May 2022: Latest SEC, FASB & Tax Updates

We are pleased to release MaloneBailey's May 2022 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

FASB Accounting Standards Updates - Accounting Standards Update No. 2022-02 —Financial Instruments —Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
FASB Accounting Standards Updates - Accounting Standards Update No. 2022-01 —Derivatives and Hedging (Topic 815): Fair Value Hedging —Portfolio Layer
Business Combinations –FASB Discusses Intangible Assets in a Business Combination
Auditing –GAQC Publishes Practice Aids for Auditing For-Profit Entities with Provider Relief Fund
Auditing Standards Board –ASB Meeting Held
Group Audits –AICPA’s ASB Issues Proposal on Group Audits
Ethics –AICPA’s PEEC Publishes New Interpretation on Assisting Attest Clients with Implementing Accounting Standards
Unpaid Fees –AICPA’s PEEC Publishes New Edition of Interpretation on Unpaid Fees
Noncompliance with Laws and Regulations –AICPA’s PEEC Publishes New Interpretation on Attest Clients Noncompliance with Laws and Regulations
Loans –AICPA’s PEEC Publishes New Edition of Interpretation on Loans, Acquisitions and Other Transactions

Recent SEC & PCAOB Updates

Release No. 34-94615: Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities
Release No. 34-94524: Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer
Release No. 33-11048: Special Purpose Acquisition Companies, Shell Companies, and Projections
Release No. 34-94499: Removal of References to Credit Ratings From Regulation M
Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors
Release No. 33-11038: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure
Release No.33-11047: Technical Amendments to Commission Rules and Forms
Release Nos. 33-11043: Adoption of Updated EDGAR Filer Manual
Staff Accounting Bulletin No. 121
The Shareholder Proposal Rule: A Cornerstone of Corporate Democracy by Renee Jones, Acting Chief Accountant
Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant
Business Combinations –SEC Staff Updates Compliance and Disclosure Interpretations
Audit Confirmation Process –PCAOB Releases New Spotlight on the Use of a Service Provider in the Confirmation Process
Audit Committees –PCAOB Issues Spotlight on Conversations with Audit Committee Chairs
PCAOB –PCAOB Highlights Key Considerations for Auditors Related to the Russian Invasion of Ukraine

Tax

Securing a Strong Retirement Act of 2022

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Summary - In this episode of Everybody Counts, Caroline Rosen, Marketing and Communications Manager, speaks with Rozlyn Veteto, who oversees HR at MaloneBailey, about the importance of interpersonal skills in the workplace.

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Recent FASB & AICPA Updates

FASB Accounting Standards Updates - Accounting Standards Update No. 2022-02 —Financial Instruments —Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures

Summary - The FASB issued Accounting Standards Update (ASU) No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, intended to improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and writeoffs.

FASB Chair Richard R. Jones stated, “The new ASU responds to feedback we received from investors and other stakeholders during our extensive post-implementation review (PIR) of the credit losses standard. The amendments create a single model for loan modification accounting by creditors while providing improved loan modification and writeoff disclosures.”

Troubled Debt Restructurings by Creditors That Have Adopted CECL

During the FASB’s PIR of the credit losses standard, including a May 2021 roundtable, investors and other stakeholders questioned the relevance of the troubled debt restructuring (TDR) designation and the usefulness of disclosures about those modifications. Some noted that measurement of expected losses under the CECL model already incorporates losses realized from restructurings that are TDRs and that relevant information for investors would be better conveyed through enhanced disclosures about certain modifications.

The amendments in the new ASU eliminate the accounting guidance for TDRs by creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty.

Vintage Disclosures—Gross Writeoffs

The disclosure of gross writeoff information by year of origination was cited by numerous investors as an essential input to their analysis. To address this feedback, the amendments in the new ASU require that a public business entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases.

For more information, click here.

FASB Accounting Standards Updates - Accounting Standards Update No. 2022-01 —Derivatives and Hedging (Topic 815): Fair Value Hedging —Portfolio Layer Method

Summary - The FASB issued an Accounting Standards Update (ASU) No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method, intended to better align hedge accounting with an organization’s risk management strategies.

In 2017, the FASB issued a new hedging standard to better align the economic results of risk management activities with hedge accounting. That standard increased transparency around how the results of hedging activities are presented, both on the face of the financial statements and in the footnotes, for investors and analysts when hedge accounting is applied.

