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ACCOUNTING AND SEC HEADLINES:
Climate Change Disclosures – SEC Staff Publishes Sample Letter to Companies Regarding Climate Change Disclosures
The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Climate Change Disclosures. This letter provides views of the Corp Fin staff, indicating that the “letter contains sample comments that the Division may issue to companies regarding their climate-related disclosure or the absence of such disclosure. The sample comments do not constitute an exhaustive list of the issues that companies should consider. Any comments issued would be appropriately tailored to the specific company and industry, and would take into consideration the disclosure that a company has provided in Commission filings.”
The letter reminds companies that SEC disclosure rules may require disclosure related to climate change. Companies also must disclose, in addition to the information expressly required by SEC regulation, “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.”
Financial Instruments – IASB Seeks Views on IFRS 9 Review
The International Accounting Standards Board (IASB) is requesting feedback as part of the post-implementation review of the classification and measurement requirements of International Financial Reporting Standard (IFRS) 9, Financial Instruments. It has issued the Request for Information, Post-implementation Review of IFRS 9—Classification and Measurement. Responses are due by January 28, 2022.
The IASB issued the completed version of IFRS 9 in 2014, combining the classification and measurement, impairment, and hedge accounting phases of its project to replace and improve on IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 specifies how a company is required to classify and measure financial assets and financial liabilities as well as some contracts to buy or sell non-financial items. IFRS 9 has been in effect since 2018.
The Request for Information seeks information on the classification and measurement requirements in IFRS 9 and related disclosures. The IASB will review the impairment and hedge accounting requirements of IFRS 9 later.
The IASB undertakes a post-implementation review of each new IFRS Standard or major amendment after companies have applied it for at least two years. These reviews offer the IASB the opportunity to assess the effect of the new requirements on companies, investors, auditors and regulators.
After analyzing feedback from these reviews, the IASB decides whether to take any further actions. These actions can include providing educational materials or doing more research for possible standard-setting. At the end of its analysis, the IASB summarizes and explains its responses to the feedback.
FASB Agenda – New Edition of GAAP Update Service Published
We have published a new edition of the GAAP Update Service, FASB Invitation to Comment: Agenda Consultation. This new edition discusses the FASB’s Invitation to Comment that seeks input on its future agenda.
Proxy Voting – SEC Proposes to Enhance Proxy Voting Disclosure by Investment Funds and Require Disclosure of “Say-on-Pay” Votes for Institutional Investment Managers
The Securities and Exchange Commission has proposed amendments to Form N-PX to enhance the information mutual funds, exchange-traded funds, and certain other funds report about their proxy votes. The proposed rulemaking would require funds to tie the description of each voting matter to the issuer’s form of proxy and to categorize each matter by type to help investors identify votes of interest and compare voting records. The proposal also would prescribe how funds organize their reports and require them to use a structured data language to make the filings easier to analyze. Funds would also be required to disclose how their securities lending activity impacted their voting.
Further, the rulemaking would require institutional investment managers to disclose how they voted on executive compensation, or so-called “say-on-pay” matters, which would fulfill one of the remaining rulemaking mandates under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Managers generally would be subject to the same Form N-PX reporting requirements as funds with respect to their say-on-pay votes.
Since 2003, funds have been required to file Form N-PX reports disclosing how they voted on proxy proposals relating to investments they hold, but investors may face difficulties analyzing these reports. For example, funds may report their votes in an inconsistent manner or in a format that is not machine readable. This can make it more difficult for investors to analyze the reported data. The proposal would make funds’ proxy voting records more usable and easier to analyze, improving investors’ ability to monitor how their funds vote and compare different funds’ voting records.
The proposal will be published on SEC.gov and in the Federal Register. The public comment period will remain open for 60 days after publication in the Federal Register.
Audit Evidence – PCAOB Issues Staff Guidance on Evaluating Relevance and Reliability of Audit Evidence Obtained from External Sources
The PCAOB has issued Staff Guidance-Insights for Auditors: Evaluating Relevance and Reliability of Audit Evidence Obtained From External Sources. This guidance focuses primarily on considerations that address relevance and reliability of information from external sources that the auditor plans to use as audit evidence. It also addresses the relationship between the quality and quantity of audit evidence.
AUDITING AND INTERNAL CONTROL HEADLINES:
Not-for-Profit Organizations – 2020-2021 Edition of Knowledge-Based Preparation, Compilation, and Review Engagements of Not-for-Profit Organizations (Post-SSARS-25) Published
We have published the 2020-2021 edition of Knowledge-Based Preparation, Compilation, and Review Engagements of Not-for-Profit Organizations (Post-SSARS-25). This new edition examines all applicable review, compilation, and preparation engagement standards and shows you how to conduct engagements in the most efficient and thorough manner possible.
