January 2023: Latest SEC, FASB & Tax Updates from the SEC, IRS, Etc.

Happy New Year! We are pleased to release MaloneBailey's January 2023 issue of The Crunch, our newsletter highlighting recent accounting, regulatory and tax updates. Please note that the updates provided in this newsletter are not a comprehensive list.

We encourage you to visit the SEC, FASB and IRS websites for more information as well as a complete list of updated rules, regulations and proposals. We invite you to contact us should you have any questions about the information provided in this issue. Please visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.

The MaloneBailey Team

www.malonebailey.com

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FASB 2023: What You Need to Know

Recent Accounting & Regulatory Updates

Recent FASB & AICPA Updates

Accounting Standards Update No. 2022-04 —Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations
Proposed Accounting Standards Update —Leases (Topic 842) —Common Control Arrangements
Issue Summary Packages for the 12/1/22 EITF Meeting
Proposed Statement of Financial Accounting Concepts —Concepts Statement 8 —Conceptual Framework for Financial Reporting — Chapter 5: Recognition and Derecognition
Quality Control –AICPA Issues Exposure Draft for Standard on Criteria for Quality Control Materials
Revenue Recognition –New Edition of AICPA Audit and Accounting Guide Published
Analytical Procedures –New Edition of AICPA Audit and Accounting Guide Published
Audit Risk –New Edition of AICPA Audit and Accounting Guide Published
Cybersecurity Risk Management –New Edition of AICPA Audit and Accounting Guide Published
Employee Benefit Plans –New Edition of AICPA Audit and Accounting Guide Published
Oil and Gas Producing Activities –New Edition of AICPA Audit and Accounting Guide Published
Compliance Attestation –AICPA Publishes Interpretation
GAO Professional Standards –GAO Issues Professional Standards Update No. 86
Peer Reviews –AICPA Proposes Update and Technical Corrections to Peer Review Standards
GASB Standards –GASB Proposes Guidance to Assist Stakeholders with Application of Its Pronouncements
Related Party Arrangements –FASB Seeks Input on Proposed Improvements to Lease Guidance on Related Party Arrangements

Recent SEC & PCAOB Updates

Release No. 33-11117: Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases Due to a Technological Error in Receiving Certain Comments
Release No. 33-11131: Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers
Release No. 33-11125: Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements
Release No. 33-11126: Listing Standards for Recovery of Erroneously Awarded Compensation
Meeting Investor Demand for High Quality ESG Data, Jaime Lizárraga, Commissioner - October, 2022
Securities Listing Standards –SEC Adopts Compensation Recovery Listing Standards and Disclosure Rules
Shareholder Reports –SEC Adopts Amendments to Modernize Fund Shareholder Reports and Information in Fund Advertisements
Investment Company Advertising Rules
Quality Control –PCAOB Proposes a New Quality Control Standard

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FASB: What to Keep in Mind for 2023

Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, and Collins Ncho, Audit Manager discuss what to be mindful of as we head into 2023 in terms of FASB guidance.

Simply click on the image below to listen to the podcast. For this podcast and many more, please visit the Resources section of our website.

Recent FASB & AICPA Updates

Accounting Standards Update No. 2022-04 —Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations

Summary - The FASB has issued Accounting Standards Update (ASU) No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which enhances the transparency about the use of supplier finance programs for investors and other allocators of capital.

The ASU affects buyer companies that use supplier finance programs in connection with buying goods or services. By entering into supplier finance programs with finance providers, suppliers have the option to be paid by a third party in advance of an invoice due date, based on invoices that the buyer has confirmed as valid. These arrangements are also commonly known as reverse factoring, payables finance, or structured payables arrangements.

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. Specifically, a buyer will be required to provide the following qualitative and quantitative information:

The key terms of the program, including a description of the payment terms (including payment timing and basis for its determination) and assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary.
For the obligations that the buyer has confirmed as valid to the finance provider or intermediary:
The amount outstanding that remains unpaid by the buyer as of the end of the annual period (the outstanding confirmed amount).
A description of where those obligations are presented in the balance sheet.
A rollforward of those obligations during the annual period, including the amount of obligations confirmed and the amount of obligations subsequently paid.

The buyer should disclose the outstanding confirmed amount as of the end of each interim period.

This ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022, except for the pending content in paragraph 405-50-50-3(b)(2), which shall be effective for fiscal years beginning after December 15, 2023. Early adoption is permitted.

For more information, click here.

Proposed Accounting Standards Update —Leases (Topic 842) —Common Control Arrangements

Summary - The FASB issued a proposed Accounting Standards Update (ASU) intended to improve accounting guidance for arrangements between entities under common control. Stakeholders are asked to review and provide comments on the proposed ASU by January 16, 2023.

During the FASB’s post-implementation review (PIR) of Accounting Standards Update No. 2016-02, Leases (Topic 842), stakeholders expressed concerns with applying Topic 842 to related party arrangements between entities under common control. Specifically, those areas are (1) which terms and conditions should be considered when determining whether a lease exists and, if so, the classification and accounting for the lease and (2) the accounting for leasehold improvements associated with leases between entities under common control.

The proposed ASU would provide private companies and not-for-profit organizations that are not conduit bond obligors with a practical expedient that would allow those entities to use the written terms and conditions of an arrangement between entities under common control to determine whether a lease exists and, if so, the classification of and accounting for that lease.

The proposed ASU also would change the accounting for leasehold improvements associated with leases for all entities (i.e., including public companies) under common control. Leasehold improvements associated with those leases would be amortized by the lessee over the economic life of the leasehold improvements as long as the lessee controls the use of the leased asset.

For more information, click here.

Issue Summary Packages for the 12/1/22 EITF Meeting

Summary - The FASB has issued meeting materials for the December 1, 2022 EITF meeting. The materials include:

Proposed agenda; and
Issue Summary No. 2 for EITF Issue No. 21-A, Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.

For more information, click here.

Proposed Statement of Financial Accounting Concepts —Concepts Statement 8 —Conceptual Framework for Financial Reporting — Chapter 5: Recognition and Derecognition

Summary - The FASB has issued a proposed new chapter of its Conceptual Framework related to the recognition and derecognition of an item in financial statements. The Conceptual Framework is a body of interrelated objectives and fundamentals that provides the FASB with a useful tool as it sets standards. A Statement of Financial Accounting Concepts is nonauthoritative and does not establish or change generally accepted accounting principles. The FASB has requested that stakeholders provide feedback the proposed chapter by February 21, 2023.

The proposed chapter would become Chapter 5: Recognition and Derecognition, of FASB Concepts Statement No. 8, Conceptual Framework for Financial Reporting. The new chapter would be similar to the rest of the framework in that it establishes concepts that the FASB would use in developing standards of financial accounting and reporting. It would provide the FASB with a framework for developing standards that meet the objective of financial reporting and enhance the understandability of information for existing and potential investors, lenders, donors, and other resource providers of a reporting entity.

The proposed chapter provides recognition and derecognition criteria and guidance on when an item should be incorporated into and removed from financial statements. Stakeholders are asked to provide input on three proposed recognition criteria an item should meet to be recognized in financial statements, subject to the pervasive cost constraint and materiality considerations. Those proposed criteria are:

Definitions—The item meets the definition of an element of financial statements.
Measurability—The item is measurable and has a relevant measurement attribute.
Faithful Representation—The item can be depicted and measured with faithful representation.

The FASB also seeks stakeholder input on whether derecognition, the process of removing an item from financial statements of a reporting entity as an asset, liability, or equity, should occur when an item no longer meets any one of the recognition criteria.

For more information, click here.

Quality Control –AICPA Issues Exposure Draft for Standard on Criteria for Quality Control Materials

Summary - The AICPA’s Assurance Services Executive Committee (ASEC) issued the Exposure Draft, Proposed Criteria for a Description of the Content of Quality Control Materials (QCM) and the Content of QCM Related to the Relevant Standards and Interpretive Guidance. Comments are due by December 15, 2022.

The new Exposure Draft was developed by ASEC and the Quality Control Materials Tax Force of the AICPA Peer Review Board (Task Force). As noted in the Explanatory Memorandum, the Exposure Draft “presents proposed criteria for measuring or evaluating . . . a description of the content of quality control materials (QCM), . . . referred to as QCM description criteria,” and “the content of QCM as it relates to the relevant standards and interpretive guidance, . . . referred to as QCM content criteria.“ The Exposure Draft refers to the QCM description criteria and content criteria together as the QCM criteria

The Exposure Draft indicates that the proposed criteria will be used to evaluate QCM content in a new assertion-based examination to be performed under the Statements on Standards for Attestation Engagements (SSAEs). Although the proposal does not require this, a QCM provider, including a CPA firm, may enter into an engagement with a practitioner to examine its QCM content as it relates to the relevant standards and interpretive guidance. ASEC and the Task Force intend the examination to assist CPA firms using QCM and their peer reviewers to address the risks associated with the use of QCM and monitor their practices.

