Simpler Rules Issued for Convertible Instruments, Own Equity
On August 5, FASB issued new rules to simplify the accounting for convertible instruments and contracts in an entity’s own equity—traditionally thorny accounting issues. Though narrower than initially proposed, the changes will provide investors with more comparable information that is easier to understand, the board said. “The ASU is an important step in simplifying a complex area of accounting guidance that has been a frequent source of financial statement restatements,” FASB Vice Chairman James Kroeker said in a statement. “We expect it to improve comparability of information for financial statement users and reduce cost and complexity for preparers and auditors.” For large public companies, the rules take effect for fiscal years beginning after December 15, 2021.
Proposal Revising Risk Assessment Standards Expected Soon
The AICPA’s Auditing Standards Board (ASB) has voted to issue a proposal that would revise its audit standards related to risk assessment. The ASB wants to revise AU-C section 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment, so auditors would gain better understanding of the direct and indirect components of internal control over financial reporting (ICFR) and the work required based on each component. “The proposed SAS is intended to enhance auditors’ ability to appropriately understand the entity’s system of internal control, in particular relating to the auditor’s work effort to obtain the necessary understanding and determine significant risks, and modernize the standard in relation to information technology considerations, including addressing risks arising from entity’s use of IT,” according to Ahava Goldman, associate director for audit and attest standards with the AICPA.
What are Audit Committee Chairs Discussing During COVID-19 Pandemic?
The risks of teleworking was the most prevalent topic of discussion among many audit committee chairs of public companies during a PCAOB discussion about the impact of COVID-19 held on July 31. The board issued “Conversations with Audit Committee Chairs: COVID-19 and the Audit”, which summarized what the PCAOB heard. “The transition to an almost entirely remote workforce for both issuer personnel and the external auditors was rapid, but most audit committee chairs stated that the transition was effective,” a PCAOB guide noted. “Specifically, many noted that internal control over financial reporting (ICFR) was managed, maintained, or adjusted as necessary.” The PCAOB added that the effect of the COVID-19 crisis depended largely upon companies and industries. Some audit committee chairs said the impact has not been significant so far, while others said it was greater than they initially anticipated.