We are pleased to release MaloneBailey's September 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

What's the Crunch?



Featured Podcast

• The Rise of AI in Auditing

Recent Accounting & Regulatory Updates



Recent FASB & AICPA Updates

• SOC 1 –AICPA Publishes New Technical Question and Answers 
• Foreign Exchange –IASB Amends IAS 21 for Accounting Requirements for When a Currency is Not Exchangeable
• Segment Reporting –FASB Discusses Segment Reporting

Recent SEC & PCAOB Updates

• Release No. 33-11216: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure
• The Potential Pitfalls of Purported Crypto “Assurance” Work, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant
• Isaac Newton to AI” Remarks before the National Press Club, Gary Gensler, Chairman - June, 2023
• July 18, 2023: Sample Letter to Companies Regarding China-Specific Disclosures

Tax

• IRS Improved 2023 Filing Season Service

Extra Crunch

• Securities and Exchange Commission's 'Office Hours' with Gary Gensler, Chairman of the SEC

About MaloneBailey, LLP

The Rise of AI in Auditing

Summary - The rise of AI and tools that use AI, such as ChatGPT, and how different professional industries, including accounting, will navigate its use has presented our current society with a lot of burning questions. Should we embrace it or fear it? Will it be taking over our jobs? Several groups have even gone on strike in large part because of AI and its lack of regulation in terms of their profession. Our host, Matt Setzekorn, sat down with one of MaloneBailey’s partners, Allan Dulany, to discuss the rise in AI in auditing, its opportunities and challenges and what the future could look like with these new tools and how auditors can expect to implement these new tools going forward.



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.

SOC 1 – AICPA Publishes New Technical Question and Answers

Summary - The AICPA has published Technical Questions and Answers Section 9560, Information About Controls Over Cryptographic Keys in a SOC 1® Report. This publication includes the following question and answers:



• Q&A section 9560.01, “Controls Over Cryptographic Keys Relevant to an Entity’s Internal Control Over Financial Reporting in Relation to Performing a SOC 1 Engagement;”
• Q&A section 9560.02, “Risks Associated With Cryptographic Keys;”
• Q&A section 9560.03, “Inclusion of Controls Over Cryptographic Keys in a SOC 1 Report;”
• Q&A section 9560.04, “Description of Tests of Controls and Results Thereof Related to a Prior-Period Key Ceremony;”
• Q&A section 9560.05, “Providing Evidence of Suitability of Design and Operating Effectiveness of
• Controls Over Key Ceremony That Occurred in a Prior Period;” and
• Q&A section 9560.06, “Chain-of-Custody Controls That Depend on a Cryptographic Key Generated in a Prior Period.”

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Foreign Exchange – IASB Amends IAS 21 for Accounting Requirements for When a Currency is Not Exchangeable

Summary - The IASB has issued amendments to International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates, that will require companies to provide more useful information in their financial statements when a currency cannot be exchanged into another currency.

The amendments respond to stakeholder feedback and concerns about diversity in practice in accounting for a lack of exchangeability between currencies. The IASB intends the amendments to help companies and investors by addressing a matter not previously covered in the accounting requirements for the effects of changes in foreign exchange rates.

These amendments will require companies to apply a consistent approach in assessing whether a currency can be exchanged into another currency and, when it cannot, in determining the exchange rate to use and the disclosures to provide.



The amendments will become effective for annual reporting periods beginning on or after January 1, 2025, with early application permitted. 

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Segment Reporting – FASB Discusses Segment Reporting

Summary - As reported in its “Summary of Decisions,” the FASB met on July 26, 2023, and discussed comment letter feedback and issues for redeliberations on the proposed Accounting Standards Update, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. 

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11216: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure

Summary - The SEC adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance. The SEC also adopted rules requiring foreign private issuers to make comparable disclosures.

The SEC indicates that the “new rules will require registrants to disclose on the new Item 1.05 of Form 8-K any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as its material impact or reasonably likely material impact on the registrant.” Generally, an Item 1.05 Form 8-K will due four business days after a registrant determines that a cybersecurity incident is material. The disclosure may be delayed if the United States Attorney General determines that immediate disclosure would pose a substantial risk to national security or public safety and notifies the SEC of such determination in writing.

The new rules also add Regulation S-K Item 106, which will require registrants to describe their processes, if any, for assessing, identifying, and managing material risks from cybersecurity threats, as well as the material effects or reasonably likely material effects of risks from cybersecurity threats and previous cybersecurity incidents. Item 106 will also require registrants to describe the board of directors’ oversight of risks from cybersecurity threats and management’s role and expertise in assessing and managing material risks from cybersecurity threats. These disclosures will be required in a registrant's annual report on Form 10-K.



The rules require comparable disclosures by foreign private issuers on Form 6-K for material cybersecurity incidents and on Form 20-F for cybersecurity risk management, strategy, and governance.

The final rules will become effective 30 days following publication of the adopting release in the Federal Register. The Form 10-K and Form 20-F disclosures will be due beginning with annual reports for fiscal years ending on or after December 15, 2023. The Form 8-K and Form 6-K disclosures will be due beginning the later of 90 days after the date of publication in the Federal Register or December 18, 2023. Smaller reporting companies will have an additional 180 days before they must begin providing the Form 8-K disclosure. With respect to compliance with the structured data requirements, all registrants must tag disclosures required under the final rules in Inline XBRL beginning one year after initial compliance with the related disclosure requirement.