The proposal helps the user firm address those risks and monitor its practice with a provision to permit a user firm to request that a QCM provider supply a practitioner’s report on “whether the QCM are in accordance with suitable criteria for the evaluation of the content of QCM related to the relevant standards and interpretive guidance.” ASEC and the Task Force intend the QCM criteria to provide such suitable criteria.

If adopted as proposed, the QCM description criteria and QCM content criteria would be effective when issued.

For more information, click here.

Revenue Recognition –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Revenue Recognition. This AICPA Audit and Accounting Guide has been developed by the AICPA Industry Revenue Recognition Task Forces, Revenue Recognition Working Group, and Auditing Revenue Task Force, to assist practitioners in performing and reporting on their audit engagements and to assist management in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles (GAAP).

For more information, click here.

Analytical Procedures –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Analytical Procedures. This AICPA guide has been developed by the AICPA Analytical Procedures Working Group to assist practitioners in performing and reporting on their audit engagements. This guide includes illustrations that demonstrate the importance of forming expectations and considering the precision of the expectation, two of the most misunderstood concepts when applying analytical procedures.

For more information, click here.

Audit Risk –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Assessing and Responding to Audit Risk in a Financial Statement Audit (Updated As of October 1, 2016). This AICPA Audit Guide has been developed under the supervision of the AICPA Risk Assessment Audit Guide Task Force. The purpose of the guide is to help practitioners fulfill their responsibilities for assessing risk in a financial statement audit that is performed in accordance with GAAS as established by the AICPA Auditing Standards Board.

For more information, click here.

Cybersecurity Risk Management –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Cybersecurity Risk Management (Updated As of May 1, 2017). This guide has been developed by the AICPA’s Assurance Services Executive Committee (ASEC) Cybersecurity Working Group, in conjunction with the Auditing Standards Board (ASB), to assist practitioners engaged to examine and report on an entity’s cybersecurity risk management program.

This guide provides guidance to practitioners engaged to examine and report on an entity’s cybersecurity risk management program. In April 2016, the ASB issued SSAE No. 18, Attestation Standards: Clarification and Recodification, (AICPA, Professional Standards), which includes AT-C section 105A and AT-C section 205, Examination Engagements.

For more information, click here.

Employee Benefit Plans –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Employee Benefit Plans (Updated As of August 1, 2022). This AICPA Audit and Accounting Guide has been developed by the AICPA Employee Benefit Plans Expert Panel, the Guide Overhaul Task Force and the Employee Benefit Plans Guide Task Force to assist practitioners in performing and reporting on their audit engagements and to assist management of employee benefit plans in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (GAAP).

For more information, click here.

Oil and Gas Producing Activities –New Edition of AICPA Audit and Accounting Guide Published

Summary - The AICPA has published a new edition of its Audit and Accounting Guide, Entities with Oil and Gas Producing Activities - Clarified (Updated As of August 1, 2018). This AICPA Audit and Accounting Guide has been developed by the AICPA Entities With Oil and Gas Producing Activities Task Force to assist practitioners in performing and reporting on their audit engagements and to assist management in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (GAAP).

For more information, click here.

Compliance Attestation –AICPA Publishes Interpretation

Summary - The AICPA Auditing Standards Board has issued Attestation Engagement Interpretation No. 1, “Examination and Review Engagements on Subject Matter Measured or Evaluated in Accordance With Criteria Specified in Laws, Regulations, Rules, Contracts, or Grants," of AT-C section 315, Compliance Attestation, in AICPA Professional Standards.

Interpretation No. 1 addresses whether a practitioner is required to perform an engagement in accordance with AT-C section 315 when either the:

Measurement or evaluation criteria are specified in a law, regulation, rule, contract, or grant; or
Assertion relates to the responsible party’s measurement or evaluation in accordance with such criteria.

For more information, click here.

