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SEC Rules of Practice –SEC Amends Rules of Practice NEW!

Data and Technology –PCAOB Publishes Spotlight on the PCAOB’s Data and Technology Project NEW!

PCAOB Inspections –PCAOB Releases Spotlight on 2021 Staff Outlook for Inspections and Audit Committee Resource 

Auditor Independence – SEC Approves Amendments Aligning Independence Requirements with SEC Rules 

Audit Committees – PCAOB Releases Perspectives from 2020 Conversations with Audit Committee Chairs 

Securities Offerings – SEC Staff Issues Letter to Companies Regarding Securities Offerings During Times of Extreme Price Volatility

Money Market Fund Reform – SEC Requests Comments on Potential Money Market Fund Reform

Estimates and Specialists – PCAOB Provides Resource for Audit Committees on Estimates and Specialists 

PCAOB Standard Setting – PCAOB Releases Spotlight on the Use of Economic Analysis and Stakeholder Input

Securities Act – SEC Staff Updates Compliance and Disclosure Interpretation on Securities Act 

Auditor Independence – SEC Publishes PCAOB Proposed Amendments to Interim Independence Standards and PCAOB Rules to Align with Amendments to Rule 2-01 of Regulation S-X 

Critical Audit Matters – PCAOB Publishes Interim Analysis Report on Initial Impact of Critical Audit Matter Requirements 

Shareholder Proposals – SEC Adopts Amendments to Modernize Shareholder Proposal Rule 

PCAOB Inspections – PCAOB Issues Staff Update and Preview of 2019 Inspection Observations 

Volker Rule – Financial Regulators Modify Volcker Rule 

PCAOB Inspections – PCAOB Publishes Guide to Reading New Inspection Report 

Data and Technology – PCAOB Posts Spotlight Updating Its Data and Technology Research Project 

Critical Audit Matters – PCAOB Issues Request for Comment on Critical Audit Matters 

Regulation S-K – SEC Staff Updates Regulation S-K Interpretation 

Quality Control – PCAOB Issues Quality Control Concept Release 

Critical Audit Matters – PCAOB Publishes Critical Audit Matters Spotlight 

Proposed Rules, Regulations and Releases 

U.S. Securities and Exchange Commission Strategic Plan 

CAMs: Resources and Implementation Provided by the PCAOB 

Independence – PCAOB Issues Staff Guidance on Audit Committee Communications Related to Independence 

SEC Approves PCAOB Amendments to Auditing Standards for Auditor's Use of the Work of Specialists 

SEC Approves PCAOB Auditing Standard 2501 

PCAOB Publishes Staff Guidance on Communication of CAMs 

Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships

SEC and PCAOB Activities -- 2017 AICPA Year-End SEC and PCAOB Conference

SEC Approves PCAOB Changes to the Auditor's Report

SEC Policymaking - SEC Discusses Materiality and Auditors Report

Auditor Report - SEC Seeks Comments on PCAOB Proposal

Auditor's Report - PCAOB Adopts New Standard to Enhance Auditor's Report

Articles

SEC Rules of Practice –SEC Amends Rules of Practice

Summary - The SEC has adopted amendments to its Rules of Practice to require persons involved in Commission administrative proceedings to file and serve documents electronically.

These rules became generally effective January 29, 2021.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Data and Technology –PCAOB Publishes Spotlight on the PCAOB’s Data and Technology Project

Summary - The PCAOB has published a new Spotlight publication, Data and Technology Research Project Update-May 2021. The PCAOB indicates that advancements in technology “continue to affect the nature, timing, and preparation of financial information, including preparers’ controls around financial information, and the planning and performance of audits. The Board's strategic plan highlights the need to anticipate and respond to these advancements and their corresponding opportunities and risks.”

The PCAOB's Office of the Chief Auditor established a research project on data and technology to assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions. The PCAOB has issued this Spotlight to provide transparency into our research project and share insights from our research and outreach activities during 2020.

For more information, click here.

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PCAOB Inspections –PCAOB Releases Spotlight on 2021 Staff Outlook for Inspections and Audit Committee Resource

Summary - The PCAOB has published new resources relating to the 2021 Inspections Program, including a new Spotlight Publication, Staff Outlook for 2021 Inspections. In addition, the PCAOB has released a companion document for audit committees, Audit Committee Resource: 2021 Inspections Outlook.

