PCAOB to Vote on Concept Release on Quality Control Standards
On December 17, the PCAOB will consider publishing a concept release to solicit comments on ways to improve audit firm quality control standards. The regulatory board believes that strong quality controls are important to audit quality, and it has been researching the standards for the past several years to determine whether they need to be updated, as the inspections staff has continued to find deficiencies in audit engagements. Currently, the PCAOB uses the AICPA’s quality control standards, issued in 1997, when the board did not exist. The audit environment has changed dramatically since then, especially with advances in technology. Speaking at the AICPA’s 2019 Conference on Current SEC and PCAOB Developments in Washington, D.C., on December 9, PCAOB member Duane DesParte said inspectors also continue to find problems in firms’ quality control systems in certain areas. DesParte also said the concept release will ask for additional feedback on areas of governance and risk assessment, among other things.
PCAOB Finally Close to Naming Enforcement Director, General Counsel
The PCAOB is close to naming a permanent enforcement chief and general counsel, board Chairman William Duhnke said on December 9. After Jay Clayton became chairman of the SEC, which oversees the PCAOB, he stated that he wanted a fresh start at the audit regulatory board and replaced all five board members in December 2017. The two positions have thus been vacant for more than 18 months. “We’ve identified candidates for all of our open positions, so now it’s just a matter of them leaving where they are, coming to us, so over the next month or two,” Duhnke said in response to a question by Thomson Reuters. “But each one has been identified.” In May 2018, many of the division heads left, including then-Enforcement Director Claudius Modesti and then-General Counsel Gordon Seymour. Mark Adler has been serving as acting director of the Division of Enforcement and Investigations, and John Cook has been serving as acting general counsel.
FASB to Hold Roundtable in Early 2020 on Implementation of Lease Accounting Rules
FASB plans to hold a roundtable during the first or second quarter of 2020 focused on the implementation issues experienced by public companies when they adopted lease accounting rules this year. This marks a shift from its past approach toward broad accounting changes. The board’s new proactive approach is so that it can determine whether more revisions need to be made to the leases standard to help curb costs and complexity for private companies when they adopt the changes in 2021, according to remarks by FASB Chairman Russell Golden at the December 5 meeting of the Financial Accounting Standards Advisory Council. “So far we are aware of some observations for determining the discount rate could be improved and perhaps [identifying] embedded leases,” he said. FASB in 2016 issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), to require companies to bring onto the balance sheet the full magnitude of long-term lease obligations that had previously only been reported in note disclosures. The SEC in 2005 said that registrants had $1.25 trillion of off–balance sheet operating lease commitments combined. The rules also require disclosures to help investors better understand the amount, timing, and uncertainty of cash flows arising from leases.