One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows.

Since issuing that standard, stakeholders have told the FASB that the ability to elect hedge accounting for a single layer is useful, but hedge accounting could better reflect risk management activities if expanded to allow multiple layers of a single closed portfolio to be hedged under the method.

ASU No. 2022-01 expands the current single-layer method to allow multiple hedged layers of a single closed portfolio under the method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method.

Additionally, the ASU:

Expands the scope of the portfolio layer method to include nonprepayable assets;
Specifies eligible hedging instruments in a single-layer hedge;
Provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method; and
Specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.

The ASU applies to all entities that elect to apply the portfolio layer method of hedge accounting. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted.

For more information, click here.

Business Combinations – FASB Discusses Intangible Assets in a Business Combination

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on March 2, 2022, and discussed: (1) the accounting for identifiable intangible assets in a business combination; and (2) the goodwill balances that should be included in the scope of the subsequent accounting guidance for goodwill. The latter included goodwill arising from a reorganization, goodwill at a subsidiary (including from applying pushdown accounting), and goodwill arising from applying the equity method of accounting. The FASB provided its leaning to require that an entity subsume contractual and noncontractual customer relationships into goodwill if they are not separable.

The FASB also provided its leaning to include reorganization goodwill, goodwill at a subsidiary, and equity method goodwill in the scope of subsequent accounting guidance for goodwill and to provide additional implementation guidance for entities applying pushdown accounting. No decisions were made.

For more information, click here.

Auditing –GAQC Publishes Practice Aids for Auditing For-Profit Entities with Provider Relief Fund

Summary - The Government Audit Quality Center (GAQC) today published several practice aids for auditing for-profit entities with Provider Relief Fund (PRF) and other HHS Program funding, and for organizations undergoing first-time single audits. The GAQC has published these practice aids in response to the large increase in entities requiring a single audit based on having received federal funding in response to the COVID-19 pandemic.

PRF funding is subject to single audit requirements which require the auditor to determine and report on whether the Schedule of Expenditures of Federal Awards (SEFA), presented as supplementary information (SI), is fairly stated in all material respects, in relation to the financial statements as a whole.

The GAQC developed the practice aid, Auditing For-Profit Entities with PRF and Other HHS Program Funding, to “assist auditors and for-profit entities subject to the HHS for-profit audit requirements when the PRF program is among the HHS awards subject to audit. The practice aid “includes, among other items, frequently asked questions (FAQs) and illustrative schedules, notes, and auditors’ reports. This practice aid provides nonauthoritative guidance on accounting and auditing matters as developed by AICPA staff.”

Many organizations that have never had a single audit received federal funding in response to the pandemic and through various federal legislation are now required to undergo one. These GAQC practice aids are chciecklist tools to assist auditors and organizations in considerations relating to single audits, including knowing whether a single audit is necessary.

For more information, click here.

Auditing Standards Board – ASB Meeting Held

Summary - The Auditing Standards Board (ASB) met on March 9, 2022, and voted to issue one Statement on Auditing Standards (SAS) for public exposure and one SAS as a final standard. The ASB unanimously voted to issue for public exposure proposed SAS, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors). While the proposed SAS is based on the draft of International Standard on Auditing (ISA) 600 (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) that was discussed and approved at the International Auditing and Assurance Standards Board’s December 2021 meeting, unlike ISA 600, the proposed SAS would continue to allow the group auditor to choose to make reference to the report of another auditor. The proposed SAS defines such auditors as “referred-to auditors.” Referred-to auditors are not component auditors and are not members of the engagement team. The exposure draft is expected to be issued by early April 2022 and will have a 90-day comment period.

The ASB members present unanimously voted to issue as a final SAS, Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance with Laws and Regulations. This SAS amends generally accepted auditing standards with respect to communication requirements between predecessor and successor auditors about: (1) identified or suspected fraud; and (2) matters involving noncompliance or suspected noncompliance with laws and regulations. The amendments align with revisions to the Code of Professional Conduct regarding responding to noncompliance with laws and regulations recently adopted by the Professional Ethics Executive Committee. Consistent with the effective date of the Code revisions, the new SAS will have an effective date for audits of financial statements for periods beginning on or after June 30, 2023.

For more information, click here.

Group Audits – AICPA’s ASB Issues Proposal on Group Audits

Summary - The AICPA’s Auditing Standards Board has issued the Exposure Draft, Proposed Statement on Auditing Standards, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors). The comment deadline is June 21, 2022.