The new Spotlight provides an overview of the principal changes the PCAOB is making to inspections in 2021 and highlights important areas of planned focus. The Spotlight notes that the 2021 program was developed with “two primary objectives: (1) respond to the financial reporting and audit risks posed by the COVID-19 pandemic, and (2) reduce the predictability” of the inspections. In addition, the PCAOB expects that they will conduct inspections remotely for the foreseeable future. The Spotlight also includes:

“Six Reminders for Auditors;”-Information on audit areas with continued deficiencies and opportunities for potential improvement;-Compliance with auditor independence requirements;-Fraud procedures;-Determining and communicating critical audit matters;-Implementing new auditing standards;-Responding to cyber threats; and-Auditing digital assets.

The PCAOB expects the companion Audit Committee Resource to be helpful for audit committees in informing constructive dialogue with their auditors. Like the Spotlight, it provides an overview to changes being made for 2021 inspections and highlights important areas of planned inspection focus. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Auditor Independence – SEC Approves Amendments Aligning Independence Requirements with SEC Rules

Summary - The SEC has approved amendments to PCAOB interim independence standards and PCAOB rules to align with amendments to Rule 2-01 of SEC Regulation S-X.

In November 2020, the PCAOB adopted amendments to its independence standards that align with the 2019 SEC revisions to its auditor independence rules. These amendments revised the SEC’s auditor independence requirements in Rule 2-01 of Regulation S-X, Qualifications of Accountants, regarding the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client. In October 2020, the SEC adopted additional amendments to Rule 2-01.

In addition to other provisions, the October revisions to Rule 2-01 added certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships under Rule 2-01. In certain circumstances, such loans are not currently allowed under PCAOB’s interim independence standards. The PCAOB amended its interim independence standards to avoid inconsistent requirements on lending arrangements, which should help clarify an auditor’s independence obligations and facilitate compliance with Rule 2-01.

The PCAOB also conformed its definitions of terms, including “affiliate of the audit client,” “audit and professional engagement period,” and “investment company complex,” in PCAOB Rule 3501, Definitions of Terms Employed in Section 3, Part 5 of the Rules, to align with the SEC’s changes in Rule 2-01 to address confusion if the terms used in both the PCAOB’s and the SEC’s independence rules were defined differently.

The amendments will be effective June 9, 2021, 180 days after the date of the publication of the SEC’s October 16, 2020 amendments to Rule 2-01 in the Federal Register. The June 9, 2021 effective date is aligned with the effective date of the SEC’s amendments to Rule 2-01. The amendments may be applied before the effective date at any point after SEC approval of the PCAOB’s amendments, provided that the final amendments are applied in their entirety. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Audit Committees – PCAOB Releases Perspectives from 2020 Conversations with Audit Committee Chairs

Summary - The PCAOB released the publication, 2020 Conversations with Audit Committee Chairs.

In 2020, the PCAOB reached out to audit committee chairs of most of the U.S. public companies whose audits the PCAOB inspected and offered them the opportunity to share their experiences with auditors. In total, the PCAOB spoke to nearly 300 audit committee chairs. This outreach was part of the PCAOB’s strategic goal of enhancing transparency and accessibility through proactive stakeholder engagement.

The publication summarizes the feedback received in each of three core topics:

  • The auditor and communications with the audit committee;
  • New auditing and accounting standards; and
  • Emerging technologies.

The publication notes that the PCAOB does not necessarily endorse the comments of the audit committee chairs. Instead, the PCAOB is providing this summary in an effort to provide greater transparency into these conversations. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Securities Offerings – SEC Staff Issues Letter to Companies Regarding Securities Offerings During Times of Extreme Price Volatility

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Securities Offerings During Times of Extreme Price Volatility. This sample illustrative letter contains sample comments that, depending on the particular facts and circumstances, Corp Fin may issue to companies seeking to raise capital in securities offerings amid market and price volatility.

For more information, click here.

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Money Market Fund Reform – SEC Requests Comments on Potential Money Market Fund Reform

Summary - The SEC has published a Request for Comment on Potential Money Market Fund Reform Measures in President’s Working Group Report. This document seeks comment on potential reform measures for money market funds, as highlighted in a recent report of the President’s Working Group on Financial Markets. Public comments on the potential policy measures will help inform consideration of reforms to improve the resilience of money market funds and broader short-term funding markets.

Comments are requested 60 days from publication in the Federal Register. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Estimates and Specialists – PCAOB Provides Resource for Audit Committees on Estimates and Specialists

Summary - The Public Company Accounting Oversight Board (PCAOB) has published a resource for audit committees on its new requirements related to auditing accounting estimates, including fair value measurements and using the work of specialists. The requirements will take effect for audits of financial statements for fiscal years ending on or after December 15, 2020.

To help audit committees enhance their understanding in this area, this resource provides the basics of the new requirements, key takeaways for audit committees, and questions to consider asking auditors.

