SEC, sec rules, audit, financial reporting
Tax & AccountingDecember 07, 2021

AICPA & CIMA Conference Highlights – December 7, 2021

By: CCH ARM Editorial

Representatives from Accounting Research Manager are attending the 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments. This conference is being held Monday-Wednesday, December 6-8, 2021. The following are some highlights from conference speeches or presentations.

Barbara Vanich, PCAOB Acting Chief Auditor and Director of Professional Standards in the Office of the Chief Auditor

Barbara Vanich provided an update on PCAOB standard-setting activities on the agenda. The agenda highlights expected activities over a twelve-eighteen month period. The current standard-setting agenda includes two projects:

Quality Control

This project considers how PCAOB quality control (QC) standards should be revised to focus firms on improving their QC systems. Vanich indicates that 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. 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 Board 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 staff is developing a proposed standard for the Board’s consideration.

Supervision of Audits Involving Other Auditors

This project seeks to strengthen the existing requirements and impose a more uniform approach to the lead auditor's supervision of other auditors. These improvements are intended to increase the lead auditor's involvement in and evaluation of the work of other auditors, enhance the ability of the lead auditor to prevent or detect deficiencies in the work of other auditors, and facilitate improvements in the quality of the work of other auditors. The PCAOB has issued a few supplemental requests for comments. The PCAOB staff anticipates working with the PCAOB on next steps in early 2022.

In addition to the two standard-setting projects discussed above, the PCAOB has two research projects on its agenda:

Data and technology. As part of assessing whether regulatory action is necessary in response to the evolving audit landscape, the PCAOB has gathered information from PCAOB oversight activities, reviewed changes to firms’ methodologies, and studied relevant academic research. In addition, the PCAOB has engaged with key stakeholders on their experiences with data and technology and have monitored the activities of other standard setters and regulators. To date, the results of this research project indicate that PCAOB auditing standards are not precluding or detracting from firms’ ability to use technology-based tools in ways that could enhance audit quality. PCAOB staff will continue to conduct research and engage in outreach activities, focusing on:

  • Assessing changes in the use of technology in auditing and financial reporting;
  • Obtaining a more in-depth understanding of how auditors are using technology-based tools in responding to identified risks of material misstatement;
  • Continuing to analyze how requirements in PCAOB standards apply; and
  • Collaborating with other regulators and standard setters, as appropriate.

Audit evidence. This research project seeks to assess whether there is a need for guidance or changes to AS 1105, Audit Evidence, given the increasing prevalence of technology-based tools and the increasing availability and use of information from sources external to the company, both in the financial reporting process and as audit evidence. AS 1105 explains what constitutes audit evidence and establishes requirements regarding designing and performing audit procedures to obtain sufficient appropriate audit evidence. Advancements in technology and expanded use of data from external sources are affecting the nature, timing, preparation, and use of financial information and, in turn, the nature and extent of information available to auditors. PCAOB staff guidance, Evaluating Relevance and Reliability of Audit Evidence Obtained From External Sources, has been issued to assist auditors in applying the requirements in AS 1105 when using information obtained from external sources as audit evidence. The PCAOB staff continues to conduct research activities on other matters that may affect obtaining and evaluating audit evidence.

Vanich also provided standard implementation reminders on a number of PCAOB standards or rules. Items covered include estimates and specialists. As part of a Q&A, Vanich indicated that the new PCAOB board has not yet approved the current agenda since not all the members have begun work at the agency. 

ESG Sustainability Panel

A panel of speakers discussed the state of ESG reporting and assurance. The rise in ESG reporting has been driven largely by the market with a strong demand for ESG reporting and metrics from investors. In addition, there has been a significant standard-setting consolidation in this area, such as that of the Sustainability Accounting Standards Board (SASB) merging with the International Integrated Reporting Council to form the Value Reporting Foundation (VRF).

Panelists acknowledged that the current environment with different ESG reporting standards has brought a significant amount of complexity which must now be addressed. ESG standards from different standard-setters have resulted in competing interests that lacks a standard framework for reporting ESG information. The approach to ESG standard-setting must be global and have a sufficient level of consistency as reported throughout the world. This could result from establishing core measures within the ESG standards and have an endorsement process similar to how IFRS are adopted by individual jurisdictions.

