the Code that were issued as a result of the finalization of the International Auditing and Assurance Standards Board’s (IAASB) suite of quality management standards.

Early adoption of the above revisions is encouraged.

IOSCO encourages standard-setters’ work on assurance of sustainability-related corporate reporting

The International Organization of Securities Commissions (IOSCO) issued a statement welcoming the work of the IAASB and the IESBA on assurance of sustainability-related corporate reporting. As the IAASB and the IESBA begin their work to develop high-quality international assurance, and ethics (including independence) standards for assurance over sustainability-related reporting, IOSCO shared key messages and highlighted three priority areas for their Boards’ consideration:

• The importance of profession-agnostic standards, timely progress, and collaboration
• Focus on promoting transparency
•  Addressing challenging issues

IOSCO encourages assurance providers, issuers, investors, and other service providers to engage with the IAASB and the IESBA as they progress their standard-setting work.

IASB issues narrow-scope amendments to requirements for sale and leaseback transactions

The IASB issued amendments to IFRS 16 Leases, which add to requirements explaining how a company accounts for a sale and leaseback after the date of the transaction. The amendments support the consistent application of the Accounting Standard. IFRS 16 includes requirements on how to account for a sale and leaseback at the date the transaction takes place. However, IFRS 16 had not specified how to measure the transaction when reporting after that date. These amendments will not change the accounting for leases other than those arising in a sale and leaseback transaction.

Taskforce on Disclosures about Expected Credit Losses (DECL) updated guidance

Taskforce on Disclosures about Expected Credit Losses (DECL) published updated guidance on what good IFRS 9 Expected Credit Loss accounting (ECL) disclosures look like. This third report comprises a comparison of preparers’ and users’ assessments of adoption of Taskforce recommendations, good practice disclosure examples, and other amendments to address gaps, deficiencies or to otherwise improve existing material. The guidance is aimed primarily at the biggest UK-headquartered banks and building societies, but is also likely to be relevant to a much wider group of preparers.

Revisions to ISA (UK) 600 Special Considerations: Audits of group financial statements (Revised September 2022)

The FRC published revised ISA (UK) 600 Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors) (Revised September 2022). The revisions build upon the recently revised international version of the standard, with an enhanced focus on the risk of material misstatement at the financial statement level and the need for robust communication between group and component auditors.

JICPA and IESBA staff issue joint guidance illustrating application of IESBA Code to technology-related scenarios

The Japanese Institute of Certified Public Accountants (JICPA) and the staff of the IESBA jointly released Ethical Leadership In a Digital Era: Applying the IESBA Code to Selected Technology-Related Scenarios. This non-authoritative publication provides seven hypothetical scenarios to illustrate how accountants can navigate practical issues in ethical leadership when using or implementing technology. Each scenario highlights the application of specific requirements and guidance in the IESBA Code, in particular those related to compliance with the fundamental principles of ethics, and auditor independence. The publication was developed by the JICPA under the auspices of the IESBA’s Technology Working Group.

UKEB report on Subsequent Measurement of Goodwill: A Hybrid Model published

The UK Endorsement Board (UKEB) published its report Subsequent Measurement of Goodwill: A Hybrid Model as part of its contribution to the IASB’s project on goodwill and impairment. The UKEB report presents results of research into the practical implications of a potential transition to a hybrid model for subsequent measurement of goodwill, based on the model currently used in UK GAAP. The report concludes that a transition to a hybrid model for subsequent measurement of goodwill would be practically feasible.

S&P 500 10-K Analysis

The CAQ posted an analysis of S&P 500 companies’ 10-Ks in which it sought to understand their SEC filing disclosures regarding climate-related information, greenhouse gas emissions, and net-zero and carbon neutral commitments. CAQ observed that the majority of companies mention climate-related information in their 10-K.

The Center for Audit Quality and EVERFI announce national high school curriculum designed to attract more diversity into the accounting profession

The CAQ and social impact education innovator EVERFI, Inc., announced a new accounting education initiative for high school students. This innovative curriculum will expose students to careers in accounting, attract greater diversity and representation within the profession, and address barriers to entry from underrepresented and underserved groups. The program will begin this fall. As part of the commitment to help grow and expand interest in the accounting profession, the CAQ will also sponsor a scholarship contest for students.

CAQ submits comment letter to the PCAOB related to its Draft 2022-2026 PCAOB Strategic Plan

The CAQ published its comment letter to the PCAOB related to its Release No. 2022-003, Draft 2022-2026 PCAOB Strategic Plan. The CAQ says the four goals—modernize standards, enhance inspections, strengthen enforcement, and improve operational effectiveness—are important and will support the Board’s mission to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The CAQ is especially pleased to see the emphasis on stakeholder engagement as an organizational priority and as objectives for certain goals. The CAQ encourages the Board, among other things, to continue prioritizing its quality control project. The CAQ supports a focus on data and technology and supports a balanced approach to enforcement.

CAQ submits comment letter to the SEC related to its Draft 2022-2026 Strategic Plan

The CAQ published a comment letter that provides views related to the Draft 2022–2026 Strategic Plan for Securities and Exchange Commission. The CAQ supports the Plan and says it will be important for the Commission to prioritize its efforts in a way that is most responsive to its three-part mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. The CAQ encourages the SEC to continue to release its regulatory agenda twice a year with a focus of highlighting those projects where expected action by the Commission is 12 months or less.

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

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 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 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 Joseph Bailey, Manager, Professional Practice (jbailey@thecaq.org).