April 2024: Latest SEC, FASB & Tax Updates from the SEC, IRS, Etc.

We are pleased to release MaloneBailey's April 2024 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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Recent Accounting & Regulatory Updates

Recent FASB & AICPA Updates

Independence –AICPA Issues New Independence TQA
Income Statement Expenses –FASB Discusses Disaggregation of Income Statement Expenses
Independence –AICPA Issues New Independence TQAs
FASB Accounting Standards Updates - Accounting Standards Update No. 2023-09 -- Income Taxes (Topic 740) --- Improvements to Income Tax Disclosures
FASB Accounting Standards Updates - Accounting Standards Update No. 2023-08 -- Intangibles Goodwill and Other Crypto Assets (Subtopic 350-60) --- Accounting for and Disclosure of Crypto Assets
FASB Accounting Standards Updates - Accounting Standards Update No. 2023-07 — Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures
Financial Instruments –IASB Proposes Amendments to Accounting for Financial Instruments with Debt and Equity Features
Tokens –AICPA Proposes Framework for Reporting on Stablecoins and Sufficiency of Assets for Redemption
Public Interest Entities –AICPA PEEC Issues Guidance on Public Interest Entities
Derivatives –FASB Discusses Derivatives
Interim Reporting –FASB Discusses Interim Reporting
Statement of Cash Flows –FASB Discusses Statement of Cash Flows
Stock Compensation –FASB Discusses Stock Compensation
FASB Agenda –FASB Discusses Potential Agenda Projects

Recent SEC & PCAOB Updates

Release No. 33-11275: The Enhancement and Standardization of Climate-Related Disclosures for Investors
Release No. 34-99582: Supplemental Standards of Ethical Conduct for Members and Employees of the Securities and Exchange Commission
Remarks at Ohio State Law Journal Symposium 2024: ESG and Enforcement of the Federal Securities Laws
“AI, Finance, Movies, and the Law” Prepared Remarks before the Yale Law School, Gary Gensler, Chairman - February, 2024
Further Announcement Regarding Share Repurchase Disclosure Modernization Rule
Cybersecurity –SEC Staff Updates Interpretations for Material Cybersecurity Incidents Guidance
AICPA & CIMA Conference on Current SEC and PCAOB Developments - 2023
PCAOB Inspections –PCAOB Staff Outline 2024 Inspection Priorities with Focus on Driving Improvements in Audit Quality
EDGAR –SEC Updates EDGAR Filer Manual
Review of the “Accredited Investor” Definition under the Dodd-Frank Act
Announcement Regarding Share Repurchase Disclosure Modernization Rule

Extra Crunch

SEC Strategic Plan – Fiscal Years 2022-2026

About MaloneBailey, LLP

Featured Podcast

Interview Tips – How to Land Your Dream Auditing Job

Summary - Tune in to our latest podcast episode where we'll unveil insider tips and strategies for mastering the auditing job interview process, helping you secure your dream position in the field. From crafting a tailored resume to effectively showcasing your skills and navigating tough questions, our expert guests, Kim Buettner and Carolina Uzcategui, MaloneBailey's HR Generalist and Recruiter, will cover essential topics to enhance your interview performance. This episode offers practical advice on researching the company, preparing for behavioral interviews, and effectively communicating your fit for the role.

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

Independence –AICPA Issues New Independence TQA

Summary - The AICPA has issued new Technical Questions and Answers (TQAs) under Section 100, Independence. TQAs include nonauthoritative guidance in question and answer format provided by the AICPA on various topics.

The AICPA has added TQA section 100.07, “Operating Node Software on a Blockchain,” of section 100, Independence.

For more information, click here.