Panelists applauded the work by the IFRS Foundation Trustees (Trustees) and their recent announcement of three significant developments to provide the global financial markets with high-quality disclosures on climate and other sustainability issues:

  • The formation of a new International Sustainability Standards Board (ISSB) to develop—in the public interest—a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs;
  • A commitment by leading investor-focused sustainability disclosure organizations to consolidate into the ISSB. The IFRS Foundation will complete consolidation of the Climate Disclosure Standards Board (CDSB), an initiative of CDP, and the VRF, which houses the Integrated Reporting Framework and the SASB Standards, by June 2022;
  • The publication of prototype climate and general disclosure requirements developed by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to undertake preparatory work for the ISSB. These prototypes are the result of six months of joint work by representatives of the CDSB, the IASB, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF, and the World Economic Forum (Forum), supported by the International Organization of Securities Commissions (IOSCO) and its Technical Expert Group of securities regulators. The TRWG has consolidated key aspects of these organizations’ content into an enhanced, unified set of recommendations for consideration by the ISSB.

Together, these developments create the necessary institutional arrangements, set out in the Foundation’s revised Constitution, and lay the technical groundwork for a global sustainability disclosure standard-setter for the financial markets. They fulfill the growing and urgent demand for streamlining and formalizing corporate sustainability disclosures.
The ISSB will sit alongside and work in close cooperation with the IASB, ensuring connectivity and compatibility between International Financial Reporting Standards (IFRS) and the ISSB’s standards. To ensure public interest legitimacy, both boards will be overseen by the Trustees, who are in turn accountable to a Monitoring Board of capital market authorities responsible for corporate reporting in their jurisdictions. The ISSB and the IASB will be independent, and their standards will complement each other to provide comprehensive information to investors and other providers of capital.

As a Q&A, panelists addressed the state of ESG reporting in the U.S. given the international activities in this area as discussed above. Panelists do not believe we will have a similar dichotomy as in the accounting standard-setting between standards issued by the IASB and FASB (U.S. vs. rest-of-world). Currently the U.S. does not have a mature ESG reporting framework already in use that would be jeopardized by global standards. It is the intent that the ISSB will create ESG standards and a reporting framework that would be used globally. One goal of standardizing ESG reporting is to get metrics or information relevant to the financial performance and value of an enterprise into the market. Panelists indicated there is a strong demand from investors for a comprehensive global ESG framework and standards in order to compare investments.

Marci Rossell, Economist

Marci Rossell discussed her views on the state of the global economy. The global economy went from a once in a lifetime shock to the demand-side of the economy eighteen months ago as a result of the pandemic to now a significant supply-side constraints and shortages. During the global pandemic, people were losing their jobs by the thousands each week. Now employers and producers cannot find enough workforce or materials to meet demand. Rossell cautioned that economic forecasters missed predicting this downturn and recovery in many ways. Normal economic indicators was completely turned on their head. For example, the demand for automobiles during the pandemic went up versus an expected reduction.

This downturn was so peculiar from past economic events or recessions. It did not originate within the economy itself but rather from a global health crisis. For example the 2008-2009 recession started in the real estate sector and spread to a financial crisis which lead to a liquidity crisis. Normally the pattern of a downturn or recession is that it begins in one sector and spreads to other areas of the economy and goes global. This downturn is different in that it started outside the economy and spread throughout. Some other factors that made this downturn different than previous ones include:

  • The current employment shortage is driven by people severing ties with their employers, geography, and occupation (Rossell refers to this as the “great re-arrangement”). Rossell believes this will drive continued labor shortage issues for the long-term.
  • The significance of governmental fiscal policy response is like no other before, including stimulus checks, unemployment benefits, and support of the Federal Reserve. The amount of financial relief from Congress during the global pandemic has not been seen before. Fiscal policy spending occurred from governments around the world.
  • The savings rate in the U.S. spiked during the global pandemic as people did not spend but rather built wealth. People largely invested this wealth in the real estate and equities. Unexpectedly, the markets recovered quickly and interest rates remained low.

Rossell does not believe the increase in real estate prices over the pandemic is a bubble. People are buying real estate not primarily for a return on investment, but because their life post-pandemic is permanently changed. More people are working remotely and the competitive labor market will likely keep this change permanent. People are buying homes to have more suitable conditions and geographically located where they want to live. For these reasons, Rossell believes housing inflation is real and will last for some time. Rossell believes most of the other inflationary pressures are transitory. 

Learn More about CCH Accounting Research Manager
CCH ARM Editorial

Comprised of trusted industry experts, the Wolters Kluwer CCH ARM Editorial Staff are knowledgeable and highly qualified to analyze and offer guidance on the latest, important accounting and audit topics. They ensure every topic is thoroughly researched and meticulously broken down to provide up to date and accurate information. Read more of their insights on CCH Accounting Research Manager.

Research & Learning

CCH® Accounting Research Manager® delivers interpretive guidance and authoritative content needed to confidently make accounting, financial reporting and audit decisions.


Back To Top