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

The Potential Pitfalls of Purported Crypto “Assurance” Work, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - SEC Chief Accountant Paul Munter recently discussed potential pitfalls related to crypto assurance work. Munter indicates that as “accounting firms increasingly engage in this sort of non-audit work, their clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false. Non-audit arrangements are neither as rigorous nor as comprehensive as a financial statement audit, and may not provide any reasonable assurance to investors.”

Key specific topics discussed by Munter include:

• Accounting firm’s potential liability for antifraud provisions;
• Auditor independence; and
• Potential liability pursuant to Rule 102(e) of the SEC’s rules of practice.

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

“Isaac Newton to AI” Remarks before the National Press Club, Gary Gensler, Chairman - June, 2023

Summary - SEC Chair Gary Gensler recently discussed the growing use of Artificial Intelligence (AI) in many aspects of life, including finance. Gensler indicates that a lot “of the recent buzz has been about such generative AI models, particularly large language models. AI, though, is much broader. I believe it’s the most transformative technology of our time, on par with the internet and mass production of automobiles.”

Gensler provides that in finance, AI is already being used for call centers, account openings, compliance programs, trading algorithms, sentiment analysis, and more. Gensler discussed the many opportunities and challenges AI presents in finance and the broader world.

Specific opportunities and challenges discussed by Gensler included:

• Privacy and intellectual property;
• Financial stability;
• System-wide risk; and
• Explaining AI results, bias, and/or robustness.



For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

July 18, 2023: Sample Letter to Companies Regarding China-Specific Disclosures

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding China-Specific Disclosures. This sample letter expands on Corp Fin’s previous guidance issued regarding China-specific disclosures in SEC filings. Corp Fin indicates that it “continues to believe that companies should provide more prominent, specific, and tailored disclosures about China-specific matters so that investors have the material information they need to make informed investment and voting decisions.”

The sample letter highlights disclosure considerations for companies in several areas, including:

• Commission-identified issuers (as identified by the SEC under the Holding Foreign Companies Accountable Act);
• Risk of intervention or control by the PRC Government; and
• The Uyghur Forced Labor Prevention Act.



For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

IRS Improved 2023 Filing Season Service

By Travis Moffett, Tax Manager

Summary - The IRS has announced that it has made some progress toward its goal of modernizing technology to help deliver better service. Two new milestones have been achieved as part of its Paperless Processing Initiative: Scanning 225 times more forms compared to 2022 and enabling taxpayers to reply to an additional 51 forms and letters online. Let’s discuss these improvements and other initiatives implemented below.

Customer Callback Option

In the past, many taxpayers and their tax advisors have expressed frustration over long hold times when trying to contact the IRS by phone. To deal with this issue, the IRS has implemented a customer callback option to cover up to 95% of callers seeking live assistance. The main goal is to enhance the taxpayer’s experience by offering more options when there are extremely high call volumes.

Pop-Up Taxpayer Assistance Centers

The IRS has installed new Pop-Up Taxpayer Assistance Centers to give more taxpayers an opportunity to interact face-to-face with IRS customer service representatives. The IRS has conducted these events in Paris, Texas; Alpena, Michigan; Hastings, Nebraska and Twin Falls, Idaho. There are also plans to host Pop-Up Taxpayer Assistance Centers in Juneau, Alaska; Lihue, Hawaii; Baker City, Oregon; and Gallup, New Mexico.

Responding to Notices and File Online

Until the 2023 filing season, taxpayers and their tax advisors have had to respond to notices requesting things like document verification through the mail. The IRS has announced that taxpayers are now able to respond to notices online and have new online filing options. The updated IRS notices and letters will include instructions to guide taxpayers to the appropriate upload tool. The IRS has also launched an online portal to allow for the filing of Forms 1099 electronically. The goal is to help small businesses save time and money with this online filing process.

Paperless Processing Initiative

With the use of Inflation Reduction Act resources, the IRS has launched a plan to achieve paperless processing by Filing Season 2025 which will digitize all paper-filed returns when received. Once a paper filed return is received it will be converted to digital form as soon as it arrives at the IRS. So far, the IRS has scanned 849,000 forms this year, including 481,400 Forms 940, 304,000 Forms 941, and 64,000 Forms 1040. In total that is 225 more forms than were scanned in the previous year.

Final Thoughts

It’s encouraging to see that the IRS is implementing processes to help reduce the backlog that has existed since the COVID-19 pandemic. Significant improvements were needed to help enhance the taxpayer’s overall experience as the IRS’ outdated IT systems have made achieving simple tasks a challenge. Thanks to the Inflation Reduction Act, it appears that upgrades are finally being made with more improvements to be expected in the near future.



For additional information, please contact Nicole Zhao, Tax Partner, at nzhao@malonebailey.com. 

SEC's Video Resource: Office Hours with Gary Gensler

Summary - The Securities and Exchange Commission (SEC) offers an informative video resource known as 'Office Hours with Gary Gensler.' Gensler was sworn in as the 33rd Chair of the U.S. Securities and Exchange Commission on April 17, 2021.

'Office Hours with Gary Gensler' is a relatively new video resource housed on the SEC website that provides information and insight on a variety of topics including SPACs, universal proxy cards in contested director elections, the basics of investing and more. The videos are narrated by Gensler and just a few minutes long.

To view these videos and more, please visit: https://www.sec.gov/news/sec-videos