Income Statement Expenses –FASB Discusses Disaggregation of Income Statement Expenses

Summary - As discussed in its “Summary of Decisions” publication, the FASB met on January 31, 2024, and discussed feedback received and began redeliberations on the proposed Accounting Standards Update, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The FASB made a number of decisions, including the following:

Affirmed the FASB’s proposal that would require an entity to disclose the disaggregation of relevant expense captions.
Affirmed the FAB’s proposal that would require an entity to disclose amounts for employee compensation, depreciation, and intangible asset amortization for each relevant expense caption.
Directed the staff to perform further work on the following: (1) clarify the effects of proportionate consolidation, joint ventures, and other cost-sharing arrangements; (2) provide guidance for entities in certain industries (for example, oil and gas, aerospace and defense, insurance, and financial services); and (3) clarify the identification of relevant expense captions when an entity presents an income statement using only natural expense categories or a mix of functional and natural expense categories.

For more information, click here.

Independence –AICPA Issues New Independence TQAs

Summary - The AICPA has issued new TQAs under Section 320, Breach of an Independence Interpretation. TQAs include nonauthoritative guidance in question and answer format provided by the AICPA on various topics.

The AICPA has added the following guidance under TQA section 320, Breach of an Independence Interpretation, with the following questions and answers:

TQA section 320.01, “Communication of an Independence Breach to Affiliates of an Attest Client That Are Also Attest Clients;”
TQA section 320.02, “Communication to Affiliates That Are Not Affected by an Independence Breach at an Attest Client;”
TQA section 320.03, “Communication and Confidentiality After an Independence Breach,” and
TQA section 320.04, “Manner of Communication After an Independence Breach.”

For more information, click here.

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-09 -- Income Taxes (Topic 740) --- Improvements to Income Tax Disclosures

Summary -We have published a new edition of the Summary Checklist of Recent Authoritative U.S. Accounting Standards. This new edition reflects the issuance of Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU is effective for public business entities for annual periods beginning after December 15, 2024. For other entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

For more information, click here.

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-08 -- Intangibles Goodwill and Other Crypto Assets (Subtopic 350-60) --- Accounting for and Disclosure of Crypto Assets

Summary -The FASB published an Accounting Standards Update (ASU) intended to improve the accounting for and disclosure of certain crypto assets. FASB ASU No. 2023-08, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets, is effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued (or made available for issuance). If an entity adopts the amendments in an interim period, it must adopt them as of the beginning of the fiscal year that includes that interim period.

ASU No. 2023-08 requires a cumulative-effect adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets) as of the beginning of the annual reporting period in which an entity adopts the amendments.

The amendments in ASU No. 2023-08 are intended to improve the accounting for certain crypto assets by requiring an entity to measure those crypto assets at fair value each reporting period with changes in fair value recognized in net income. The amendments also improve the information provided to investors about an entity’s crypto asset holdings by requiring disclosure about significant holdings, contractual sale restrictions, and changes during the reporting period.

The amendments in the ASU apply to all assets that meet all the following criteria:

Meet the definition of intangible asset as defined in the FASB Accounting Standards Codification®;
Do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets;
Are created or reside on a distributed ledger based on blockchain or similar technology;
Are secured through cryptography;
Are fungible; and
Are not created or issued by the reporting entity or its related parties.

For more information, click here.

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-07 — Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures

Summary -The FASB issued a final Accounting Standards Update (ASU) that is intended to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023.

The amendments in the ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The key amendments:

Require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss.
Require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by FASB Accounting Standards Codification® Topic 280, Segment Reporting, in interim periods.
Clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit or loss. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
Require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.
Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.

For more information, click here.

Financial Instruments –IASB Proposes Amendments to Accounting for Financial Instruments with Debt and Equity Features

Summary - The International Accounting Standards Board (IASB) has issued the Exposure Draft, Financial Instruments with Characteristics of Equity—Proposed amendments to IAS 32, IFRS 7 and IAS 1. The Exposure Draft proposes amendments to address the challenges in companies’ financial reporting on instruments that have both debt and equity features. The comment deadline is March 29, 2024.

International Accounting Standard (IAS) 32, Financial Instruments: Presentation, sets out how a company that issues financial instruments should distinguish debt instruments from equity instruments. The distinction is important because the classification of the instruments affects the depiction of a company’s financial position and performance.