The ASB has issued this Exposure Draft as part of its efforts to converge its auditing and other standards with those of the International Auditing and Assurance Standards Board (IAASB). The ASB has drafted this Exposure Draft to converge with the IAASB’s International Standard on Auditing (ISA) 600, Special Considerations⎯Audits of Group Financial Statements (Including the Work of Component Auditors) (ISA 600 [Revised]). The ASB decided to converge their group audit standard with that of the IAASB because the ASB “believes that the issues that led the IAASB to revise its standards are of equally critical importance in the United States. [and] . . . for firms that perform engagements in accordance with standards of the IAASB and the ASB, complying with fundamentally different group audit standards is not feasible.”

The Exposure Draft

According to the ASB, the proposed SAS, if adopted as final, would strengthen the auditor’s approach to planning and performing a group audit and to improve the quality of group audits by:

Requiring that all applicable AU-C sections be applied in a group audit engagement;
Including subsections of each section of the proposed SAS that describe the requirements that apply when component auditors are involved; and
Providing greater clarity on the scope and applicability of the proposed SAS, including through enhancements to the definition of group financial statements.

Among other provisions, the proposed standard would supersede SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, as amended, section 600, Special Considerations ⎯ Audits of Group Financial Statements (Including the Work of Component Auditors). It would also amend other SASs to conform to the group audits standard.

Proposed Effective Date

The Exposure Draft provides that the SAS, if adopted as proposed, “would be effective for audits of group financial statements for periods ending on or after December 15, 2026.”

For more information, click here.

Ethics –AICPA’s PEEC Publishes New Interpretation on Assisting Attest Clients with Implementing Accounting Standards

Summary - The AICPA’s Professional Ethics Executive Committee (PEEC) has published a new Interpretation, Assisting Attest Clients With Implementing Accounting Standards. This new interpretation provides guidance on when an AICPA member assists an attest client with planning and executing the implementation of an accounting standard and possible impacts to compliance with the Independence Rule.

For more information, click here.

Unpaid Fees –AICPA’s PEEC Publishes New Edition of Interpretation on Unpaid Fees

Summary - The AICPA’s PEEC has published a new edition of its Interpretation, Unpaid Fees. This new edition provides guidance on the existence of unpaid fees related to an attest client and possible impacts to compliance with the Independence Rule.

For more information, click here.

Noncompliance with Laws and Regulations –AICPA’s PEEC Publishes New Interpretation on Attest Clients Noncompliance with Laws and Regulations

Summary - The AICPA’s PEEC has published a new Interpretation, Noncompliance with Laws and Regulations. This new interpretation provides guidance on an attest clients noncompliance with laws and regulations and possible impacts to compliance with the Independence Rule.

For more information, click here.

Loans –AICPA’s PEEC Publishes New Edition of Interpretation on Loans, Acquisitions and Other Transactions

Summary - The AICPA’s PEEC has published a new edition of its Interpretation, Loans, acquisitions, and other transactions. This new edition provides guidance on loans, acquisitions, and other transactions with attest clients and possible impacts to compliance with the Independence Rule.

For more information, click here.

Recent SEC & Regulatory Updates

Release No. 34-94615: Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities

Summary - The SEC has issued for public comment proposed new Regulation SE under the Securities Exchange Act of 1934 (the Exchange Act) to “create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs). The new regulatory framework was one of the major reforms required under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the over-the-counter derivatives market.”

If adopted, the proposal would:

Implement the Exchange Act’s trade execution requirement for security-based swaps and address the cross-border application of that requirement;
Implement Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps; and
Promote consistency between proposed Regulation SE and existing rules under the Exchange Act.

The SEC indicates that In developing this proposal, it “sought to harmonize as closely as practicable with parallel rules of the Commodity Futures Trading Commission (CFTC) that govern swap execution facilities and swap execution generally.” The SEC seeks to obtain regulatory benefits comparable to those under the CFTC regime while minimizing costs imposed on SBSEFs and their members.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 34-94524: Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer

Summary - The SEC has issued for public comment two proposed rules that would require market participants, such as proprietary (or principal) trading firms, who assume certain dealer functions, in particular those who act as liquidity providers in the markets, to register with the SEC, become members of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations.