Key takeaways for audit committees include:

  • The effects of the new requirements will not be uniform across all audits;
  • The extent of effects of the new requirements will depend on the nature and extent of accounting estimates included in the company’s financial statements, and also on whether the company uses a specialist;
  • The new standard and amendments do not change the requirements for the auditor’s communications with audit committees, including those communications related to critical accounting estimates; and
  • Auditors are applying these new requirements in extraordinary times and in situations that continue to evolve due to the COVID-19 pandemic.

The PCAOB intends these resources to be informative and useful to audit committee members. The PCAOB also expressed the intention to enhance engagement and a commitment to proactively and directly communicate with audit committee members.
The PCAOB also requests that stakeholders contact Stakeholder Liaison Erin Dwyer with feedback on this resource or to request further engagement with the PCAOB. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

PCAOB Standard Setting – PCAOB Releases Spotlight on the Use of Economic Analysis and Stakeholder Input

Summary - The PCAOB has released the Spotlight publication, The PCAOB’s Use of Economic Analysis and Stakeholder Input in Standard Setting.

The Spotlight highlights how the PCAOB implements its strategic objective of better leveraging economic and risk analysis to effectively set standards, rules, and guidance. It provides an overview of how it conducts economic analysis and gathers stakeholder input. The Spotlight also includes a mini case study on how the PCAOB has used, and will continue to use, economic analysis and stakeholder input related to the requirement for auditors to determine and communicate critical audit matters in the auditor’s report.

The Spotlight explains that before issuing a new or revised standard, the PCAOB seeks input from relevant stakeholders and perform an economic analysis. This process includes:

  • Describing the need for the standard or rule;
  • Developing the baseline and measuring for the impacts of the rule or standard;
  • Considering reasonable alternatives; and
  • Analyzing the economic impacts of the standard and alternatives.

The PCAOB continues its economic analysis after the adoption of new or revised standards and approval by the SEC, including by conducting a post-implementation review. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Securities Act – SEC Staff Updates Compliance and Disclosure Interpretation on Securities Act

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated the Compliance and Disclosure Interpretation (C&DI), Securities Act Sections. Corp Fin has updated question 139.13 and withdrawn questions 139.15 -139.20. This C&DI provides guidance from Corp Fin on aspects of sections under the Securities Act of 1933.
 
Corp Fin has updated this C&DI to provide updated guidance on when a company may file a registration statement for the resale by the investors of securities sold in a private equity line financing. The questions withdrawn generally provided guidance on Securities Act Section 5. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Auditor Independence – SEC Publishes PCAOB Proposed Amendments to Interim Independence Standards and PCAOB Rules to Align with Amendments to Rule 2-01 of Regulation S-X

Summary - The SEC has published for public comment a Notice of Filing of Proposed Rules on Amendments to PCAOB Interim Independence Standards and PCAOB Rules to Align with Amendments to Rule 2-01 of Regulation S-X. On November 20, 2020, the PCAOB filed with the SEC proposed rule changes to its interim independence standards and proposed rules to align with amendments to Rule 2-01 of Regulation S-X. The SEC is publishing this notice to solicit comments on the proposed rules from interested persons.

Comments on the notice should be provided within 21 days from publication of the notice in the Federal Register. 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Critical Audit Matters – PCAOB Publishes Interim Analysis Report on Initial Impact of Critical Audit Matter Requirements

Summary - The PCAOB has published an Interim Analysis Report on Initial Impact of Critical Audit Matter Requirements. The PCAOB has released this interim analysis report and two accompanying white papers analyzing the initial impact of the Critical Audit Matters (CAM) requirements. The PCAOB has also made available the CAMs dataset used in its analysis. The interim analysis report and white papers are part of an ongoing evaluation of the overall effect of the CAM requirements on key stakeholders in the audit process.

Staff of the PCAOB's Office of Economic and Risk Analysis conducted extensive stakeholder outreach and performed large-sample statistical analysis to provide an initial understanding of:

  • Audit firm and audit engagement team responses to the CAM requirements.
  • Investor use of CAM communications.
  • Audit committee and preparer experiences related to CAM implementation.

Key findings from the PCAOB staff's analyses include the following:

  • Audit firms made significant investments to support initial implementation of the CAM requirements.
  • Investor awareness of CAMs communicated in the auditor's report is still developing, but some investors are reading CAMs and find the information beneficial.
  • The PCAOB staff has not found evidence of significant unintended consequences from auditors' implementation of the CAM requirements for audits of large accelerated filers in the initial year.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Shareholder Proposals – SEC Adopts Amendments to Modernize Shareholder Proposal Rule

Summary - The SEC has adopted amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders.