IASB believes that IAS 32 works well for most financial instruments. However, financial instruments have evolved since this IFRS Accounting Standard was initially issued; they are more complex and present new reporting challenges for companies. Companies’ solutions to the reporting challenges differ, resulting in diverse accounting practices that make it difficult for investors to assess and compare companies’ financial position and performance. Investors are calling for better information, particularly about equity instruments.

To address these challenges, the proposals in the Exposure Draft would amend IAS 32; IFRS 7, Financial Instruments: Disclosures; and IAS 1, Presentation of Financial Statements.

The IASB proposes:

Clarification of the underlying classification principles of IAS 32 to help companies distinguish between debt and equity;
Requirements for companies to disclose information to further explain the complexities of instruments that have both debt and equity features; and
New presentation requirements for amounts, including profit and total comprehensive income, attributable to ordinary shareholders separate from the amounts attributable to other holders of equity instruments.

For more information, click here.

Tokens – AICPA Proposes Framework for Reporting on Stablecoins and Sufficiency of Assets for Redemption

Summary - The AICPA’s Assurance Services Executive Committee (ASEC) has released the Exposure Draft, Proposed Criteria for the Presentation of the Sufficiency of Assets for Redemption: Specific to Asset-Backed Fiat-Pegged Tokens. The comment deadline is January 29, 2024.

The Exposure Draft sets forth what ASEC intends to be a comprehensive set of criteria to help increase transparency around stablecoins, a type of digital asset backed by traditional currency or other types of assets. The AICPA believes that, if adopted as proposed, these criteria would constitute the first framework of its kind to those issuing stablecoins, backed by fiat currency, for reporting relevant information to stakeholders. The AICPA also intends this framework to provide the basis for attestation services around this asset class and for practitioners to use the criteria when conducting an attestation engagement to perform procedures and generate a report on the issuer's claims about the sufficiency of assets for redemption linked to asset-backed, fiat-pegged tokens (that is, stablecoins).

Crypto assets and other digital assets make news for reasons ranging from their novelty, unpredictability, or utility in various markets. Stablecoins in particular have gained prominence for their role in trading, making them attractive to investors and businesses, although information available to token holders for stablecoins has not been consistent. The AICPA intends the draft criteria to remedy this.

Certain regulatory bodies, including the New York State Department of Financial Services (DFS), at the present time require reporting on and attestation of stablecoins, underlining the increasing importance of regulatory compliance.

The AICPA believes that the criteria will provide transparency to benefit token issuers as well as token holders, regulators, and the wider industry. By creating a standardized framework, the AICPA aims to reduce inconsistencies in measuring and reporting issued tokens and available assets backing those tokens.

For more information, click here.

Public Interest Entities –AICPA PEEC Issues Guidance on Public Interest Entities

Summary - The AICPA’s Professional Ethics Executive Committee (PEEC) has released its New and revised definitions related to public interest entities, which amends the Code of Professional Conduct, under ET Section: 0.400 Definitions. The PEEC adopted the changes at its meeting in November.

The affected definitions are as follows:

New definition “publicly traded entity” (ET Section 0.400.45) includes entities that issue financial instruments that are transferable and traded through a publicly accessible market mechanism, including through listing on a stock exchange. For an entity that is required to file a registration statement with the SEC, the entity becomes a publicly traded entity when its registration statement is effective.
Revised definition “public interest entity” (ET Section 0.400.43) includes entities that meet one of several categories, including entities the auditors of which are subject to Regulation S-X, SEC Rule 2-01; certain entities that take deposits from the public; certain entities that provide insurance to the public; and SEC registered investment companies.

Effective dates

The new definition of “publicly traded entity” is effective December 15, 2023. The revision of “public interest entity,” as noted in the introduction to the release document, “is effective for periods beginning on or after December 15, 2024, with early implementation allowed. For an entity that, under the revised definition, is no longer considered a public interest entity, the revised definition is effective December 15, 2023.

For more information, click here.

