September 2022 financial reporting, governance, and risk management

| 9/21/2022
September 2022 financial reporting, governance, and risk management

Message from John Epperson, Managing Principal, Financial Services

Dear FIEB readers,

Are you ready for some … conferences? September traditionally kicks off football, all things pumpkin spice, and financial reporting conference season. This month, we provide key takeaways from both the 2022 American Institute of Certified Public Accountants Conference on Banks and Savings Institutions and the “SEC Speaks in 2022” program of the Practising Law Institute. Our discussion summarizes how stakeholder presentations reflect on the current state of financial reporting, governance, and risk management and are a noteworthy read for financial institutions and public companies alike.

In addition, federal financial institution regulators and staff from the Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), and Public Company Accounting Oversight Board (PCAOB) continue their work on numerous issues, and we keep you up to date. Items of interest include the second quarter 2022 quarterly banking profile from the Federal Deposit Insurance Corp. (FDIC), updates to the Office of the Comptroller of the Currency’s Bank Accounting Advisory Series, an exposure draft from the FASB on expanding the proportional amortization method to additional types of tax credit investments, SEC final rules on pay-versus-performance disclosures, and a new audit committee resource from the PCAOB. Finally, the Center for Audit Quality released a new study of S&P 500 climate-related disclosures.

We hope the onset of autumn finds you well.

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Takeaways from the 2022 AICPA banking conference

AICPA holds banking conference

The 47th annual American Institute of Certified Public Accountants (AICPA) National Conference on Banks and Savings Institutions was held Sept. 12-14, 2022, focusing on events significantly affecting the banking industry, both from an economic outlook and from an ever-changing reporting landscape. Of note, environmental, social, and governance (ESG) issues, digital assets and cryptocurrency, and the rapid acceleration in technology were discussed at length as emerging topics in the banking landscape. Similar to recent years, the current expected credit loss (CECL) standard was a focal point.

Current projects and rules published by the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC), and the Public Company Accounting Oversight Board (PCAOB) were highlighted by conference panelists. Other topics included the cessation of the London Interbank Offered Rate (LIBOR) and thoughts on the workplace of the future.

As in prior years, Crowe will issue a comprehensive report covering key takeaways from the conference, with insights on economic, accounting, and regulatory updates as well as other banking hot topics.

Matters of importance from the federal financial institution regulators

FDIC issues quarterly banking profile for second quarter 2022

The Federal Deposit Insurance Corp. (FDIC) released on Sept. 8, 2022, the quarterly banking profile covering the second quarter of 2022. According to the report, FDIC-insured banks and savings institutions reported $64.4 billion quarterly net income, a decrease of $6.0 billion or 8.5% from a year ago. The decline in net income is attributable primarily to a $21.9 billion increase in provision expense from first quarter 2021.

The report provides these additional second quarter statistics:

  • Net interest income totaled $151.1 billion, with 70.5% of banks reporting higher net interest income compared with a year ago. From the previous year, the average net interest margin increased 26 basis points to 2.80%.
  • The aggregate return on average assets (ROAA) ratio was 1.08%, down 16 basis points from the ROAA ratio reported in second quarter 2021 but up 8 basis points from first quarter 2022.
  • Total loans and leases increased $414.9 billion (13.7%) from the previous quarter.
  • Total deposits declined $369.1 billion (1.9%) between first quarter 2022 and second quarter 2022.
  • From the previous quarter, the noncurrent loan rate declined by 9 basis points to 0.75%. Noncurrent loan balances (those 90 days or more past due) declined $7.2 billion (7.6%) from first quarter 2022.
  • Community banks’ net income decreased $523 million or 6.5% year over year.

The total number of FDIC-insured commercial banks and savings institutions declined to 4,771 from 4,796 the previous quarter. During the first quarter, six new banks opened, 28 banks were absorbed by mergers, and no banks failed. The number of institutions on the FDIC’s problem bank list remained unchanged from the first quarter, at 40. Total assets of problem banks declined $2.7 billion to $170.4 billion.