The SEC indicates that the amendments will “facilitate engagement among shareholder-proponents, companies and other shareholders, including preserving the ability of smaller shareholders to access the proxy statements of the companies in which they have demonstrated a continuing interest.” Under the rules, any shareholder may submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods of time. The rules also provide for a transition period so that shareholders who are currently eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the company’s proxy statement so long as they continue to maintain at least their current holdings through the date of submission (and through the date of the relevant meeting).
The amendments also update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at future shareholder meetings, so as to relieve companies and their shareholders of the obligation to consider, and spend resources on, matters that had previously been voted on and rejected by a substantial majority of shareholders without sufficient indication that a proposal could gain traction among the broader shareholder base in the near future.

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

PCAOB Inspections – PCAOB Issues Staff Update and Preview of 2019 Inspection Observations

Summary - As discussed above, the PCAOB has published a Staff Update and Preview of 2019 Inspection Observations. This staff update and preview shares certain observations from the 2019 inspections of audits of issuers prior to issuance of the inspection reports. This update includes information on the PCAOB’s continued efforts to transform its inspections process, most recent inspection observations, and perspectives from target team work related to multi-location audits. Auditors may find this information useful as they plan and perform their audits, and audit committees may find it useful as they engage with their auditors.

The PCAOB previously provided initial observations from its review of the first phase of implementation of critical audit matters for large accelerated filers with a fiscal year ending on or after June 30, 2019.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Volker Rule – Financial Regulators Modify Volcker Rule

Summary - The SEC and four other federal regulatory agencies finalized a rule modifying the Volcker rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as covered funds. The final rule is broadly similar to the proposed rule from January 2020.

The Volcker rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

Like the proposal, the final rule modifies three areas of the rule by:

  • Streamlining the covered funds portion of rule;
  • Addressing the extraterritorial treatment of certain foreign funds; and
  • Permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.

The rule will be effective on October 1.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

PCAOB Inspections – PCAOB Publishes Guide to Reading New Inspection Report

Summary - The PCAOB issued the 2018 inspection reports for the six largest U.S. audit firms in a new, redesigned format. The new format marks the first time the PCAOB has substantially changed its reports since it first issued a report more than fifteen years ago.

The PCAOB’s new inspection report format:

  • Streamlines the report’s content to enhance readability;
  • Utilizes new charts and graphs to make the information more digestible and accessible for users;
  • Reduces the amount of technical and boilerplate language; and
  • Includes new information not previously communicated in inspection reports to enhance transparency, which is one of the PCAOB’s strategic goals.

To further detail the key changes to the report and assist stakeholders in reading it, the PCAOB has issued a Guide to Reading the PCAOB’s New Inspection Report. This guide also solicits public feedback on our new report format.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Data and Technology – PCAOB Posts Spotlight Updating Its Data and Technology Research Project

Summary - The PCAOB has published the Data and Technology Research Project Spotlight. The Spotlight shares observations from the PCAOB’s research project and outreach activities on data and technology.

The Spotlight notes that technological advancements are affecting how firms are using financial information and that firms are making significant investments in technology, including in technology-based audit tools to plan and perform audits. These tools include software to perform data analytics.

The PCAOB’s strategic plan includes the requirement that the PCAOB anticipate and respond to both opportunities and risks of technological innovations. The Office of the Chief Auditor established a research project to assess the “need for guidance, changes to PCAOB standards, or other regulatory actions.” In making the assessment on whether regulatory action is needed in response to the evolving audit landscape, the PCAOB obtained information from its oversight activities, review of changes to firms’ methodologies and study of academic research.

The Spotlight discusses the observations on the use of data and technology, which fall into four categories, including:

  • General observations on PCAOB standards;
  • Observations on identifying and assessing risks of material misstatement;
  • Observations on audit evidence; and
  • Observations on firm policies and procedures.

Information included in the Spotlight is not staff guidance. A sidebar in the Spotlight notes that instead, it “highlights timely and relevant observations for auditors and other key stakeholders.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Critical Audit Matters – PCAOB Issues Request for Comment on Critical Audit Matters

Summary - The PCAOB has published the Request for Comment from the Office of Economic and Risk Analysis, Interim Analysis of Critical Audit Matter Requirements. This request for Comment seeks input from audit firms, preparers, audit committees, investors, and other financial statement users to inform the PCAOB’s interim analysis of the Critical Audit Matter (CAM) requirements.

The Request for Comment notes that the PCAOB is committed to fulfilling the expectation set out by the SEC to complete this interim analysis before the second phase of CAM implementation begins. The PCAOB is also mindful of the many challenges related to COVID-19 that stakeholders are dealing with at this time. To provide additional time for interested parties to share feedback with us, the PCAOB has extended the comment period from 30 to 60 days.