Derivatives – FASB Discusses Derivatives

Summary - As reported in its “Summary of Decisions” publication, the FASB met on December 6, 2023, and discussed whether to add a project to its technical agenda to refine the scope of Topic 815, Derivatives and Hedging, and began initial deliberations. The FASB discussed feedback on the application of the definition of a derivative to various arrangements with contingent features that the FASB received in comment letters on the June 2021 Invitation to Comment, Agenda Consultation, and through additional stakeholder outreach. The FASB decided to add a project to its technical agenda to refine the scope of Topic 815.

For more information, click here.

Interim Reporting –FASB Discusses Interim Reporting

Summary - As reported in its “Summary of Decisions” publication, the FASB met on November 15, 2023, and continued redeliberations on the 2021 proposed ASU, Interim Reporting (Topic 270): Disclosure Framework—Changes to Interim Disclosure Requirements. The FASB reached a number of decisions, including agreeing with the FASB staff’s methodology for identifying interim disclosure requirements. Key aspects of the methodology include whether the word interim is used in the existing disclosure as well as consideration of references within current GAAP (including Topic 270) and source literature.

For more information, click here.

Statement of Cash Flows –FASB Discusses Statement of Cash Flows

Summary - As reported in its “Summary of Decisions” publication, the FASB met on November 8, 2023, and decided to add a project to its technical agenda to make targeted improvements to the statement of cash flows to provide investors with decision-useful information.

The FASB decided that the scope of the project is to:

Reorganize and disaggregate the statement of cash flows for financial institutions to improve the decision-usefulness of that statement; and
Develop a disclosure about an entity’s cash interest income received.

The FASB chair retained a project about the statement of cash flows on the research agenda to explore further potential improvements.

For more information, click here.

Stock Compensation –FASB Discusses Stock Compensation

Summary - As reported in its “Summary of Decisions” publication, the FASB met on November 1, 2023, and discussed feedback received and issues for redeliberation on the proposed ASU, Compensation: Stock Compensation (Topic 718): Scope Application of Profits Interest Awards, and made a number of decisions, including the following:

Affirmed its decision that the amendments apply to all entities, including public business entities (PBEs) and entities other than PBEs;

Clarified that the amendments apply to awards to both employees and nonemployees; and

Decided that the amendments will be effective for PBEs for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years.

For more information, click here.

FASB Agenda –FASB Discusses Potential Agenda Projects

Summary - As reported in its “Summary of Decisions” publication, the FASB met on December 20, 2023, and discussed the results of staff research and analysis on several potential projects related to recent agenda requests. The FASB decided not to add the following potential projects to its agenda:

Clarifying the Scope and Application of Topic 480, Distinguishing Liabilities from Equity, for Legal Form Debt Instruments;
Accounting for Equity Securities;
Eliminating the Held-to-Maturity (HTM) Classification for Debt Securities;
Making Other Amendments to the Accounting for HTM Debt Securities; and
Topic 740, Income Taxes, Backwards Tracing.

The FASB also decided not to add a project to its technical agenda on accounting for commodities at this time but supported retaining the project on the research agenda.

For more information, click here.

Recent SEC & PCAOB Updates

Release No. 33-11275: The Enhancement and Standardization of Climate-Related Disclosures for Investors

Summary - The SEC adopted rules to “enhance and standardize climate-related disclosures by public companies and in public offerings. The final rules reflect the Commission’s efforts to respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules.” Specifically, the new rules will require a registrant to disclose:

Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;
The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook;
If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices;
Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes;
Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal;
For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions;
For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for an LAF, following an additional transition period, will be at the reasonable assurance level;
The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements;
The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals, disclosed in a note to the financial statements; and
If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.

The final rules will become effective 60 days following publication of the adopting release in the Federal Register, and compliance dates for the rules will be phased in for all registrants, with the compliance date dependent on the registrant’s filer status.

For more information, click here.