NCUA issues second quarter 2022 performance data

The National Credit Union Administration (NCUA) reported, on Sept. 7, 2022, quarterly figures for federally insured credit unions based on call report data submitted to and compiled by the agency for the second quarter of 2022.

Highlights include:

  • The number of federally insured credit unions declined to 4,853 from 5,029 in the second quarter of 2021. In the second quarter of 2022, 3,042 federal credit unions and 1,811 federally insured, state-chartered credit unions existed.
  • Total assets reported for federally insured credit unions rose by 8.1% to $2.14 trillion, up $159.0 billion from a year ago.
  • Net income at an annual rate totaled $18.0 billion, down $3.3 billion (15.4%) from the same period a year ago.
  • The return on average assets decreased from 112 to 86 basis points compared to a year ago.
  • The credit union system’s net worth increased by $21.6 billion, or 10.8%, over the year to $222.7 billion. The aggregate net worth ratio was 10.42% in the first quarter of 2022, up from 10.16% in the second quarter of 2021.

Fed vice chair for supervision provides updates on key supervisory priorities

In his first speech as Federal Reserve Board (Fed) vice chair for supervision, Michael Barr said at a Sept. 7, 2022, Brookings Institution event that in 2023 the Fed will “launch a pilot micro-prudential scenario analysis exercise to better assess the long-term, climate-related financial risks facing the largest institutions.” Barr indicated that the Fed is also planning to work with other federal banking agencies to provide guidance to large banks on expectations for identifying, measuring, monitoring, and managing the financial risks of climate change.

Outlining the Fed’s overall supervisory priorities, Barr noted his preference for a risk-focused regulatory capital framework. He also suggested a preference for a tiered system for institutions as they increase in complexity and systemic importance.

In addition to climate- and risk-based capital, Barr touched on several other priorities, including reviewing the Fed’s existing guidelines for mergers and acquisitions and supporting responsible innovation while balancing risk. Regarding digital assets, he said, “Banks engaged in crypto-related activities need to have appropriate measures in place to manage novel risks associated with those activities and to ensure compliance with all relevant laws, including those related to money laundering.”

Fed issues guidance for banks on crypto assets

The Fed issued SR Letter 22-6 on Aug. 16, 2022, directing state member banks to notify their Reserve Bank supervisory points of contact prior to engaging in activity related to crypto assets. Aside from the notification requirement, Fed-supervised banks seeking to engage in such activities first must assess whether those activities are legally permissible and determine whether any regulatory filings are required.

The Fed notes that the crypto asset sector presents opportunities for banks but comes with many potential hazards, including cybersecurity risks and financial stability risks. It also reminds institutions to have in place adequate systems, risk management, and controls to conduct such activities in a safe and sound manner. Banks already engaged in activities related to crypto assets should contact the Fed “promptly” if they have not already done so.

The letter is similar to guidance previously issued by the Office of the Comptroller of the Currency (OCC) and the FDIC, in which those agencies required banks under their supervisory jurisdiction to notify their primary regulator before engaging in any kind of digital asset activity, including custody. The OCC’s guidance specifically requires an institution to obtain a non-objection prior to engaging in crypto asset activities.

In November 2021 the Fed, OCC, and FDIC released a joint statement on their crypto asset policy “sprints.” They said they plan to provide greater clarity in 2022 on whether certain crypto asset activities are permissible and on their expectations to ensure safety and soundness.

Banking agencies reaffirm U.S. commitment to Basel III

The Fed, FDIC, and OCC on Sept. 9, 2022, reaffirmed their commitment to implementation of regulatory capital requirements that align with the Basel Committee on Banking Supervision’s final Basel III standards issued in 2017. The federal bank regulatory agencies’ statement says that following these standards for large banking organizations “would strengthen the resilience of the domestic banking system and is a priority for the agencies.”

In the release, the agencies note that “strong capital requirements have proven to be a critical element of the bank regulatory framework, allowing the banking industry during times of economic stress to serve as a source of strength for the U.S. economy and to lend to creditworthy households and businesses.”