GAO Professional Standards –GAO Issues Professional Standards Update No. 86

The Government Accountability Office (GAO) has published Professional Standards Update (PSU) No. 86 covering standards published from July through September 2022.

Summary - PSUs alert the audit community to changes in and highlight the effective dates and issuance of recent standards and guidance related to engagements conducted in accordance with Government Auditing Standards. They provide brief summaries of recently issued standards of major auditing and accounting standard-setting bodies, including, among others, the GAO, the FASB, GASB, and AICPA. Auditors may use the GAO’s Governmental Auditing Standards: 2018 Revision Technical Update April 2021 (Yellow Book) in connection with professional standards issued by the GAO and other authoritative bodies.

While PSUs inform Yellow Book users of important changes to professional requirements and highlight key points of recent standards, they do not establish new professional standards, reflect GAO official views on these requirements, nor provide a complete summary of the standards.

The content in PSU 86 is divided into two sections:

Section I, which identifies select standards and guidance with their respective effective dates.

Section I includes standards effective for:

Audits of financial statements for periods ending after June 30, 2022;
Attestation reports dated after June 30, 2022; and
Accounting for reporting periods beginning on or after April 15, 2021.
Section II, which identifies select standards and guidance issued from July through September 2022.

Users should refer to the original, authoritative standards for details on those standards and for purposes of implementing them.

For more information, click here.

Peer Reviews –AICPA Proposes Update and Technical Corrections to Peer Review Standards

Summary - The AICPA has proposed for public comment an Exposure Draft, Proposed Peer Review Standards Update No. 1, Omnibus Enhancements and Technical Corrections. This proposal includes updates and technical corrections to be applied to the AICPA Standards for Performing and Reporting on Peer Reviews that are issued by the AICPA Peer Review Board.

Comments on the proposal are due by January 31, 2023.

For more information, click here.

GASB Standards –GASB Proposes Guidance to Assist Stakeholders with Application of Its Pronouncements

Summary - The Governmental Accounting Standards Board issued proposed implementation guidance in the form of questions and answers intended to clarify, explain, or elaborate on certain GASB pronouncements. The Exposure Draft, Implementation Guidance Update—2023, contains proposed new questions and answers that address application of GASB standards on leases, subscription-based information technology arrangements, and accounting changes. The proposal also includes amendments to previously issued implementation guidance on leases.

The GASB periodically issues new and updated guidance to assist state and local governments in applying generally accepted accounting principles (GAAP) to specific facts and circumstances that they encounter. The GASB develops the guidance based on:

Application issues raised during due process on GASB pronouncements,
Application issues identified during the first stage of the GASB’s post-implementation reviews of the leases standards,
Questions it receives throughout the year, and
Topics identified by members of the Governmental Accounting Standards Advisory Council and other stakeholders.
The guidance in Implementation Guides is cleared by the Board and constitutes Category B GAAP.

Stakeholders are asked to review the proposal and provide input to the GASB by January 20, 2023.

For more information, click here.

Related Party Arrangements –FASB Seeks Input on Proposed Improvements to Lease Guidance on Related Party Arrangements

For more information, click here.

Recent SEC & PCAOB Updates

Release No. 33-11117: Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking Releases Due to a Technological Error in Receiving Certain Comments

Summary - The SEC has reopened the public comment periods for 11 rulemaking releases and one request for comment due to a technological error that resulted in a number of public comments submitted through the SEC’s internet comment form not being received by the agency. The majority of the affected comments were submitted in August 2022; however, the technological error is known to have occurred as early as June 2021.

The SEC indicates that, “to ensure that interested persons, including any affected commenters, have the opportunity to comment on the affected releases or to resubmit comments, the Commission is reopening the comment periods for the affected releases until 14 days following publication of the reopening release in the Federal Register. As further described in the reopening release, all commenters who submitted a public comment to one of the affected comment files through the internet comment form between June 2021 and August 2022 are advised to check the relevant comment file on SEC.gov to determine whether their comment was received and posted. If a comment has not been posted, commenters should resubmit that comment.”