The Request for Comment includes question regarding:

  • Whether the stakeholder has read any auditors’ reports that contain CAMs and other information regarding such reports;
  • The effects, if any, have investors, analysts, or other financial statement users experienced from the communication of CAMs in the auditor’s report;
  • Questions for preparers, audit committee members and auditors;
  • Costs that prepares may incur; and
  • Costs audit firms may incur.

The comments are due no later than June 15, 2020.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Regulation S-K – SEC Staff Updates Regulation S-K Interpretation

Summary - The staff in the Division of Corporation Finance (Corp Fin) has updated its Compliance and Disclosure Interpretation (C&DI), Regulation S-K. This C&DI provides Corp Fin’s interpretations of various sections of Regulation S-K. Corp Fin has added new Questions 110.02, 110.03, and 110.04. These questions include guidance on preparing Item 303, Management's Discussion and Analysis of Financial Condition and Results of Operations.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Quality Control – PCAOB Issues Quality Control Concept Release

Summary - The PCAOB has issued a concept release on a potential approach to revising the PCAOB's quality control standards. The release solicits public comment to inform the PCAOB on the approach and what changes it might propose in the future to strengthen the PCAOB's requirements for audit firms' quality control systems. The comment deadline is March 16, 2020.

The PCAOB's current quality control standards were originally adopted by the PCAOB in 2003. The auditing environment has changed significantly since that time, and the PCAOB's current quality control standards do not reflect relevant developments affecting audit and assurance practices and firms' quality control systems.

According to PCAOB Chairman William D. Duhnke, the PCAOB “is committed to promoting consistent, high-quality audits," and that an “effective quality control system within an audit firm can serve to prevent, identify, and remediate audit quality deficiencies, which is why I believe it is prudent to strengthen our related standards."

The PCAOB noted that based on information gathered through its oversight, outreach, and research activities, future revisions to the PCAOB's quality control standards should be built on an integrated risk-based framework. The PCAOB is considering using the recently proposed International Auditing and Assurance Standards Board's (IAASB’s) analogous firm-level quality control standard, International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, as a starting point for a future PCAOB quality control standard.

The concept release explains that many firms that follow PCAOB standards also follow the IAASB standards (or standards based on IAASB's standards), and therefore, the PCAOB believes that it would not be practical to require firms to comply with fundamentally different quality control standards. The concept release also describes certain incremental or alternative requirements to ISQM 1 that may be appropriate for firms performing engagements under PCAOB standards.

The PCAOB has also issued the companion, Fact Sheet: Quality Control Concept Release (Fact Sheet), with details of the Concept Release and information on the IAASB’s proposed ISQM 1.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Critical Audit Matters – PCAOB Publishes Critical Audit Matters Spotlight

Summary - The PCAOB has published staff guidance on Critical Audit Matters (CAMs) in a Spotlight document. The information in this CAMs Spotlight is not staff guidance, but rather it highlights timely and relevant observations for auditors and other key stakeholders. The PCAOB staff plans to share insights on additional topics in future Spotlight documents.

For more information, click here.

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Proposed Rules, Regulations and Releases

Summary - The SEC voted to propose amendments to modernize the rule that governs the process for shareholder proposals to be included in a company’s proxy statement.

The proposed amendments would update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to require a company to include a proposal in its proxy statement. In the proposed amendments, the SEC has maintained the long-standing $2,000 minimum ownership threshold. However, the proposed amendments would require that, in order to take advantage of that ownership threshold, a proponent must have held the shares for at least three years in order to demonstrate long-term investment in the company. The proposed amendments would also update the “one proposal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting on behalf of different shareholders.

In addition, the proposal would update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings. Under the proposed amendments, for example, a proposal would need to achieve support by at least 5 percent of the voting shareholders in its first submission in order to be eligible for resubmission in the following three years. Proposals submitted two and three times in the prior five years would need to achieve 15 percent and 25 percent support, respectively, in order to be eligible for resubmission in the following three years.

The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.

For more information, click here.

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U.S. Securities and Exchange Commission Strategic Plan

Summary - The SEC announced a new strategic plan to guide the agency’s work over the next four years with a primary focus on investors, innovation, and performance. The plan’s goals reflect the agency’s commitment to its longstanding mission while leveraging the opportunities and addressing the challenges that come from fast-evolving markets, products and services. The strategic plan includes the following goals:

• Focus on the long-term interests of our Main Street investors.
• Recognize significant developments and trends in our evolving capital markets and adjust our efforts to ensure we are effectively allocating our resources.
• Elevate the SEC’s performance by enhancing our analytical capabilities and human capital development.

The SEC’s new strategic plan was published in accordance with the Government Performance and Results Modernization Act of 2010, which requires federal agencies to outline their missions, planned initiatives, and strategic goals for a four-year period.