The agencies say they are developing a joint proposed rule and plan to seek public input on the new capital standards for large banking organizations. The upcoming proposal would not apply to community banking organizations, which are subject to different capital requirements.

OCC updates BAAS

On Aug. 15, 2022, the OCC released an update to the Bank Accounting Advisory Series (BAAS). The BAAS covers a variety of topics and promotes consistent application of accounting standards among national banks and federal savings associations. This edition reflects updates that clarify the application of Financial Accounting Standards Board accounting standards on topics including the amortization of premiums on debt securities with a call option over a preset period and lessors’ classification of certain leases with variable lease payments. It does not include questions and answers related to Accounting Standards Update (ASU) 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” which was issued on March 31, 2022.

The BAAS does not represent official rules or regulations of the OCC. Rather, it represents the OCC’s Office of the Chief Accountant’s interpretations of GAAP and regulatory guidance based on the facts and circumstances presented. While the BAAS is published by the OCC, the information in the BAAS is relevant to all financial institutions.

FDIC issues guidance for multiple NSF fees for re-presentment

The FDIC released guidance on Aug. 18, 2022, regarding the practice of charging multiple nonsufficient funds (NSF) fees for transactions presented multiple times against insufficient funds in a customer’s account.

In the Financial Institution Letter, the FDIC indicates it had identified violations of law during consumer compliance examinations where financial institutions charged multiple NSF fees for the re-presentment of unpaid transactions. The FDIC found that some disclosures provided to customers did not fully or clearly describe the institution’s re-presentment practice, including not explaining that the same unpaid transaction might result in multiple NSF fees. The FDIC notes that these practices heighten the risk of violation of Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts or practices.

The FDIC lists a range of risk-mitigating activities institutions could pursue in regard to NSF fees. These include eliminating the fees; declining to charge more than one NSF fee for the same transaction, regardless of whether the item is re-presented; conducting a comprehensive review of policies and practices related to re-presentments; and clearly communicating to customers the amount of fees and when those fees will be imposed.

According to the guidance, “Examiners will generally not cite [unfair or deceptive acts or practices] violations that have been self-identified and fully corrected prior to the start of a consumer compliance examination.” The FDIC has identified instances where banks have been unable to reasonably access accurate automated clearinghouse (ACH) data for re-presented transactions beyond two years. In those cases, the FDIC has accepted a two-year lookback period for restitution.

Fed plans FedNow instant payments launch

The Fed said on Aug. 29, 2022, that its FedNow Service will launch midyear 2023, targeting May to July as the production rollout window for the anticipated instant payments service. Currently, more than 120 organizations are participating in the FedNow pilot program, including banks, payment processors, and other solution providers. The pilot program will enter technical testing this month.

Once fully launched, FedNow will be accessible to financial institutions of any size, and the service will enable businesses and consumers to send and receive payments immediately, efficiently, and securely. Payment recipients will have full access to funds immediately, according to the Fed’s release.

During an Aug. 29 speech as part of a FedNow Early Adopter Workshop, Fed Vice Chair Lael Brainard said, “The Federal Reserve has made a substantial commitment to the FedNow platform, which has benefited from the innovative technologies and approaches proven by global technology companies that are vital for today’s always-on digital economy.”

Participants in the FedNow pilot will complete a certification process to ensure operational and messaging readiness and then move into production once the service is launched. As the pilot program moves into the testing phase, the Fed also will look to engage nonpilot financial institutions and service providers interested in being early adopters.

FHFA will review Federal Home Loan Bank System

The Federal Housing Finance Agency (FHFA) announced on Aug. 31, 2022, it will conduct a comprehensive review of the Federal Home Loan Bank (FHLBank) System beginning this month. The agency plans to host two public listening sessions and a series of regional roundtable discussions where it will consider and evaluate the mission, membership eligibility requirements, and operational efficiencies of FHLBanks, according to a statement.

The first listening session will occur in person in Washington, D.C., on Sept. 29, 2022, with the option to participate virtually. The agency is seeking public feedback in six areas: FHLBanks’ general mission and purpose in a changing marketplace; FHLBank organization, operational efficiency, and effectiveness; the banks’ role in promoting affordable, sustainable, equitable, and resilient housing and community investment; their role in addressing the unique needs of rural and financially vulnerable communities; member products, services, and collateral requirements; and membership eligibility and requirements. Public comments also will be accepted through Oct. 21, 2022.