The SEC indicates that if adopted, the proposed rules, “Exchange Act Rules 3a5-4 and 3a44-2, would further define the phrase “as a part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Act to identify certain activities that would cause persons engaging in such activities to be “dealers” or “government securities dealers” and subject to the registration requirements of Sections 15 and 15C of the Act, respectively.”

Under the proposed rules, any market participant that engages in activities as described in the rules would be a “dealer” or “government securities dealer” and, absent an exception or exemption, required to: register with the Commission under Section 15(a) or Section 15C, as applicable; become a member of an SRO; and comply with federal securities laws and regulatory obligations, including as applicable, SEC, SRO, and Treasury rules and requirements.

For more information, click here.

Release No. 33-11048: Special Purpose Acquisition Companies, Shell Companies, and Projections

Summary - The SEC has issued for public comment proposed new rules and amendments to enhance disclosure and investor protection in initial public offerings by special purpose acquisition companies (SPACs) and in business combination transactions involving shell companies, such as SPACs, and private operating companies.

The proposed new rules and amendments would require, among other things, “additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution. They also would require additional disclosures regarding business combination transactions between SPACs and private operating companies, including disclosures relating to the fairness of these transactions. Further, the new rules would address issues relating to projections made by SPACs and their target companies, including the Private Securities Litigation Reform Act safe harbor for forward-looking statements and the use of projections in Commission filings and in business combination transactions.”

If adopted, the proposed rules would more closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an initial public offering.

The proposal also includes a new rule addressing the status of SPACs under the Investment Company Act of 1940, which is designed to increase attention among SPACs about this important assessment. Under the proposed rule, SPACs that satisfy certain conditions that limit their duration, asset composition, business purpose, and activities would not be required to register under the Investment Company Act.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 34-94499: Removal of References to Credit Ratings From Regulation M

Summary - The SEC has proposed for public comment changes that would remove the references to credit rating agencies from existing exceptions provided in Rule 101 and Rule 102 of Regulation M, a set of rules designed to preserve market integrity by prohibiting activities that could artificially influence the market for an offered security.

The SEC “proposes to replace the credit-rating requirement included in Rule 101’s exception, which is available to distribution participants and their affiliated purchasers, with requirements that the nonconvertible debt securities and nonconvertible preferred securities meet a specified probability of default threshold, and that the asset-backed securities be offered pursuant to an effective shelf registration statement filed on the Commission’s Form SF-3. In addition, the proposed changes would eliminate Rule 102’s exception, which is available to issuers, selling security holders, and their affiliates, for investment grade nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities.”

The proposal also includes a recordkeeping requirement under Rule 17a-4(b)(17) for broker-dealers who make probability of default determinations in reliance on Rule 101’s proposed exception for nonconvertible debt securities and nonconvertible preferred securities.

The comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors

Summary - The SEC has proposed for public comment rule changes that would require companies to include certain climate-related disclosures in their registration statements and periodic reports, including “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.” The required information about climate-related risks also would include disclosure of a company’s greenhouse gas emissions, which have become a commonly used metric to assess a company’s exposure to such risks.

The proposed rule changes would require disclosure of information about:

The company’s governance of climate-related risks and relevant risk management processes;
How any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements;
How any identified climate-related risks have affected or are likely to affect the company’s strategy, business model, and outlook; and
The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a company’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

The proposed rules also would require a company to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a company would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the company has set a GHG emissions target or goal that includes Scope 3 emissions. The SEC indicates that these proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a company’s “exposure to, and management of, climate-related risks, and in particular transition risks. The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies.” The proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.

Under the proposed rule changes, accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering Scopes 1 and 2 emissions disclosures, with a phase-in over time, to promote the reliability of GHG emissions disclosures for investors.

For more information, click here.

Release No. 33-11038: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure

Summary - The SEC proposed amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The SEC indicates that the proposed amendments would “require, among other things, current reporting about material cybersecurity incidents and periodic reporting to provide updates about previously reported cybersecurity incidents.” The proposal would also require periodic reporting about:

A company’s policies and procedures to identify and manage cybersecurity risks;
The company’s board of directors' oversight of cybersecurity risk; and
Management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures.

In addition, the proposal would require annual reporting or certain proxy disclosure about the board of directors’ cybersecurity expertise, if any. The proposed amendments are intended to better inform investors about a company's risk management, strategy, and governance and to provide timely notification to investors of material cybersecurity incidents.

For more information, click here.

