Public Policy and Technical Alert | April 2023

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 Reopens Comment Period for Proposed Rule Amendments to Modernize Beneficial Ownership Reporting

The SEC reopened the comment period for its proposed amendments to modernize the rules governing beneficial ownership reporting, and the staff of the Commission’s Division of Economic and Risk Analysis released a memorandum that provides supplemental data and analysis related to the proposed amendments’ economic effects. The public comment period will remain open until June 27, 2023, or until 30 days after the date of publication of the reopening release in the Federal Register, whichever is later.

Investor Bulletin: Opportunity to Comment on Proposed Standard Addressing Core Auditing Principles and Responsibilities

The PCAOB Office of Investor Advocate posted an Investor Bulletin alerting investors to the opportunity to comment on the PCAOB’s proposed auditing standard, AS 1000, General Responsibilities of the Auditor in Conducting an Audit. On March 28, 2023, the Board issued the proposal for public comment. Comments are due by May 30, 2023.

2023 Inspections to Prioritize Audit Risks Related to Fraud, the Financial Services Sector, Crypto

The PCAOB inspectors outlined their priorities for 2023 inspections in a new report from the PCAOB staff. The report outlines plans to increase the focus on fraud-related audit procedures, continue prioritizing risks related to material digital assets, and continue selecting audits in the financial services sector for inspection, among other priorities. The complete list of 2023 inspection priorities outlined in the report includes:

• Risk of fraud
• Auditing and accounting risks
• Risk assessment and internal controls
• Financial services specific considerations
• Broker-dealer specific considerations
• M&A, including de-SPAC transactions
• Digital assets
• Use of the work of other auditors
• Quality control (particularly talent retention and its impact on audit quality, and independence)
• Other areas of inspection (critical audit matters, cybersecurity, and use of data and technology in the audit)

A New PCAOB Staff Report Provides Insights on Audits of Special Purpose Acquisition Companies (SPACs) and De-SPAC Transactions

The PCAOB posted a new Spotlight report, Inspection Observations—Audits of Special Purpose Acquisition Companies and De-SPAC Transactions. From 2020 to 2021, the U.S. markets experienced an unprecedented surge in the number of initial public offerings by special purpose acquisition companies (SPACs). The PCAOB Division of Registration and Inspections found that many companies classified warrants issued during the IPO of the SPAC with certain features as equity and subsequently restated their financial statements to classify these warrants as a liability. Instances were observed where the public company’s auditors failed to identify material misstatements in issued financial statements due to errors in the accounting for warrants. The
auditor must evaluate whether the financial statements are presented fairly, in all material respects, in conformity with the applicable financial reporting framework.

A New PCAOB Staff Spotlight Reminds Auditors That Professional Competence and Skepticism Are Essential to Quality Audits

The PCAOB posted a new report, Spotlight: Professional Competence and Skepticism Are Essential to Quality Audits. The staff of the PCAOB reminds auditors of the importance of critically assessing the audit firm’s capabilities, obtaining proper understanding of the company they are auditing, and performing work with due professional care and professional skepticism. These matters are particularly important in circumstances where changes to economic conditions or other factors affect the company. Auditors are reminded of their responsibility to take into account all evidence obtained when evaluating the results of the audit, including information regarding potential bias in management’s judgments about the amounts and disclosures in the
financial statements.

ASU 2023-02 Accounting for Investments in Tax Credit

The AICPA posted an alert on Accounting Standards Update (ASU) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The FASB issued ASU 2023-02 on March 29, 2023.

More Than Half of Finance Professionals Are Considering Changing Jobs to Boost Career Development, According to a New Study

The AICPA, in cooperation with PwC, released a new study that shows finance professionals are moving roles with increased frequency and feel the need to acquire new skills and adjust to the modern business world, with almost a quarter of workers (24%) saying they want to change their jobs within a year, and another 29% not ruling out this option. Finance and the Great Reshuffle is based on research conducted among 270 professionals working for large companies, primarily in controlling; reporting; financial planning and analysis; and accounting. A 15% attrition rate is generally considered manageable for organizations, but losing half of the finance workforce within the next 12 months would represent a major operational challenge.

ISSB Decides to Prioritize Climate-Related Disclosures to Support Initial Application

• provide disclosures about sustainability-related risks and opportunities beyond climate-related information;
• provide annual sustainability-related disclosures at the same time as the related financial statements;
• provide comparative information;
• disclose Scope 3 greenhouse gas emissions; and
• use the Green House Gas Protocol to measure emissions, if they are currently using a different approach.