From the Financial Accounting Standards Board (FASB)

FASB proposes to expand use of the proportional amortization accounting method to more income tax credit programs

On Aug. 22, 2022, the FASB issued a proposed ASU, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” that would expand the eligibility of the proportional amortization method of accounting to equity investments in tax credits beyond those generated by low-income-housing tax credit programs. The proposal would allow entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credits that meet the eligibility criteria in Accounting Standards Codification 323-740-25-1.

While the proposal would not significantly alter the eligibility criteria, it would provide clarifications to address existing interpretive issues. Also, it would prescribe specific information that reporting entities must disclose about tax credit investments each period. Under the proposal, entities would have the option of applying the guidance using either a modified prospective or full retrospective adoption approach.

Comments are due Oct. 6, 2022.

Crowe has issued an article with additional information on the exposure draft.

FASB discusses accounting and disclosures for crypto assets

At its board meeting on Aug. 31, 2022, the FASB discussed accounting for and disclosure of crypto assets, agenda prioritization, and an update on its research agenda. As part of its discussions on crypto assets, the board decided that to be included in the scope of the project, crypto assets that are held by an entity must meet the following criteria:

  1. “Meet the definition of intangible asset as defined in the Codification Master Glossary
  2. “Do not provide the asset holder with enforceable rights to, or claims on, underlying goods, services, or other assets
  3. “Are created or reside on a distributed ledger or ‘blockchain’
  4. “Are secured through cryptography
  5. “Are fungible.”

The board also decided that all entities would be within the scope of the project and that it would consider the applicability of its decisions to those entities. In addition, the board determined that potential measurement alternatives for crypto assets would be considered at a future meeting.

From the Securities and Exchange Commission (SEC)

SEC commissioners and staff deliver remarks

On Sept. 15, 2022, SEC Chair Gary Gensler provided opening testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. His remarks covered capital markets, market structure including crypto markets, predictive data analytics, issuers and issuer disclosure, funds and investment managements, and enforcement and examinations.

On Sept. 8 and 9, 2022, SEC commissioners and staff provided insights into current SEC initiatives and priorities at the Practising Law Institute’s “The SEC Speaks in 2022” program. Key topics included:

  • Crypto assets
  • ESG matters
  • High-quality financial reporting and current rulemaking activities

Crypto assets

Gensler’s program-opening keynote set the tone for crypto assets. He noted, “Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities.” He also remarked that crypto securities are subject to the same requirements under federal securities laws as other securities, and offers and sales of crypto securities must be registered. Gensler also addressed the registration of intermediaries that transact in crypto securities, stablecoins, and nonsecurity crypto tokens.

Enforcement Division Director Gurbir Grewal opened the second day of the conference with remarks on the crypto assets security ecosystem. Crypto assets were also mentioned in other presentations. Commissioner Mark Uyeda addressed perspectives on crypto assets, SEC acting Chief Accountant Paul Munter remarked on Staff Accounting Bulletin (SAB) 121, Corporation Finance (Corp Fin) Division Chief Accountant Lindsay McCord discussed SAB 121 disclosure issues and crypto related non-GAAP measures, and other Corp Fin staff members stated they have a new industry office focused on disclosure review of registrants involved in crypto assets. Staff from the Trading and Markets Division and the Enforcement Division also remarked on their crypto initiatives and focus.

ESG matters

Various panels highlighted the SEC’s significant pending ESG rule proposals. Corp Fin Division Director Renee Jones highlighted the objectives and feedback themes from the SEC’s recent climate-related disclosure rule proposal. Corp Fin staff members discussed how they evaluate registrants’ current climate disclosure using 2010 SEC guidance and the staff’s September 2021 sample letter on climate change disclosure, and Corp Fin Chief Counsel Michael Seaman addressed climate-related shareholder proposal no-action requests. Enforcement Division, Investment Management Division, and Examination Division staff also mentioned ESG as a significant focus area in their activities.