Release No. 34-99582: Supplemental Standards of Ethical Conduct for Members and Employees of the Securities and Exchange Commission

Summary - The SEC adopted amendments to its ethics rules to strengthen and modernize its ethics compliance program. The SEC indicates that the “amendments update the SEC’s existing, robust ethics requirements that govern the securities holdings and transactions of all agency employees, their spouses, and minor children. The rule was adopted jointly with the Office of Government Ethics.” The amendments update the SEC’s Supplemental Ethics Rules, 5 CFR Part 4401.102, Supplemental Standards of Conduct for Members and Employees Securities and Exchange Commission.

While the SEC has long prohibited employees from investing in stocks of entities directly regulated by the agency, such as broker-dealers and investment advisers, the rule amendments expand the prohibited holdings restrictions to ban employees from investing in financial industry sector funds, as employee ownership of financial industry sector funds poses similar risks of conflicts of interest and appearance concerns

The amendments permit employees to comply with existing reporting requirements by authorizing financial institutions to transmit data on their covered securities transactions and holdings directly to the SEC through an automated electronic system. This amendment is expected to enhance internal compliance controls by:

Facilitating the detection and remediation of violations in real time;
Reducing burdensome manual processes for transaction confirmations and reporting; and
Providing an independently verifiable source for compliance monitoring and testing.

The amendments also facilitate the efficient and effective use of agency resources to monitor compliance of securities investments and transactions that involve significant ethics risks. Specifically, because diversified mutual funds generally pose a low risk of conflicts of interest, misuse of nonpublic information for personal gain, or appearance problems as compared to other types of securities, the rule amendments exempt diversified mutual funds from the Supplemental Ethics Rule’s requirements. However, mutual funds that concentrate investments in a particular sector, industry, business, state, or country other than the United States remain subject to the rules.

For more information, click here.

“AI, Finance, Movies, and the Law” Prepared Remarks before the Yale Law School, Gary Gensler, Chairman - February, 2024

Summary - SEC Chair Gary Gensler recently discussed AI and Finance. Gensler indicates that AI “opens up tremendous opportunities for humanity. As machines take on pattern recognition, particularly when done at scale, this can create great efficiencies across the economy.”

Topics discussed the following topics:

AI: opportunities and challenges;
Macro: system-wide risk;
Micro: deception, AI washing, hallucinations, and conflicts; and
Conflicts.

For more information, click here.

Remarks at Ohio State Law Journal Symposium 2024: ESG and Enforcement of the Federal Securities Laws

Summary - Gurbir S. Grewal, SEC Director of Enforcement, recently discussed ESG and SEC enforcement efforts. Grewal indicates that the SEC “is not an environmental regulator. Its three-part mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. This work requires us to use all the tools at our disposal to stand up for the investing public. And a central theme in our efforts – and a recurring theme in many of my public remarks – has been restoring public trust in our institutions and financial markets, which has been on the decline."

For more information, click here.

Further Announcement Regarding Share Repurchase Disclosure Modernization Rule

Summary -The SEC has published Further Announcement Regarding Share Repurchase Disclosure Modernization Rule. This announcement indicates that on “December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit issued an opinion in Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir.) vacating the Share Repurchase Disclosure Modernization rule (the “Final Rule”). As a result of the vacatur, the disclosure requirements revert to those in effect prior to the Final Rule’s effective date.

For more information, click here.

Cybersecurity –SEC Staff Updates Interpretations for Material Cybersecurity Incidents Guidance

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its Compliance and Disclosure Interpretation (CDI), Exchange Act Form 8-K. Corp Fin has added new questions 104B.01-104B.04. These new questions provide guidance on material cybersecurity incidents.

For more information, click here.

