Bless: Audit Firms Need Guidance from PCAOB About Credit Loss Standard
The PCAOB should provide guidance to audit firms about the new credit loss standard, according to Rudolf Bless, chief accounting officer at Bank of America and member of the Financial Accounting Standards Advisory Council (FASAC), FASB’s main body of advisors. The credit loss standard contains many model-based estimates, and as a result, companies are using different approaches, Bless told a PCAOB member during FASAC’s June 20 meeting. “Some firms are adopting an approach to go away from testing the inputs and processes and the controls, and rather, redoing models,” Bless said. “And then you just have to ask yourself if that’s really a meaningful way to go forward.” The subject comes amid a slew of FASAC discussions that have flagged the need for collaboration across lines by regulators, auditors, and standard setters. FASB plans to issue a question and answer document this summer to help companies, particularly smaller companies, implement the rules.
Panel: No ‘One-Size-Fits-All’ Solution on Reporting Dates
When it comes to the adoption of rules such as leases, credit losses, and hedge accounting, one size does not fit all, members of the FASB Advisory Council said on June 20. Because resources among companies—even the bigger ones—differ, each firm’s individual needs must be factored in. Currently, private companies typically have an additional year on public companies to adopt new accounting standards, but the board is studying whether to push the date to two years and to add small public companies and nonprofits to that mix. “I’m very much struck by what smaller companies can learn from what the larger companies go through, and sometimes that’s going to take more than a year to really understand in terms of the inspection processes that can go on,” said Michael Morrow, board, audit committee chairman of Cabot Corporation. “That in of itself is a specific advantage of delaying things a little bit, but I wouldn’t want sort of a hard and fast rule.”
Proposal Aims to Modernize Audit Evidence Standard
On June 20, the AICPA’s Auditing Standards Board issued a proposal that would revise the guidance for audit evidence to address various audit issues that have come up in the fast-changing modern business environment. The proposal is a result of work that began two years ago to better incorporate emerging issues that the current standard, issued in 2011, did not contemplate, such as the increased use of audit data analytics, artificial intelligence, and blockchain in the financial reporting process. “Given the rapid evolution of audit evidence sources that are available today, it is critically important that auditors have a robust, durable set of attributes that allows them to make consistent assessments about the sufficiency and appropriateness of audit evidence obtained,” AICPA Chief Auditor Robert Dohrer said in a statement. “This proposed SAS modernizes our standards to recognize the sources of information and the technologies that were not available to auditors when the standard was last updated.” If finalized, the standard would revise AU-C section 500, “Audit Evidence.” It would become effective for audits of financial statements for periods beginning on or after June 15, 2021. Comments are due by September 18.