High-quality financial reporting and current rulemaking activities

Munter, McCord, and Investment Management Chief Accountant Jenson Wayne spoke on various matters in their panel presentation, including:

  • High-quality accounting standards, the application of those accounting standards including in specific issuer facts and circumstances, and high-quality audits, including auditor independence
  • Materiality considerations
  • Holding Foreign Companies Accountable Act (HFCAA)
  • SAB 74 disclosures and the importance of transparent communication to users
  • Corp Fin’s waiver process

Corp Fin staff addressed a number of financial reporting issues including Item 407 of Regulation S-K governance disclosure, the impact of current events (for example, changes in interest rates, inflation, supply chain issues, and geopolitical conflict) on management’s discussion and analysis, non-GAAP measures (for example, prominence, mislabeling, and certain specific adjustments), segment disclosure, disclosure considerations for China-based issuers, and certain disclosure issues in registration statements following a de-SPAC transaction.

Enforcement Division staff talked about its current approach to high-quality financial reporting and other matters.

Multiple panels addressed current rulemakings including the Economic and Risk Analysis Division, Office of the Whistleblower, Investment Management, and Corp Fin. Corp Fin’s topics included summaries of recent rule proposals on cybersecurity, 10b5-1 plans, shareholder proposals, and the newly effective universal proxy final rule, which is effective for shareholder meetings held after Aug. 31, 2022.

SEC acting chief accountant discusses auditor independence

Acting Chief Accountant Munter released on Aug. 29, 2022, a statement addressing auditor independence and ethical responsibility considerations when contemplating audit firm restructuring transactions. In relation to auditor independence considerations, Munter discussed the SEC OCA’s staff observations related to audit firm restructuring transactions, challenges from private equity investments, and divestitures of a portion of a business. Munter warned, “In these complex practice structures and divestitures, it is paramount that the accounting firm fully understands its responsibility for maintaining auditor independence and it discloses such requirements to the non-accounting firm investors involved in the transaction so that the accounting firm can obtain the information necessary to fulfill its responsibilities.”

Further, Munter said, “When an accounting firm is considering obtaining an investment from a private equity or other investment structure, each entity within such structure would need to be carefully evaluated to determine if the entity is an ‘associated entity’ and is therefore part of the accounting firm for purposes of assessing potential impacts on, among other things, compliance with the Commission’s auditor independence requirements.”

In conclusion, Munter reminded accountants of the requirement to be independent in both fact and appearance, and he said when auditor independence is a close-to-the-line call, accounting firms need to have a strong culture and tone at the top that prioritizes independence and ethical responsibilities above all else.

SEC adopts pay-versus-performance disclosure rules

On Aug. 25, 2022, the SEC voted to finalize pay-versus-performance disclosure rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rules require more transparency about how executive compensation relates to company performance. While the final rules are effective Oct. 11, 2022, registrants must comply with the new requirements in proxy and information statements that include Regulation S-K Item 402 executive compensation disclosure for fiscal years ending on or after Dec. 16, 2022.

The final rules were originally proposed in 2015 and were opened to additional public comment in 2022.

Registrants must provide pay-versus-performance disclosure in their annual proxy or information statement that includes executive compensation disclosure under Item 402 of Regulation S-K. Smaller reporting companies (SRCs) can use scaled disclosure. Emerging growth companies, foreign private issuers, and registered investment companies are exempt.