For more information, click here.

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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CAMs: Resources and Implementation Provided by the PCAOB

Summary - The PCAOB provides various resources on Critical Audit Matters (CAMs), including one-pagers, videos and more. Per the PCAOB website, "CAMs are intended to provide tailored information specific to the audit—from the auditor’s point of view—on matters that require especially challenging, subjective, or complex auditor judgment." In addition, per the website, "the new requirement for CAMs is a result of the PCAOB’s 2017 standard AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, which made significant changes to the auditor’s report."

For more information, please click here.

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Independence – PCAOB Issues Staff Guidance on Audit Committee Communications Related to Independence

Summary - The Public Company Accounting Oversight Board (PCAOB) has published a new staff guidance document, Rule 3526(b) Communications with Audit Committees Concerning Independence. In addition, the PCAOB has issued a companion document, Overview of Staff Guidance of Audit Committee Communications Related to Independence.

The new Staff Guidance provides assistance to practitioners concerning how to comply with certain provisions of PCAOB Rule 3526, Communication with Audit Committees Concerning Independence. It includes background on Rule 3526 and technical guidance for auditors on the independence-related communications required by the rule when an auditor has identified one or more violations of applicable auditor independence rules. The Overview provides a one-page summary of the Staff Guidance.

Rule 3526(b) Requirements

Under PCAOB Rule 3526(b), auditors must at least annually provide audit committee members with sufficient information to understand how a relationship between the auditor and the audit client might affect the auditor’s independence. Specifically, the audit firms must:
• Provide a written description of all relationships between the firm and all relationships between it or any affiliates and the audit client or persons in financial reporting oversight roles at the audit client may reasonably be thought to bear on independence;
• Discuss with the audit committee of the audit client the potential effects of the relationships;
o Affirm to the audit committee the firm’s compliance with PCAOB Rule 3520,Auditor Independence(Rule 3520); and
• Document the substance of its discussion with the audit committee of the audit client.

PCAOB inspections staff have observed independence violations in some situations in which firms have affirmed their independence but have also identified one or more violations of applicable auditor independence rules. These situations have occurred in situations where auditors have (a) addressed the underlying reasons for the violation, (b) the firm communicated the matter to the audit committee, (c) the audit committee separately evaluated the firm’s determination; and (d) the audit committee and the firm agreed to continue the audit engagement.

Staff Questions & Answers

The guidance includes five Staff Questions & Answers that:
• Provide detailed information on how firms should conduct its annual communications when the firm described the above-described fact patterns;
• Answers “no” on the issue of whether, when a violation is addressed by the date of communication, the audit firm may simply affirm to the audit committee of the audit client that the firm is independent, rather than provide the communications set out in the first question;
• Advise that a firm’s communication of all the required elements and analysis that objectivity and impartiality have not been impaired does not “cure” the independence violation in Rule 3520;
o Advise that the firm need not include prior-year violations that were previously addressed properly in its communications in the current year; and
• Indicate that when the audit firm has followed the processes described in the Staff Guidance, it is not required to alter the language in the auditor’s report for purposes of the new auditor’s reporting requirements in PCAOB Auditing Standard 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.

For more information, click here.
 
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SEC Approves PCAOB Amendments to Auditing Standards for Auditor's Use of the Work of Specialists

Summary - The SEC has approved the PCAOB’s amendments to auditing standards for using the work of specialists. The amendments are intended to strengthen the requirements that apply when auditors use the work of specialists in an audit.
 
 
These amendments are effective for audits of financial statements for fiscal years ending on or after December 15, 2020. The SEC rejected a phased-in approach to the effective date that was recommended by some commenters.
 
 
For more information, click here.
 
 
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SEC Approves PCAOB Auditing Standard 2501

Summary - The SEC has approved the PCAOB’s Auditing Standard No. 2501, Auditing Accounting Estimates, Including Fair Value Measurements. AS 2501 includes a single standard that replaces the accounting estimates standard, the fair value standard, and the derivatives standard. The standard also includes a special topics appendix that addresses certain matters relevant to auditing the fair value of financial instruments.
 
 
AS 2501 is effective for audits of financial statements for fiscal years ending on or after December 15, 2020. The SEC rejected a phased-in approach to the effective date that was recommended by some commenters.
 
 
For more information, click here.
 
 
© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
 
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PCAOB Publishes Staff Guidance on Communication of CAMs

Summary - The Public Company Accounting Oversight Board (PCAOB) has published an additional staff guidance document, Implementation of Critical Audit Matters: A Deeper Dive on the Communication of CAMs (Communicating CAMs) to supplement its previously released guidance documents.
 