Release No.33-11047: Technical Amendments to Commission Rules and Forms

Summary - The SEC has adopted technical amendments to various rules and forms under the Securities Act of 1933, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. These revisions make technical changes to correct typographical errors and erroneous cross-references, as well as to clarify instructions.

These amendments are effective upon publication in the Federal Register.

For more information, click here.

Release Nos. 33-11043: Adoption of Updated EDGAR Filer Manual

Summary - The SEC has published a new edition of its EDGAR Filer Manual. This new edition includes an amendment to Volume I to add a link to the Glossary of Commonly Used Terms, Acronyms, and Abbreviations. This new edition is also being updated to reflect various new SEC rule amendments.

For more information, click here.

Staff Accounting Bulletin No. 121

Summary - The SEC’s Division of Corporation Finance (Corp Fin) has published Staff Accounting Bulletin (SAB) No. 121 which provides guidance on accounting for obligations to safeguard crypto-assets an entity holds for platform users. Specifically, SAB 121 updates SAB Topic 5, Miscellaneous Accounting and provides guidance on various topics associated with these types of arrangements, including how entities that hold crypto-assets should account for liabilities associated with these arrangements. This guidance includes consideration of financial and non-financial disclosures associated with these types of arrangements.

For more information, click here.

The Shareholder Proposal Rule: A Cornerstone of Corporate Democracy by Renee Jones, Acting Chief Accountant

Summary - Renee Jones, SEC Director of the Division of Corporation Finance (Corp Fin), recently discussed the shareholder proposal rule. Jones indicates that the shareholder proposal rule is “not self-executing. Each year questions arise as to whether a company may exclude a proposal under one of the bases for exclusion in the rule. To facilitate resolution and to forestall litigation, the Division has engaged in the informal practice of expressing its enforcement position on these matters. If a company intends to exclude a proposal from its proxy, Rule 14a-8(j) requires the company to “file its reasons” for doing so with the Commission. These notifications generally take the form of a “no-action” request seeking the Division’s concurrence that it will not recommend enforcement action if the company omits the proposal. If the staff declines to take a “no-action” position, the company is expected to include the proposal in the proxy statement for a shareholder vote. Proponents or companies can challenge the staff’s position in court and from time to time the courts have weighed in on staff or Commission action in interpreting Rule 14a8.”

For more information, click here.

Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter recently discussed assessing materiality when considering errors in financial statements. Munter indicated that one SEC staff has observed an increased need for objectivity is “in the assessment of qualitative factors. The interpretive guidance on materiality in SAB No. 99 speaks to circumstances where a quantitatively small error could, nevertheless, be material because of qualitative factors. However, we are often involved in discussions where the reverse is argued—that is, a quantitatively significant error is nevertheless immaterial because of qualitative considerations. We believe, however, that as the quantitative magnitude of the error increases, it becomes increasingly difficult for qualitative factors to overcome the quantitative significance of the error.”

Topics discussed by Munter included:

Concept of Materiality and the Correction of Material Errors;
Objective Assessment of Materiality; and
Observations from Recent Interactions with Registrants and Auditors on Materiality.

For more information, click here.

Business Combinations –SEC Staff Updates Compliance and Disclosure Interpretations

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated the following Compliance and Disclosure Interpretations (C&DIs):

Exchange Act Form 8-K (Question 102.04-102.05);
Proxy Rules and Schedules 14A/14C (101.02, 132.01-132.02); and
Tender Offers and Schedules (166.01).

Corp Fin has updated these C&DIs to provide additional guidance on disclosures associated with entering into a business combination agreement. This updated guidance includes discussion of when a company must disclose material terms and conditions when entering into a business combination agreement that is reportable under Item 1.01 of Form 8-K. The updated guidance also discusses certain proxy disclosure rules related to whether public communications represent solicitations subject to such rules. Finally, the updated guidance discusses Corp Fin’s views on whether SEC Rule 14e-5 on the prohibition of purchases outside of a tender offer applies to transactions involving Special Purpose Acquisition Companies.

For more information, click here.

Audit Confirmation Process – PCAOB Releases New Spotlight on the Use of a Service Provider in the Confirmation Process

Summary - The PCAOB has released the new Spotlight publication, “Observations and Reminders on the Use of a Service Provider in the Confirmation Process.” Many audit firms rely on a service provider to send and receive electronic audit confirmations to and from “confirming parties,” such as financial institutions, investment and brokerage firms, and law firms. We observed diverse practices related to the procedures auditors perform to support such reliance. In some cases, audit firms were not giving any consideration to support whether, as required by PCAOB standards, the auditor maintains control over the confirmation requests and responses in audits where a service provider is used to send and receive confirmations. This Spotlight shares observations and suggested procedures for auditors, who may find this information valuable as they plan and perform audits.