IOSCO Commits to Deliver on Sustainability Disclosures and Crypto Exchanges in 2023: IOSCO Publishes Work Program for 2023-2024

• Strengthening Financial Resilience
• Supporting Market Effectiveness
• Protecting Investors
• Addressing New Risks in Sustainability and Fintech
• Promoting Regulatory Cooperation and Effectiveness

IESBA Proposes Strategy and Work Plan for 2024-2027

IASB Confirms Temporary Relief From Deferred Tax Accounting Following OECD Pillar Two Tax Reform

The International Accounting Standards Board (IASB) decided to finalize amendments to IAS 12 Income Taxes following the Pillar Two model rules published by the Organisation for Economic Co-operation and Development. The amendments, approved in a special supplementary meeting, will provide temporary relief for companies from having to account for deferred taxes arising from the implementation of the Pillar Two model rules. The amendments will introduce:

• a temporary exception to the accounting for deferred taxes arising from the jurisdictional implementation of the global tax rules; and
• targeted disclosure requirements for affected companies to help users of the financial statements better understand a company’s exposure to Pillar Two income taxes arising from that legislation, particularly before its effective date.

IESBA Strengthens Global Ethics Standards to Respond to Transformative Effects of Technological Innovation

• Strengthen the Code in guiding the mindset and behavior of professional accountants when they use technology.
• Provide enhanced guidance fit for the digital age in relation to the fundamental principles of confidentiality, and professional competence and due care, as well as in dealing with circumstances of complexity.
• Strengthen and clarify the International Independence Standards (IIS) by addressing the circumstances in which firms and network firms may or may not provide a technology-related non-assurance service to an audit or assurance client.

Paul Munter Appointed Chair of the Monitoring Group

FRC Publishes Conversation Starters to Boost Investor-Audit Committee Engagement

ISSB Prepares to Consult on Future Priorities and International Applicability of the SASB Standards

IAASB Advances Timeline for Consultation for Proposal on Sustainability Assurance

IAASB Opens Public Consultation for Its Revised Going Concern Standard

• Promote consistent practice and behavior and facilitate effective responses to identified risks of material misstatement related to going concern;
• Strengthen the auditor’s evaluation of management’s assessment of going concern, including reinforcing the importance, throughout the audit, of the appropriate exercise of professional skepticism; and
• Enhance transparency with respect to the auditor’s responsibilities and work related to going concern where appropriate, including strengthening communications and reporting requirements.

IESBA Staff Releases Database of Public Interest Entity Definitions by Jurisdiction to Support Local Adoption and Implementation Efforts

• Expanded the list of PIE categories in the Code, including a new category, “publicly traded entity,” to replace the category “listed entity.”
• Recognize the essential role local bodies responsible for the adoption of the Code play in delineating the specific entities that should be scoped in as PIEs in their jurisdictions, encouraging them to properly define the PIE categories in the expanded definition and adding any other categories relevant to their environments.
• Introduce a transparency requirement for firms to publicly disclose the application of independence requirements for PIEs where they have done so.

IAASB Work Plan Comment Letter

The CAQ posted its comment letter related to the International Auditing and Assurance Standards Board (IAASB) Proposed Strategy and Work Plan for 2024-2027. The CAQ’s specific comments focus on:

• The importance of consistency in global auditing and assurance standards
• The value of seeking multi-stakeholder input at both the strategic and standard-setting levels
• The importance of transparency in standard setting

IAASB Audit Evidence Comment Letter

The CAQ posted its views related to the IAASB’s request for comment on its Proposed International Standard on Auditing 500 (Revised) Audit Evidence and Proposed Conforming and Consequential Amendments to Other ISAs. The CAQ supports the Board’s goal to develop a principles-based approach for making judgments about information intended to be used as audit evidence. The CAQ has two primary concerns as follows:

• Elements in the Explanatory Memorandum are not sufficiently incorporated into ED-500
• ED-500 could go further to accommodate the use of technology

Corporate Decision-Making: Why Choose a CPA for Your ESG Assurance Needs?

The CAQ announced a new publication on choosing a CPA for ESG assurance. The publication explores:

• The increasing demand for independently assured ESG information by public companies
• How third party, independent assurance may be required or desired by private companies
• The benefits of engaging a CPA for third party assurance of ESG information