AICPA & CIMA Conference on Current SEC and PCAOB Developments - 2023

Summary - As discussed above, on December 4-6, 2023, representatives of the SEC, FASB, PCAOB, IASB, and AICPA spoke at the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments. Topics discussed during the 2023 conference covered a number of important financial reporting and auditing issues. Principal themes of the conference included:

Disclosure and assurance of climate change and economic, social, or governance (ESG) matters.
Disclosures and reporting on crypto assets.
Accounting and auditing during challenging economic times plagued by geopolitical issues, inflation, supply chain issues, and labor constraints.
The importance of transparency and integrity of financial reporting, including investor protections and the role of the auditor in providing assurance and trust in the financial reports of entities.
The importance of internal control over financial reporting (ICFR), including the designing and implementation of controls, and the important role of auditors have in testing the effectiveness of ICFR.
PCAOB standard-setting, inspection, and enforcement.
Accounting standard-setting.

For more information, click here.

PCAOB Inspections – PCAOB Staff Outline 2024 Inspection Priorities with Focus on Driving Improvements in Audit Quality

Summary - The PCAOB inspectors outlined their priorities for 2024 inspections in a PCAOB staff report. The staff report includes key risks, like high interest rates, and other considerations, like audit areas with recurring deficiencies, that auditors should focus on when planning and performing audit procedures. It notes the PCAOB will continue to prioritize inspections of financial-services sector audits, digital assets, and more. The report also includes suggested questions for audit committees to hold firms accountable to high standards when hiring and overseeing the audit process.

The report also reiterates the inspection staff’s commitment to enhancements to the PCAOB’s inspection program, such as increasing the number of engagements reviewed and improving the timeliness of inspection reports.

Among the PCAOB’s inspection enhancements in 2024 will be the creation of a PCAOB team that will evaluate culture across the largest domestic audit firms. This initiative will include interviewing firm personnel and evaluating other documentation, with the aim of using this information to enhance the PCAOB’s understanding of how audit firm cultures may be affecting audit quality.

The staff report addresses the following areas for consideration in the PCAOB’s 2024 inspection program:

Overall Business Risk Considerations

Persistent high interest rates, tightening of credit availability, and/or inflationary challenges.
Disruptions in the supply chain and rising costs.
Business models that are significantly impacted by rapidly changing technology.
Geopolitical conflicts.
Financial statements that include areas with a higher inherent risk of fraud, estimates involving complex models or processes, and/or presentation and disclosures that may be impacted by complexities in the public company’s activities.

Prioritized Sectors/Industries for audit selection and inspection

Continued emphasis on companies engaging in merger and acquisition activities or business combinations.
Continued emphasis on audits of broker-dealers that file compliance reports and others that provide customers with various investment opportunities, such as introducing brokers.
Continued selection of non-traditional audit areas.
Continuing emphasis on public companies in industries and sectors with specialized accounting and/or that may be negatively impacted by uncertainties and volatility in the economic and geopolitical environment, prioritizing in particular Financials, Information Technology, and Other.

Inspections Considerations

The report also discusses a range of considerations that should be important for auditors when planning and performing risk assessments and audit procedures, including:

Challenges and Recurring Deficiencies Observed in Inspections of Auditors of Broker-Dealers.
Recurring Deficiencies.
Evaluating Audit Evidence.
Understanding the Company and Its Environment.
Use of Other Auditors.
Going Concern.
Critical Audit Matters (CAMs).
Digital Assets.
Cybersecurity.
Use of Data and Technology.

Updated List of Questions that Audit Committees May Want to Consider

In the context of the PCAOB’s 2024 inspections, the report contains suggested questions for audit committee members to consider amongst themselves or in discussions with their independent auditors. These questions are designed principally to further two-way communication on topics such as auditor understanding of the business, fraud, going concern, other auditors, CAMs, and the company’s use of technology. Chair Williams has encouraged audit committees to ask questions in order to hold firms accountable to performing high-quality audits.

For more information, click here.

EDGAR –SEC Updates EDGAR Filer Manual

Summary - The SEC has published a Final Rule, Adoption of Updated EDGAR Filer Manual. This new edition of the EDGAR Filer Manual has been updated to reflect recent SEC rulemaking, including changes for the new disclosure requirements for cybersecurity incidents. The SEC adopted new rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incidents by public companies in Forms 10-K and 8-K.

For more information, click here.