For more information, click h here re.

Audit Committees –PCAOB Issues Spotlight on Conversations with Audit Committee Chairs

Summary - As indicated above, the PCAOB has released a new Spotlight publication, “2021 Conversations With Audit Committee Chairs.” Each year, the PCAOB reaches out to audit committee chairs at U.S. public companies whose audits the PCAOB inspects, inviting them to connect with staff from the Division of Registration and Inspections for substantive conversations covering a range of topics related to oversight of external auditors.

In 2021, the PCAOB conducted more than 240 conversations with audit committee chairs from more than 475 audits reviewed by inspectors. This publication presents high-level observations and takeaways from those conversations.

The Spotlight provides information on significant discussions with audit committee chairs, which focused primarily on the following topics:

Required communications between auditors and audit committees;
Review/discussion of PCAOB inspection reports;
Discussion of outside required communications;
Auditor strengths and areas for improvement;
Quality control systems at audit firms;
Auditors’ use of technology; and
Information outside the financial statements.

For more information, click here.

PCAOB –PCAOB Highlights Key Considerations for Auditors Related to the Russian Invasion of Ukraine

Summary - The PCAOB released the staff Spotlight document, “Auditing Considerations Related to the Invasion of Ukraine.” The Spotlight highlights important considerations for auditors of issuers and broker-dealers as they plan and conduct audits in this evolving environment.

“Beyond its terrible human toll, Russia’s invasion of Ukraine has produced economic and market implications that are still taking shape,” said PCAOB Chair Erica Y. Williams. “Our Spotlight addresses key considerations for auditors, starting with a reminder of their obligation to comply with PCAOB standards and to exercise due professional care, which may take more time or effort in highly challenging or unprecedented circumstances.”

The Spotlight covers a range of audit-related matters, including:

Identifying and assessing risks, including cybersecurity risks;
Planning and performing audit procedures, including materiality, internal control over financial reporting, effects on specific audit areas, use of other auditors, and communications with audit committees;
Possible illegal acts;
Reviews of interim financial information; and
Acceptance and continuance of clients and engagements.

For audits nearing completion, the Spotlight focuses on subsequent events, other information, and auditor reporting.

The Spotlight also reminds auditors to remain aware of developments that may affect the company. Knowledge obtained from past audits or interim reviews may no longer be relevant in light of the current information environment. Therefore, it is important for the auditor to understand how changes in events, conditions, and company activities affect risks of material misstatement and whether those changes give rise to new or different risks.

For more information, click here.

Tax Updates

Securing a Strong Retirement Act of 2022

On March 29, 2022, the House of Representatives passed the Securing a Strong Retirement Act of 2022. The bill is widely known as SECURE Act 2.0 and the vote was largely supported by both parties (414-5). The Senate will likely act on the bill later this spring.

The Securing a Strong Retirement Act of 2022 is designed to build upon the provisions of the original SECURE Act and further ensure that more Americans can save for retirement and increase the amount they are able to save.

The bill is summarized as follows:

expanding upon automatic enrollment programs;
helping to ensure that small employers can easily and efficiently sponsor plans for employees;
enhancing various credits to make saving for retirement beneficial to both plan participants and plan sponsors;
improving various investment options for plan participants;
streamlines plan administration for plan fiduciaries; and
makes important changes to required minimum distributions that will help retirees enhance their ability to make better use of their retirement savings.

For more information, please click here.

If you have any additional question, please feel free to contact Nicole Zhao, Tax Partner, at nzhao@malonebailey.com.

Extra Crunch

PCAOB Dialogues Podcast

Summary - The Public Company Accounting Oversight Board (PCAOB) has released the first episode of 'PCAOB Dialogues,' a podcast.

According to the PCAOB website, "Former Director of Office of Research and Analysis Greg Jonas answers questions about the history and purpose of the project and provides specific examples of potential indicators. Mike Cook provides insight into how audit committees could use indicators to may help them do their jobs. All participants speak for themselves and do not represent the PCAOB as a whole, or the Board or the staff."

For more information, please click here.

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