This edition is current through SSARS-25, Materiality in a Review of Financial Statements and Adverse Conclusions. Issued in February 2020, SSARS-25 is effective for engagements performed in accordance with SSARSs for periods ending on or after December 15, 2021, with early implementation permitted, and amends the following sections of the SSARS codification:
Audit Evidence – PCAOB Issues Staff Guidance on Evaluating Relevance and Reliability of Audit Evidence Obtained from External Sources
- AR-C Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services;
- AR-C Section 70, Preparation of Financial Statements;
- AR-C Section 80, Compilation Engagements; and
- AR-C Section 90, Review of Financial Statements.
As discussed above, the PCAOB has issued Staff Guidance-Insights for Auditors: Evaluating Relevance and Reliability of Audit Evidence Obtained From External Sources. This guidance focuses primarily on considerations that address relevance and reliability of information from external sources that the auditor plans to use as audit evidence. It also addresses the relationship between the quality and quantity of audit evidence.
Audit Planning – New Edition of GAAS Update Service Published
We have published a new edition of the GAAS Update Service, A Refresher on Audit Planning - AU-C Section 300, "Planning an Audit." This new edition discusses provisions of AU-C Section 300, Planning an Audit. AU-C Section 300 addresses the auditor’s responsibility for planning an audit of financial statements so that it is performed effectively. While it is written in the context of recurring audits, it separately identifies additional considerations for initial audit engagements.
Unpaid Fees – AICPA’s PEEC Proposes Revisions to Unpaid Fees Interpretation
The AICPA’s Professional Ethics Executive Committee (PEEC) has issued the Exposure Draft, Proposed Revised Interpretations and Definition--Loans, Acquisitions, and Other Transactions, as well as an Invitation to Comment. The comment deadline is January 5, 2022.
In October 2020, the SEC amended certain auditor independence requirements to Rule 2-01 of Regulation S-X, effective as of June 9, 2021, with early compliance allowed. The PEEC Exposure Draft is included in the PEEC’s “project to evaluate the amended independence rules the SEC issued” in October and “determine whether revisions to the AICPA Code of Professional Conduct [Ethics Code] are required.”
Contents of the Proposal
As noted in the explanation to the Exposure Draft, the SEC’s amendments modernized the rules to more effectively focus the analysis on potential impairment of independence on “relationships and services that may pose threats to an auditor’s objectivity and impartiality.”
Consistently with the SEC amendments, the Exposure Draft proposes revisions to one definition and four independence Interpretations, as follows:
- Definition of "beneficially owned" to clarify that a record owner could be included when the phrase “beneficial ownership interest” is used (ET sec. 0.400.06);
- “Loans” interpretation, to remove the focus on 10 percent or more ownership to change the scope to the ability to affect decision-making or have a beneficial ownership interest that gives significant influence over the attest client (ET sec. 1.260.010);
- "Loans and Leases With Lending Institutions" interpretation to include within permitted loans certain student and consumer loans (ET sec. 1.260.020);
- "Immediate Family Members" interpretation, to clarify that members should also consider loans that immediate family members have when evaluating materiality to the covered member (ET sec. 1.270.010); and
- "Client Affiliates" interpretation, to provide additional guidance when a financial statement attest client is involved in a transaction that results in a new affiliate (ET sec. 1.224.010).
If adopted as proposed, the revised material will apply to members in public practice.
In late December 2020, the PEEC issued a statement in response to the SEC’s amendments to auditor independence requirements in Rule 2-01 of Regulation S-X. In that Statement, the PEEC agreed to evaluate the SEC amendments to determine whether the Ethics Code should be revised to take the SEC amendments into account. The Statement noted that during the evaluation period, the “PEEC will consider a member to be in compliance with the code if the member implements and complies with the SEC amendments or complies with the existing code. This temporary enforcement policy will be effective until PEEC rescinds it.”
Even considering this policy, the PEEC has recommended that the proposed amendments become effective three months after publication of notice in the Journal of Accountancy, with early implementation permitted.
Insurance Entities – AICPA’s FinREC Issues Working Draft for Insurance Entities on Retrospective Adoption of Market Risk Benefits Guidance and the Effect of Historical Amortization of Acquisition Costs
The American Institute of CPA’s (AICPA) Financial Reporting Executive Committee (FinREC) has issued a working drafts of accounting issues for insurance entities. The new working draft provides guidance on implementation of FASB Accounting Standards Update (ASU) No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. The comment due date is November 17, 2021.
As with previously issued working drafts on accounting for insurance entities, when final, the text of the working draft will be included in the AICPA Audit and Accounting Guide: Life and Health Insurance Entities.
The new working draft is “Issue #4C: Retrospective adoption of market risk benefits guidance and the effect on the historical amortization of acquisition costs.”
Note Disclosures – GASB Publishes Fact Sheet on Note Disclosures GASB Technical Plan – New Edition of Governmental GAAP Update Service Published
We have published a new edition of the Governmental GAAP Update Service, Tasty Tidbits in the Final GASB Technical Plan for 2021. This new edition discusses the changes presented in the final technical plan for 2021.
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