Registrants must provide tabular disclosure for the most recent five years (three years for SRCs) of:

  • Principal executive officer (PEO) and named executive officer (NEO) compensation:
    • Total compensation, which is the same amounts as in the summary compensation table, of the PEO and the average total compensation of other NEOs
    • Compensation actually paid to the PEO and the average actual compensation paid to the other NEOs
  • Financial performance measures:
    • Total shareholder return (TSR)
    • TSR of the entity’s peer group (not required for SRCs)
    • Net income
    • The entity-specific, company-selected financial performance measure (company-selected measure) that is most important to the link between compensation actually paid and company performance for the most recently completed fiscal year (not required for SRCs)

In addition to the tabular disclosure, an entity must provide:

  • A clear description (graphic, narrative, or both) of the relationship between the executive compensation actually paid to the PEO and NEOs and the tabular financial performance metrics for the five most recently completed fiscal years (three years for SRCs).
  • A description of the relationship between the entity’s cumulative TSR and cumulative peer group TSR (not required for SRCs).
  • A list of up to seven most important financial performance measures used to link compensation to performance (not required for SRCs). A registrant also may elect to include nonfinancial measures in the list.

SEC amends whistleblower rules

The SEC on Aug. 26, 2022, adopted two amendments to the rules governing its whistleblower program, which was established in 2010 to encourage individuals to report high-quality tips to the SEC and help the agency detect wrongdoing and better protect investors and the marketplace.

Rule 21F-3 is amended to allow the SEC to pay whistleblower awards for certain actions brought by other entities, including designated federal agencies, in cases where those awards might otherwise be paid under the other entity’s whistleblower program. The changes allow for such awards when the other entity’s program is not comparable to the SEC’s program or if the maximum award that the SEC could pay on the related action would not exceed $5 million.

Additionally, the amendments affirm the SEC’s authority under Rule 21F-6 to consider the dollar amount of a potential award for the limited purpose of increasing the award amount, and the SEC’s authority to consider the dollar amount for the purpose of decreasing an award is eliminated.

The final rules are effective Oct. 3, 2022.

SEC adopts JOBS Act inflation adjustments

On Sept. 9, 2022, the SEC amended its rules to implement inflation adjustments mandated by the Jumpstart Our Business Startups Act (JOBS Act), which requires the SEC to make inflation adjustments to certain JOBS Act rules at least once every five years. These newly adopted amendments increase the annual gross revenue threshold in the definition of emerging growth company from $1,070 million to $1,235 million. They also increase certain financial thresholds in Regulation Crowdfunding.

The final rules and thresholds became effective on Sept. 20, 2022.

SEC proposes Treasury security clearing rules

On Sept. 14, 2022, the SEC proposed U.S. Treasury security clearing reforms to enhance market resilience. Designed to improve risk management and facilitate more central clearing of U.S. Treasury trading, the proposed rules would require covered clearing agencies to:

  • Require central clearing for certain transactions
  • Set certain margin policies and procedures for direct participants
  • Establish policies and procedures for settlement services for all eligible transactions

The proposal also would amend certain broker-dealer customer protection rules.

Comments are due 60 days after publication in the Federal Register.

SEC responds to PCAOB agreement with China

On Aug. 26, 2022, the PCAOB announced that it had signed an agreement with Chinese authorities on audit inspections and investigations. The agreement establishes a specific and accountable framework for the PCAOB to inspect and investigate PCAOB-registered public accounting firms in China and Hong Kong. In response to this agreement, SEC Chair Gensler issued a statement, saying the framework is important but it is just a step in the process, and will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China. Gensler said that this agreement brings specificity and accountability to effectuate Congress’s intent with the HFCAA and provides the standards against which to judge whether auditors of Chinese issuers have complied with the requirements of U.S. law, including PCAOB auditing standards.

Also on Aug. 26, 2022, SEC Commissioner Jaime Lizárraga released a statement describing the new PCAOB agreement as a “step forward in holding China- and Hong Kong-based public companies to the same accountability standards as all other issuers that access U.S. capital markets.” He said these companies have experienced an unfair advantage by evading U.S. regulations and that they now need to fully comply or lose the privilege of raising capital in U.S. financial markets.

In a related statement, acting Chief Accountant Munter, on Sept. 6, 2022, provided his thoughts on audit quality and investor protection under the HFCAA. Munter offered his views on the PCAOB’s fundamental role in improving audit quality, engaging new lead audit firms in response to the HFCAA, audit engagement structures of multinational issuers, engaging new accounting firms to remediate noncompliance, and other important considerations for accounting firms and issuers.