Release No. 34-98959: Clearing Agency Governance and Conflicts of Interest

Summary -The SEC has adopted Securities Act Rule 192 to implement Section 27B of the Securities Act of 1933, a provision added by Section 621 of the Dodd-Frank Act. The rule is intended to prevent the sale of asset-backed securities (ABS) that are tainted by material conflicts of interest. It prohibits a securitization participant, for a specified period of time, from engaging, directly or indirectly, in any transaction that would involve or result in any material conflict of interest between the securitization participant and an investor in the relevant ABS. Under new Rule 192, such transactions would be “conflicted transactions.”

Rule 192 provides exceptions for risk-mitigating hedging activities, liquidity commitments, and bona fide market-making activities of a securitization participant. These exceptions permit certain market activities, subject to satisfaction of the specified conditions, which will allow securitization participants to continue important risk management, liquidity commitment, and market-making activities.

Under new Rule 192, conflicted transactions include a short sale of the relevant ABS, the purchase of a credit default swap or other credit derivative that entitles the securitization participant to receive payments upon the occurrence of specified credit events in respect of the ABS, or a transaction that is substantially the economic equivalent of the aforementioned transactions, other than any transaction that only hedges general interest rate or currency exchange risk.

Effective date: February 5, 2024. Compliance date: The applicable compliance dates are discussed in Part III of this release.

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Announcement Regarding Share Repurchase Disclosure Modernization Rule

Summary -The SEC has published an announcement postponing the effective date of the SEC’s Final Rule, Share Repurchase Disclosure Modernization (Repurchase Rule). The Repurchase Rule adopted amendments to modernize and improve disclosure about repurchases of an issuer’s equity securities that are registered under the Securities Exchange Act of 1934. Among other things, the Repurchase Rule requires additional detail regarding the structure of an issuer’s repurchase program and its share repurchases, require the filing of daily quantitative repurchase data either quarterly or semi-annually, and eliminate the requirement to file monthly repurchase data in an issuer’s periodic reports.

The SEC cited the U.S. Court of Appeals for the Fifth Circuit opinion in Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir.), in which petitioners challenge the Repurchase Rule, which became effective on July 31, 2023. The court granted the petition for review and remanded to the SEC “to correct the defects” the court identified in the Repurchase Rule by November 30, 2023.

The SEC indicates that in light of the court’s decision, the SEC issued an order postponing the effective date of the Repurchase Rule pursuant to Section 705 of the Administrative Procedure Act. As a result, the Repurchase Rule is stayed pending further SEC action.

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Review of the “Accredited Investor” Definition under the Dodd-Frank Act

Summary -The SEC issued a staff report on the accredited investor definition. The Dodd-Frank Wall Street Reform and Consumer Protection Act directs the SEC to review the accredited investor definition as it relates to natural persons every four years to determine whether the definition should be modified or adjusted. The SEC staff previously reviewed the definition in 2015 and in 2019 (as part of the Concept Release on Harmonization of Securities Offering Exemptions). Staff from the SEC’s Divisions of Corporation Finance and Economic and Risk Analysis prepared the report in connection with this third review of the definition.

The report examines the current status of the accredited investor pool and concludes with a review of frequently suggested revisions to the accredited investor definition received from a variety of sources, including public commenters, the Investor Advisory Committee, and the Small Business Capital Formation Advisory Committee.

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Extra Crunch

SEC Strategic Plan – Fiscal Years 2022-2026

Summary - The Securities and Exchange Commission (SEC) has unveiled its Strategic Plan for Fiscal Years 2022 to 2026, emphasizing its pivotal role in overseeing global capital markets worth over $100 trillion. With a three-fold mission to protect investors, ensure fair markets, and promote capital formation, the SEC outlines three key goals to fulfill its mandate: safeguarding the investing public from fraud and misconduct, adapting regulatory frameworks to evolving markets and technologies, and cultivating a diverse and skilled workforce. Acknowledging the dynamic nature of markets and the need for continuous adaptation, the SEC underscores the importance of staying ahead through constant improvement and readiness to face challenges from competing nations.

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