 
In 2017, the PCAOB adopted the new auditing standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. Among other requirements, AS 3101 and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters, or CAMs. “Critical audit matters” are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment. The SEC approved AS 3101 on October 23, 2017.
 
 
In addition to Communicating CAMs, to assist users in reporting CAMs, the PCAOB previously published the following Staff guidance documents headed “Implementation of Critical Audit Matters,” including:
 
  • “The Basics,” which provides a high level overview of the CAM requirements;
  • “Staff Observations from Review of Audit Methodologies,” which includes thematic observations that arose from the PCAOB’s Chief Auditor’s review of audit firm methodologies; and
  • “A Deeper Dive on the Determination of CAMs,” which includes PCAOB Staff answers to frequently asked questions for determining CAMs.
 
The new guidance document, “Communicating CAMs,” includes an overview of the CAMs, discusses how auditor is to communicate CAMs, and, using a Staff Frequently Asked Questions (FAQ) format, provides answers to questions that may arise when the auditor is communicating CAMs under AS 3101. The Staff FAQs provide guidance on:
 
  • How auditors should describe the principal considerations that led them to determine if a matter is a CAM;
  • The considerations that apply in describing audit procedures as part of communicating how a CAM was addressed in the audit;
  • The considerations that apply in describing the outcome of audit procedures or key observations with respect to a matter;
  • How CAM communications relate to company disclosures and other information the company has made publicly available;
  • For recurring CAMs, how the auditors should apply the CAM communication requirements;
  • Whether there is a specific order in which CAMs should appear in the CAM section of the auditor’s report; and
  • How the CAM requirements apply to a dual-dated auditor’s report.
 
The PCAOB staff developed Communicating CAMs through discussions with auditors regarding their experiences conducting dry runs of CAMs with their audit clients, the staff’s review of methodologies submitted by 10 U.S. audit firms that collectively audit approximately 85% of large accelerated filers, and other outreach efforts. 
 
 
For more information, please click here.
 
 
© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
 
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Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships

Summary - The SEC has issued for public comment a proposed rule, Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships. If adopted as proposed, this proposal would amend the SEC's auditor independence rules to refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period. The proposed amendments would:
 
  • Focus the analysis solely on beneficial ownership rather than on both record and beneficial ownership;
  • Replace the existing 10 percent bright-line shareholder ownership test with a "significant influence" test;
  • Add a "known through reasonable inquiry" standard with respect to identifying beneficial owners of the audit client's equity securities; and
  • Amend the definition of "audit client" for a fund under audit to exclude funds that otherwise would be considered affiliates of the audit client.
The proposal also includes a general request for comment on other potential amendments to its auditor independence rules.
 
Comments on the proposal are due 60 days after publication in the Federal Register.
 
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
 
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SEC and PCAOB Activities -- 2017 AICPA Year-End SEC and PCAOB Conference

Summary - CCH Incorporated has posted remarks presented at the 2017 AICPA National Conference on SEC and PCAOB Developments held on December 4-6, 2017, in Washington, D.C. Principal themes of the conference included:
  • The continued importance of transparency and integrity on financial reporting, including the role of the auditor in providing assurance and trust in the financial reports of entities;
  • Implementation efforts associated with adoption of new accounting standards on revenue recognition, leases, financial instruments, and credit losses;
  • The importance of internal control over financial reporting (ICFR), including the designing and implementation of controls;
  • The important role of auditors, including the importance of testing the effectiveness of ICFR;
  • The use of non-GAAP financial measures in financial reporting; and
  • Accounting and auditing quality and their influence on capital formation and economic success.
CCH has also published an Overview of the conference to SEC Practice, including discussions of various remarks from staff members of the SEC. 
 
For more information, click here.
 
© 2018 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Approves PCAOB Changes to the Auditor's Report

Summary - The SEC unanimously approved a PCAOB auditing standard that requires significant enhancements to certain public company reports, including the communication of critical audit matters (CAMs) and the disclosure of auditor tenure. These changes are intended to make the auditor's report more informative. The new auditor's report should provide investors with more meaningful information about the audit, including significant estimates and judgments, significant unusual transactions, and other areas of risk at a company.
 
SEC Chairman Jay Clayton noted that he strongly supports the objective of the rule to provide investors with meaningful insights into the audit from the auditor. Clayton noted that "CAMs are designed to provide investors and other financial statement users with the auditor's perspective on matters discussed with the audit committee that relate to material accounts or disclosures and involved especially challenging, subjective, or complex auditor judgment. Investors will benefit from understanding more about how auditors view these matters."
 
