The Council of Institutional Investors and Dennis Beresford, former FASB chair and a longtime audit committee chair, are among the early commenters on the PCAOB’s supplemental request for comment concerning its proposed form to disclose the name of the engagement partner of an audit.
While CII agrees with the PCAOB’s proposal to disclose the names of engagement partners, Beresford does not. In fact, he suggests some alternatives. He also suggests the PCAOB conduct a field test of the proposed rule, just as the FASB does for proposed accounting standards.
In its letter, CII stated: “Generally consistent with our policies, CII continues to strongly support requiring disclosure in the auditor’s report of the signature or name of the engagement partner participating in the audit.”
CII bases its support on its information showing that disclosing an engagement partner’s name and track record in the auditor’s report would be relevant to its members. CII believes this disclosure would help long-term shareowners when voting on whether to ratify the board’s choice of outside auditor.
Beresford, executive in residence at Terry College of Business at The University of Georgia, comments on the PCAOB’s statement its proposal that “among other things, the disclosures would allow investors to research whether engagement partners have been associated with adverse audit committees that could be attributed to deficiencies in their audit work or have been sanctioned by the PCAOB or SEC.”
Beresford comments that “…this notion of accentuating the negatives and using the naming process as a way of ferreting out bad actors seems to be a prominent theme if not the causal theme of the whole exercise.”
He questions whether the use of the proposed PCAOB Form AP (Auditor Reporting of Certain Audit Participants) and the inclusion of such information in a searchable database will achieve the PCAOB’s objective. “I suspect that nearly all audit committees would reject someone subject to an earlier enforcement action from becoming their engagement partner, assuming such individual is even allowed to continue to serve public clients,” he wrote. “So the inclusion of any such individuals in a database would be of no importance to investors.”
On August 18, the D.C. Circuit Court of Appeals upheld its April 2014 decision in National Association of Manufacturers, et al v. SEC that the part of the SEC’s conflict minerals disclosure rule where products must be labeled “DRC (Democratic Republic of the Congo) conflict-free” violates constitutional free speech.
Last year, the SEC asked the D.C. Circuit Court to rehear the case in light of the outcome of an unrelated First Amendment lawsuit, American Meat Institute v. US Department of Agriculture.
As of August 20, the SEC had not publicly responded to the court decision.
The SEC has a few options, according to a DavisPolk client memo: “The SEC could seek en banc review, which would allow the full circuit court to reconsider the three-judge panel’s split decision. Alternatively, the SEC could decide to forgo further legal action and propose a revised version of the rule that addresses the appellate court’s First Amendment objections.”
After the original 2014 court decision, Keith Higgins, director of the SEC’s Division of Corporation Finance, said that companies don’t have to disclose whether or not their products are DRC conflict-free.
On July 30, the IASB issued its package of proposed amendments to its new revenue recognition standard. The proposal includes amendments to the guidance on accounting for licenses of intellectual property and the principal versus agent assessment (gross versus net revenue presentation).
The IASB is also proposing additional practical expedients related to transition and amendments to the illustrative examples accompanying the new revenue standard.
The FASB plans to issue two additional proposals to amend the new revenue standard. We expect the first to mirror the IASB's proposal related to the principal versus agent assessment. A second proposal is expected to include additional, narrow scope improvements and new practical expedients.
The proposed IASB amendments are intended to reduce the risk of diversity in practice and reduce the cost and complexity of applying certain aspects of the revenue standard. The proposals are not intended to change the new standard’s core principles, but will impact application of some of the more complex aspects of the standard.
The amendments proposed by the IASB are not the same as those that have been (or will be) proposed by the FASB. The boards have suggested that, despite different wording, the financial reporting outcomes will be similar in many cases.
Public comments are due October 28.
[For more information, read PwC’s In brief.]