SEC Removes PCAOB Chairman Duhnke, Seeks to Fill All Board Member Positions
The SEC said that William Duhnke was “removed” as chairman of the PCAOB, effective June 4. Board member Duane DesParte was designated to serve as acting chair, also effective June 4. In addition, the SEC is seeking to replace and fill all five seats on the audit regulatory board. One seat has been vacant since late January when Jay Brown stepped down because his wife, SEC Commissioner Allison Herren, became acting SEC chair (serving in that capacity until Gary Gensler was sworn in as permanent chair on April 19). The SEC oversees the PCAOB. This includes appointments and removal of board members and approval of the PCAOB’s annual budget and audit standard changes.
The coming wholesale change at the board follows heavy lobbying by progressive groups and senators who asked the SEC to replace all board members for a fresh start. They took particular aim at Duhnke, a former staffer to Republican Senator Richard Shelby, for bringing an industry-friendly approach to supervising auditing firms when the PCAOB’s mission is to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. “The PCAOB has an opportunity to live up to Congress’s vision in the Sarbanes-Oxley Act,” SEC Chair Gensler said in a statement. “I look forward to working with my fellow commissioners, Acting Chair DesParte, and the staff of the PCAOB to set it on a path to better protect investors by ensuring that public company audits are informative, accurate, and independent.”
Hoogervorst Cautions Against Carving up Insurance Accounting Rules
Outgoing IASB Chair Hans Hoogervorst gave a final caution to the Europe Union against carving out the annual cohorts rule under insurance accounting. An exception to the annual cohorts requirement would cause insurers to record artificially high profits and mask losses, he said in keynote remarks at the June 3 IFRS Foundation virtual conference. Hoogervorst said a carve out would enable companies to mix old profits with new profits even on expired contracts that could be lower due to low interest rates—a major development investors in the trillion-dollar sector would not like. “Should the EU go ahead with such a carve out, I hope that efforts are made to ensure that companies disclose that they are using the carve out, so that investors can properly take this into account,” he said. His remarks come as some companies have told the IASB that the annual cohorts rules under IFRS 17, Insurance Contracts, does not properly reflect shared risks across generations of policyholders. The rules are costly to implement for those contracts, they said. The IASB’s decision to keep the annual cohorts guidance hinged on the type of business an insurance company is, prior board discussions indicated. Insurance is focused on risk pooling and risk sharing and some contracts result in claims while others do not, the board said. In addition, the probability of a future claim may increase for some contracts during the coverage period but for others it declines. Ultimately, the board concluded that the benefits outweighed the costs of the rules.
New GASB Accounting Implementation Guide Issued for Cities, States
GASB has issued a new accounting guide to clarify a bevy of issues state and local governmental entities have raised with respect to leases, derivative instruments, fiduciary activities, and non-exchange transactions. Implementation Guide 2021-1, “Implementation Update—2021,” also amends previously issued implementation guidance on the financial reporting model, sales and pledges, and intra-entity transfers. The effective dates for the guidance vary—spanning periods after June 15, 2021, through June 15, 2023—to align with when a related accounting standard should be applied. To transition to the changes, entities should apply the provisions “retroactively by restating financial statements, if practicable, for all prior periods presented,” the guide states. If it is not practical to restate prior periods, “the cumulative effect, if any, of applying the guide should be reported as a restatement of beginning net position (or fund balance or fund net position, as applicable) for the earliest period restated.”