Clayton indicated that he is sensitive to some of the concerns with the changes to the auditor's report raised by different stakeholders. Clayton would be disappointed if the new audit reporting standard, which has the potential to provide investors with meaningful incremental information, instead resulted in frivolous litigation costs, defensive, lawyer-driven auditor communications, or antagonistic auditor-audit committee relationships. Accordingly, Clayton urges "all involved in the implementation of the revised auditing standards, including the Commission and the PCAOB, to pay close attention to these issues going forward, including carefully reading the guidance provided in the approval order and the PCAOB's adopting release." Clayton is encouraged by the PCAOB's stated intent to monitor the results of implementation, including consideration of any unintended consequences. Clayton noted that post-implementation review "of new standards, including the use of economic analysis tools, is an important component of high-quality regulatory decision-making." 
 
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
 
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SEC Policymaking - SEC Discusses Materiality and Auditors Report

Summary - Stephen Deane, Investor Engagement Advisor in the SEC's Office of the Investor Advocate, recently spoke at a conference for management accountants in Tulsa, OK. Mr. Deane discussed two mini-case studies on policymaking related to materiality and the independent auditor's report. Mr. Deane noted that these "two mini-case studies are meant to give you a sense of the policymaking process and the dilemmas that policymakers wrestle with. They also will illustrate a fundamental difference between outside investors and managers inside the company..."
 
Mr. Deane provided a technical review of the FASB's efforts on establishing guidance on materiality and the PCAOB's efforts to expand the independent auditor's report. Mr. Deane noted that "the materiality debate and the expanded audit report illustrate policymakers' efforts to reduce the informational asymmetries that investors inevitably face as outsiders." Mr. Deane urged management accountants in attendance to remember the importance of their work, "not only for producing financial information for use by management inside your companies, but also ultimately to provide the financial disclosures that investors rely upon, that are indispensable to our capital markets and our economy, and that benefit all of us."
 
The Office of the Investor Advocate was established at the SEC on February 24, 2014. The Investor Advocate's mission is to be the eyes and ears for investors and, when necessary, to provide a voice for them in Washington. The Investor Advocate seeks to ensure that the interests of investors are considered as policy decisions are made at the SEC and also at the self-regulatory organizations that the Commission oversees.
 
For more information, click here.
 
© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
 

Auditor Report - SEC Seeks Comments on PCAOB Proposal

Summary - The SEC has issued for public comment a Notice of Filing of Proposed Rules on The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and Departures from Unqualified Opinions and Other Reporting Circumstances, and Related Amendments to Auditing Standards. This document seeks feedback from constituents on the PCAOB's previously adopted new auditing standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.

The new PCAOB standard is designed to enhance the relevance and usefulness of the auditor's report by providing additional and important information to investors. The new rules are subject to approval by the SEC.

The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs). "Critical audit matters" are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment.

The new standard requires the auditor's report to:

  • Discuss CAMS;
  • Disclose the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company's auditor; and
  • Include the phrase, "whether due to error or fraud," in the description of the auditor's responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.

The standard also retains the pass/fail model of the existing auditor's report.

The final standard applies to audits conducted under PCAOB standards. Communication of CAMs is not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans.

The new requirements are to be phased in, to provide investors and other financial statement users with new information as soon as reasonably practicable, while allowing accounting firms, companies, and audit committees time to prepare for implementation of the CAM reporting requirements.

Comments are due 21 days from publication of the notice in the Federal Register. 

For more information, click here.

© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Auditor's Report - PCAOB Adopts New Standard to Enhance Auditor's Report

Summary - The Public Company Accounting Oversight Board today adopted a new auditing standard, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. The new standard is designed to enhance the relevance and usefulness of the auditor's report by providing additional and important information to investors. The new rules are subject to approval by the SEC.

The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs). "Critical audit matters" are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment.

The new standard requires the auditor's report to:

  • Discuss CAMS;
  • Disclose the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company's auditor; and
  • Include the phrase, "whether due to error or fraud," in the description of the auditor's responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.

The standard also retains the pass/fail model of the existing auditor's report.

The final standard applies to audits conducted under PCAOB standards. Communication of CAMs is not required for audits of emerging growth companies; brokers and dealers; investment companies other than business development companies; and employee stock purchase, savings, and similar plans.

The new requirements are to be phased in, to provide investors and other financial statement users with new information as soon as reasonably practicable, while allowing accounting firms, companies, and audit committees time to prepare for implementation of the CAM reporting requirements.

The phased effective dates are as follows, subject to SEC approval:

  • New auditor's report format, tenure, and other information: audits for fiscal years ending on or after December 15, 2017;
  • Communication of CAMs for audits of large accelerated filers: audits for fiscal years ending on or after June 30, 2019; and
  • Communication of CAMs for audits of all other companies: audits for fiscal years ending on or after December 15, 2020.

For more information, click here.

© 2017 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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