SEC releases draft strategic plan

On Aug. 24, 2022, the SEC released for public comment its draft strategic plan covering fiscal years 2022 to 2026. The plan details the SEC’s mission, vision, values, strategic goals, and planned initiatives.

The plan establishes three key goals:

  • “Protecting working families against fraud, manipulation, and misconduct;
  • “Developing and implementing a robust regulatory framework that keeps pace with evolving markets, business models, and technologies; and
  • “Supporting a skilled workforce that is diverse, equitable, inclusive, and is fully equipped to advance agency objectives.”

Among the initiatives to meet these goals, the SEC intends to do the following:

  • “Pursue enforcement and examination initiatives focused on identifying and addressing risks and misconduct that affects individual investors.”
  • “Enhance the use of market and industry data, particularly to prevent, detect, and enforce against improper behavior.”
  • “Modernize design, delivery, and content of disclosures.”
  • “Update existing SEC rules and approaches to reflect evolving technologies, business models, and capital markets.”
  • “Focus on the workforce to increase capabilities, leverage shared commitment to investors, and promote diversity, equity, inclusion, accessibility, and equality of opportunity.”
  • “Modernize the SEC’s technology to enable the mission in a cost-effective, secure, and resilient manner.”

Comments are due Sept. 29, 2022.

From the Public Company Accounting Oversight Board (PCAOB)

PCAOB releases audit committee resource

The PCAOB on Aug. 17, 2022, released a new publication, “Spotlight: Audit Committee Resource,” which provides auditors, audit committee members, and others questions that audit committees may consider as part of their ongoing engagement and discussion with their auditors. It includes questions on fraud and other risks, initial public offerings, mergers and acquisitions, audit execution, compliance with auditor independence requirements, firms’ quality control systems, auditing digital assets, responding to cyberthreats, and the use of data and technology in the audit.

PCAOB offers observations from 2021 inspections

The PCAOB released on Aug. 31, 2022, “Spotlight: Observations From the Target Team’s 2021 Inspections.” The report provides perspectives on the auditor’s responsibilities, observations, and good practices as they relate to the 2021 focus areas of fraud, interim reviews of special purpose acquisition companies, going concern, and cash and cash equivalents.

PCAOB issues annual broker-dealer inspection report

On Aug. 19, 2022, the PCAOB released its “Annual Report on the Interim Inspection Program Related to Audits of Broker-Dealers,” which includes observations from inspections during 2021, guidance about and examples of effective procedures, and information about the inspection approach. According to the report, the percentage of firms with audit and attestation engagement deficiencies remained high at 78%, which is consistent with 2020.

The PCAOB also notes that this report should help broker-dealer owners and audit committees or equivalents as they oversee the work of their auditors and engage on financial reporting. With the report, the PCAOB released “Supplementary Information Related to Audits of Brokers and Dealers,” which provides comparative data about selected firms and engagements and the results of PCAOB inspections over multiyear periods.

PCAOB seeks comments on five-year strategic plan

On Aug. 16, 2022, the PCAOB released a draft of its five-year strategic plan covering 2022 through 2026 with a request for comments. The PCAOB notes that the creation of the plan was guided by three priorities: investor protection, engagement, and adaptability. The plan has four main goals: modernize standards, enhance inspections, strengthen enforcement, and improve organizational effectiveness. For each, the PCAOB identified objectives to achieve that goal.

Comments were due Sept. 15, 2022.

From the Center for Audit Quality (CAQ)

CAQ issues analysis of Form 10-K climate-related disclosures

On Sept. 9, 2022, the CAQ released an S&P 500 10-K analysis summarizing results of its review of the June 2022 Form 10-Ks from S&P 500 companies to understand the disclosures regarding climate-related information, greenhouse gas (GHG) emissions, and net-zero and carbon-neutral commitments. The CAQ noted that 453 of the S&P 500 mentioned climate-related information in their 10-Ks, representing an 18% increase from 2020; however, only 104 companies mentioned GHG emissions in their disclosures. The analysis details the types of information included in the disclosures, where the disclosures are included, and where in the financial statements climate-related matters were mentioned.

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