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As 2022 draws to a close, our latest report provides insights for audit committee consideration for the year-end financial reporting season and beyond. We highlight impacts of the current economic environment, regulatory and standard-setting developments, as well as emerging matters that could make their way onto the audit committee’s agenda.
The current economic environment is affecting business broadly across the globe. Rising interest rates, inflation, geopolitical instability, including the war in Ukraine, and lingering impacts from the pandemic remain top concerns among executives, boards, and investors.
While the ultimate effects on a company will differ depending on its specific circumstances and its business initiatives, the severity and duration of any one, or a combination, of these macroeconomic conditions could have a significant impact on the financial statements.
What questions should the audit committee ask?
On August 16, President Biden signed the Inflation Reduction Act (the IRA) into law, which includes a wide range of tax, clean energy, and healthcare-related provisions. The law includes a new 15% corporate alternative minimum tax (CAMT), and provides that companies that pay the CAMT will receive a non-expiring tax credit carryforward that can be claimed against regular tax in future years. Under US GAAP, changes in income tax rates and law are accounted for in the period of enactment. For US federal purposes, this is the date the President signs the bill into law; however, the majority of the provisions in the IRA will impact financial statements prospectively only.
What questions should the audit committee ask?
Over the past year, the SEC has issued more climate-related comments, making it one of the top topics covered. These comments, described in a “Dear CFO” letter that the SEC staff publicly released, largely seek disclosure of the risks, trends, and impact of climate change for the registrant and its business, and may focus on inconsistencies between a registrant’s corporate responsibility report and its SEC filing.
What questions should the audit committee ask?
Audit committee responsibilities continue to expand as the ever-evolving business landscape requires companies to implement new technologies, find new ways to interact with customers, respond to changing regulations, and contend with new and emerging risks. At the same time, stakeholders are demanding more transparency from companies about the impact of these matters and how boards and management teams are responding to them. As a result, disclosures in the annual proxy, including the audit committee’s report, have been expanding.
What questions should the audit committee ask?
The audit committee’s oversight role in ESG matters has continued to evolve, particularly with proposed disclosure rules on climate change from the SEC and new rules and proposals from standard setters in various other jurisdictions as well. In 2022, both the International Sustainability Standards Board (ISSB) and the European Union (EU) (as part of the Corporate Sustainability Reporting Directive (CSRD) released proposed ESG disclosure requirements. The scope of the EU’s disclosure rules is very broad and may take some companies by surprise, as it may apply to any companies doing any type of business in the EU.
What questions should the audit committee ask?
The following three projects are at various stages of the standard-setting process, but all could have impacts on companies now or in the future:
What questions should the audit committee ask?
Many companies have made public commitments to reduce their carbon emissions. One method to help achieve these reductions is by using Renewable Energy Credits (RECs) or carbon offsets.
What questions should the audit committee ask?
Crypto assets utilize blockchain technology and come in a variety of forms. Some, such as Bitcoin, may function as a medium of exchange. Others may provide the right to use a product or service, rights to an underlying asset, voting rights, or rights to profits and losses among others. With the difference in rights and obligations comes differences in accounting. Today, many crypto assets do not meet the definition of cash or a financial instrument. And, given that crypto assets are not tangible assets, they do not meet all the requirements to be accounted for as inventory. Therefore, many crypto assets are accounted for as indefinite-lived intangible assets.
What questions should the audit committee ask?
The metaverse is a virtual reality (VR) world where users can interact with a computer-generated environment and with real people. It is changing how businesses and consumers interact with products, services, and each other. By putting on a VR headset, a user can “visit” a factory on the other side of the world—see its machines and meet with the local supervisor without leaving their desk.
What questions should the audit committee ask?