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Update on the current board issues: July 2015

Audit committee issues

 

PCAOB seeks comments on AQIs, disclosing engagement partner name

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The PCAOB took two actions last month intended to improve the quality of financial statement audits and make the audit process more transparent.

The regulator issued a concept release soliciting comment on the content and possible uses of audit quality indicators (AQI), measures that may provide new insights into audit quality.

The Center for Audit Quality (CAQ) supports the idea of AQIs. It issued the following statement on the concept release.

“The CAQ believes that communications of audit quality indicators should be directed at independent audit committees, who play a vital role in providing oversight of the audit on behalf of investors. Since 2012, the public company auditing profession has undertaken its own initiative in this area, as documented in the 2014 white paper, The CAQ Approach to Audit Quality Indicators.”

The PCAOB’s concept release seeks comment on 28 potential AQIs, covering three broad categories:

  • Audit Professionals—measures dealing with the availability, competence, and focus of those performing the audit
  • Audit Process—measures concerning an audit firm's tone at the top and leadership, incentives, independence, investment in infrastructure needed to support quality auditing, and monitoring and remediation activities
  • Audit Results—measures relating to financial statements (such as the number and impact of restatements, and measures of financial reporting quality), internal control over financial reporting, going concern reporting, communications between auditors and audit committees, and enforcement and litigation

This fall, the PCAOB will hold a public roundtable to discuss views on the AQI release and related comments. Comments on the concept release are due by September 28.

In addition, the PCAOB issued a supplemental request for comment on whether to require firms to file a new form to disclose the name of the audit engagement partner and information about certain other participants in the audit.

The board is seeking comment on the proposed form (PCAOB Form AP) as a potential alternative to its 2013 proposal to promote audit transparency by providing these disclosures in the auditor's report. Comments on the new form are due by August 31.

[For more information on the AQI release, read PwC’s In brief.]

 

SEC solicits comments on audit committee disclosures

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In July, the SEC issued a concept release seeking public comment on current audit committee disclosure requirements, focusing on the committee’s oversight of independent auditors.

It is interested in receiving information about the audit committee and auditor relationship and whether improvements can be made to enhance the information provided to investors about the audit committee’s responsibilities and activities.

“Effective audit committee oversight is essential to investor protection and the functioning of our capital markets,” said SEC Chair Mary Jo White. “The way audit committees exercise their oversight of independent auditors has evolved and it is important to evaluate whether investors have the information they need to make informed decisions.”

The concept release invites comment on whether SEC disclosure requirements should be refined to provide more insight into the information the audit committee used and the factors it considered in overseeing the independent auditor. This includes the process for appointing or retaining the auditor and the consideration of the qualifications of the auditor and certain members of the engagement team, among others.

Comments are due by September 8.

[For more information on the SEC concept release, read PwC’s In brief.]

 

FASB officially delays revenue recognition standard for one year

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On July 9, the FASB voted to delay the effective date of the new revenue standard by one year (2018 for calendar year-end public entities). The FASB also decided to allow entities to choose to adopt the standard as of the original effective date for public companies (2017 for calendar year-end entities).

The FASB decided, based on its outreach to various stakeholders and the forthcoming amendments to the new revenue standard, that a deferral is necessary to provide adequate time to effectively implement the new revenue standard.

The FASB will issue a final Accounting Standards Update that reflects the revised effective date. The FASB has also proposed additional amendments to the new revenue standard. Refer to In brief US2015-14 for further information. In July, the IASB approved a similar one-year deferral, and retained the ability to elect early adoption.

[For more information on the FASB’s revenue recognition standard decision, read PwC’s In brief.]