The press release noted below details all the proposals being reopened for public comment, which include the following:

Reporting of Securities Loans, Release No. 34-93613 (December 2021);
Prohibition Against Fraud, Manipulation, or Deception in Connection with Security-Based Swaps; Prohibition against Undue Influence over Chief Compliance Officers; Position Reporting of Large Security-Based Swap Positions, Release No. 34-93784 (February 2022);
Share Repurchase Disclosure Modernization, Release Nos. 34-93783, IC-34440 (February 2022);
Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release Nos. 33-11038, 34-94382, IC-34529 (March 2022);
The Enhancement and Standardization of Climate-Related Disclosures for Investors, Release Nos. 33-11042, 34-94478 (April 2022);
Special Purpose Acquisition Companies, Shell Companies, and Projections, Release Nos. 33-11048, 34-94546, IC-34549 (May 2022); and
Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices, Release Nos. 33-11068, 34-94985, IA-6034, IC-34594 (June 2022)

For more information, click here.

Release No. 33-11131: Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers

Summary - The SEC adopted amendments to Form N-PX to enhance the information mutual funds, exchange-traded funds, and certain other registered funds report about their proxy votes. The SEC indicates that the “amendments will make these funds’ proxy voting records more usable and easier to analyze, improving investors’ ability to monitor how their funds vote and compare different funds’ voting records. The rulemaking will also newly require institutional investment managers to disclose how they voted on executive compensation, or so-called ‘say-on-pay’ matters, which fulfills one of the remaining rulemaking mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act.”

To enhance proxy vote reporting, the amendments adopted by the SEC will require funds and managers to categorize each matter by type and, where a form of proxy or “proxy card” subject to the SEC’s proxy rules is available, tie the description and order of voting matters to the issuer’s form of proxy to help investors identify votes of interest and compare voting records. The changes also prescribe how funds and managers must organize their reports and require them to use a structured data language to make the filings easier to analyze. Funds and managers will also be required to disclose the number of shares that were voted or instructed to be voted, as well as the number of shares loaned and not recalled and thus not voted. This latter requirement is designed to provide shareholders with context to understand how securities lending activities could affect a fund’s or manager’s proxy voting practices.

The new rules and form amendments will be effective for votes occurring on or after July 1, 2023, with the first filings subject to the amendments due in 2024.

For more information, click here.

Release No. 33-11125: Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements

Summary - The SEC adopted rule and form amendments to require mutual funds and exchange-traded funds to transmit concise and visually engaging shareholder reports and to promote transparent and balanced presentations of fees and expenses in investment company advertisements.

Fund Shareholder Reports Amendments

The SEC adopted rule amendments will require funds to provide concise, tailored shareholder reports that highlight key information, such as fund expenses, performance, and portfolio holdings. The SEC indicates that the instructions for the revamped reports will “encourage the use of graphic and text features to make them more effective. Funds will be required to tag the information in their reports in a structured data format.”

In addition, the rule amendments require funds to make certain information that may be more relevant to investors and financial professionals who desire more in-depth information available online and available for delivery free of charge to investors on request. That information will no longer appear in fund’s shareholder reports but will remain available to investors on a website identified in the shareholder report and must be filed semi-annually with the SEC.

Investment Company Advertising Rules

The SEC adopted amendments to investment company advertising rules to require that fee and expense presentations in registered investment company and business development company advertisements and sales literature be consistent with relevant prospectus fee table presentations and be reasonably current. The amendments also address representations of fees and expenses that could be materially misleading.

The amendments will become effective 60 days after publication in the Federal Register. The SEC is providing an 18-month transition period after the effective date of the amendments to allow mutual funds and exchange-traded funds with adequate time to adjust their shareholder report and transmission practices. The SEC is also providing an 18-month transition period after the effective date to comply with the final amendments to the advertising rules. The rule amendments that address representations of fees and expenses that could be materially misleading will apply on the effective date.

For more information, click here.

Release No. 33-11126: Listing Standards for Recovery of Erroneously Awarded Compensation

Summary - The SEC adopted rules to require securities exchanges to adopt listing standards that require issuers to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. The SEC indicates that the final rules require a listed issuer to file the policy as an exhibit to its annual report and to include disclosures related to its recovery policy and recovery analysis where a recovery is triggered.

Erroneously Awarded Incentive-Based Compensation

The new rules implement Section 10D of the Securities Exchange Act of 1934, a provision added by the Dodd-Frank Wall Street Reform and Consumer Protection Act. New Exchange Act Rule 10D-1 directs national securities exchanges and associations to establish listing standards that require a listed issuer to adopt and comply with a written policy for recovery of erroneously awarded incentive-based compensation received by its current or former executive officers in the event it is required to prepare an accounting restatement due to its material noncompliance with any financial reporting requirement under the securities laws, during the three completed fiscal years immediately preceding the date that the issuer is required to prepare an accounting restatement.

Rule 10D-1 also directs national securities exchanges and associations to establish listing standards that require the issuer to disclose those compensation recovery policies in accordance with SEC rules, including providing the information in tagged data format.

Disclosures on Recovery of Incentive-Based Compensation

The SEC also adopted final rules that require specific disclosure of the listed issuer’s policy on recovery of incentive-based compensation and information about actions taken pursuant to such recovery policy. The amendments also require all listed issuers to:

File their written recovery policies as exhibits to their annual reports;
Indicate by check boxes on their annual reports whether the financial statements included in the filings reflect correction of an error to previously issued financial statements and whether any of those error corrections are restatements that required a recovery analysis; and
Disclose any actions they have taken pursuant to such recovery policies.

The final rules will become effective 60 days following publication of the adopting release in the Federal Register. Exchanges will be required to file proposed listing standards no later than 90 days following publication of the release in the Federal Register, and the listing standards must be effective no later than one year following such publication. Issuers subject to such listing standards will be required to adopt a recovery policy no later than 60 days following the date on which the applicable listing standards become effective.

For more information, click here.

Meeting Investor Demand for High Quality ESG Data, Jaime Lizárraga, Commissioner - October, 2022

Summary - SEC Commissioner Jaime Lizárraga recently discussed the importance of high quality ESG data to investors and components of the SEC’s recent proposal on ESG data. Lizárraga discussed the SEC’s proposals on ESG reporting, indicating that “the SEC’s disclosure framework is most effective when investors benefit from objective, quantitative metrics that provide the highest degree of comparability. I believe the proposed rules are a significant step forward in getting investors this information. I look forward to working to ensure that the final rules are as robust as possible.”

Lizárraga indicates that each of the SEC’s proposals on ESG data would each help facilitate comparable disclosures and focus on ensuring statements made to investors are not false or misleading:

Enhanced climate risk disclosures by issuers.
Enhanced ESG disclosures by registered funds and investment advisers.
Modernized rules governing ESG-related fund names.

For more information, click here.

Securities Listing Standards –SEC Adopts Compensation Recovery Listing Standards and Disclosure Rules

For more information, click here.

Shareholder Reports –SEC Adopts Amendments to Modernize Fund Shareholder Reports and Information in Fund Advertisements

Fund Shareholder Reports Amendments

For more information, click here.

Investment Company Advertising Rules

Summary - The SEC adopted amendments to investment company advertising rules to require that fee and expense presentations in registered investment company and business development company advertisements and sales literature be consistent with relevant prospectus fee table presentations and be reasonably current. The amendments also address representations of fees and expenses that could be materially misleading.

For more information, click here.

Quality Control –PCAOB Proposes a New Quality Control Standard

Summary - The PCAOB issued for public comment a proposed standard it believes would, if adopted, lead registered public accounting firms to significantly improve their quality control (QC) systems. The proposal advances the PCAOB’s strategic goal of modernizing standards. The PCAOB requests public comment on the proposal by February 1, 2023.

Current QC standards were developed and issued by the AICPA before the PCAOB was established in 2002. The auditing environment has changed significantly since that time, so QC is a pressing area for modernization.

The PCAOB has considered the potential for improvements to its QC standards, including through discussion with the PCAOB’s former advisory groups. In December 2019, the PCAOB issued a concept release that generated comment letters from firms, investors, investor advocates, academics, trade groups, and others. This input, along with the PCAOB’s own quantitative and qualitative economic analysis, helped to inform the proposal.

The proposed standard, if adopted, would replace the current QC standards in their entirety and would provide a framework for a firm’s QC system that is grounded in proactively identifying and managing risks to quality, with a feedback loop from ongoing monitoring and remediation designed to drive continuous improvement. Among other provisions, the proposal would foster a more structured approach where a firm would annually evaluate its QC system and report the results of its evaluation on new Form QC.

Detailed questions are included throughout the proposal, and commenters are encouraged to (1) comment on any or all topics, (2) respond to any or all questions, (3) provide feedback in areas not covered by specific questions, and (4) provide any evidence that informs commenters’ views.

For more information, click here.

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