At the IFASS meeting, members explored the potential and limitations of AI in standard setting through two presentations. The first presentation introduced AI, including machine learning, deep learning, and generative AI, which can create new content. This AI subtype, large language models (LLMs), can generate human-like text but lacks critical thinking abilities and requires constant, costly training.

The second presentation showcased an LLM trained for disclosure analysis, particularly analyzing sustainability reports. The analysis of 11,000 reports highlighted the need for careful review of AI-produced results, as many generated statements needed more support and had inaccurate citations. The study concluded that fluency often compromises accuracy.

In the context of standard setters' work, the possibility of training an LLM was discussed due to the specific and low-volume literature. The potential administrative applications, such as drafting meeting minutes, were also highlighted. Although using LLMs for comment letter analysis seems appealing, it was noted that the results would still require review. However, this could facilitate searches for specific comments. Employing multiple LLMs trained for different perspectives, mediated by another model, was suggested to generate valuable arguments that could stimulate original thought.

Access the full agenda and topics discussed during the IFASS meetings.

The report states that company-produced information (like invoices or IT system reports) and external information (like customer purchase orders or bank records) are critical in audits. In the 2021 and 2022 inspection cycles, around 17% of audited firms had deficiencies due to inadequate procedures for testing the accuracy and completeness of this information.

To improve audit quality, the Spotlight highlights:

• Common audit deficiencies
• Good practices
• Other reminders that may improve auditor understanding of how to properly test IPC and information from external sources.

Access the Spotlight report on the PCAOB’s website.

The vote follows a political agreement between the Council of the EU and the EU Parliament in February 2024.

EU companies will still have to report as planned in line with general sustainability reporting standards adopted by the European Commission in July 2023. Later adoption of sector-specific standards for EU companies affects the extent of reporting, as the sector-specific part about companies’ particular impact on people and the planet in their area of activity will not be required before 2026.

The Parliament vote does not affect the reporting timelines as agreed under the Corporate Sustainability Reporting Directive (CSRD). As a next step, the legal text needs to be formally approved by the Council of the European Union before becoming effective.

Access the press release on the European Parliament’s website.

IFRS 3 Business Combinations currently governs reporting requirements for acquisitions. However, that standard does not specify how to report transactions that involve transfers of businesses between companies under common control (for example, companies in the same group).. To tackle this, the IASB introduced a discussion paper in November 2020 to increase transparency and uniformity in reporting such transactions.

The project summary clarifies the reasoning behind the board’s decision, made in November 2023, not to proceed with developing reporting requirements for BCUCCs.

The IASB recognized the varied reporting practices for BCUCCs and understood from investor feedback that they could manage this diversity. The wide range of investor information requirements across jurisdictions complicates the creation of universal reporting standards. Moreover, the IASB’s research indicated that while potential enhancements to financial reporting could arise from the development of BCUCC reporting requirements, the associated costs of implementing such changes would likely outweigh the benefits.

Access the press release and the project summary on the IASB’s website.

The article explains:

• what digital financial reports are and how they are created;
• the benefits of digital financial reporting for investors, companies and regulators; and 
• the importance of the IFRS digital taxonomies.

The IFRS article outlines the many advantages of financial reports structured in machine-readable formats like XBRL and iXBRL. They enable efficient data extraction and comparison, empowering investors to make informed decisions on a large scale. These reports also facilitate automated validation checks, technology-driven monitoring, and improved market oversight, fostering transparency and accountability.

It also highlights global regulatory efforts to advance digital reporting. These include the SEC's introduction of XBRL and iXBRL requirements since 2009 for transparent financial disclosures and the EU's ESEF mandates that aim to boost the accessibility, analysis, and comparability of annual financial reports, bolstering investor trust and market integrity.

While Artificial Intelligence (AI) assisted tagging boosts efficiency, human supervision is vital for accountability and data accuracy. Collaboration among regulators, policymakers, software providers, and auditors is essential to preserve the integrity and accessibility of digital financial reports.

Access the article on the IFRS’s website.

The new strategy reaffirms the IAASB's commitment to serving the public interest by developing globally accepted audit, review, and other assurance standards.

Key highlights of the strategy include:

• Completing priority audit and assurance projects, emphasizing fraud, going concern, and sustainability assurance.
• Commencing new initiatives and projects, including focusing on supporting the adoption and implementation of the overarching standard for sustainability assurance engagements, establishing an IAASB Technology Position, and conducting post-implementation reviews, as well as standard setting on, among other topics, audit evidence and risk response, materiality, and reviews of interim financial information.
• Collaborating with official stakeholders across the external reporting ecosystem, including the International Ethics Standards Board for Accountants (IESBA), regulators, standard setters, and other stakeholders.
• Engaging with regulatory and standard-setting partners to strengthen trust in markets globally.
• Further, the Monitoring Group’s recommendations will be implemented to enhance independence and accountability in standard settings.

Access the press release on the IAASB’s website.

The first episode covers the March 2024 TIG meeting and is hosted by ISSB Vice-Chair Sue Lloyd, ISSB member Veronika Pountcheva and ISSB staff member Dianora Aria de Marco. They discuss the purpose and the objectives of the TIG, the submissions to the TIG, and insights from TIG members.

Access the press release on the IFRS’s website.

The new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, will give investors more transparent and comparable information about companies’ financial performance, enabling better investment decisions.

IFRS 18 introduces three sets of new requirements to improve companies’ reporting of financial performance and give investors a better basis for analyzing and comparing companies:

1. Improved comparability in the statement of profit or loss (income statement)

• The income statement currently lacks a fixed structure, causing inconsistencies in companies reported operating profits, thus reducing comparability. IFRS 18 introduces a new structure with defined categories - operating, investing, and financing - and mandates specific subtotals, including operating profit. This will enhance the consistency and comparability of companies' performance analysis.

2. Enhanced transparency of management-defined performance measures

• Companies often use alternative performance measures but typically lack sufficient information for investors to understand their calculation and relation to income statement measures. IFRS 18 will require companies to disclose and explain these company-specific measures, improving their transparency discipline and making them auditable.

3. More useful grouping of information in the financial statements

• IFRS 18 provides more explicit guidance on the organization and presentation of financial data, addressing issues caused by over-summarized or over-detailed information. It mandates more transparency about operating expenses, aiming to deliver more detailed, helpful information and facilitate investor understanding.

The standard is effective for annual reporting periods beginning on or after January 1, 2027, but companies can apply it earlier. Changes in companies’ reporting resulting from IFRS 18 will depend on their current reporting practices and IT systems.

Access the press release on the IFRS’s website.

The firm and engagement metrics proposal would, if adopted, require PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer to publicly report specified metrics relating to such audits and their audit practice.

The proposal sets out standardized firm- and engagement-level metrics that PCAOB staff believes would create a useful dataset available to investors and other stakeholders for analysis and comparison. The proposed metrics cover (1) partner and manager involvement, (2) workload, (3) audit resources (4) experience of audit personnel, (5) industry experience of audit personnel, (6) retention and tenure, (7) audit hours and risk areas (engagement-level only), (8) allocation of audit hours, (9) quality performance ratings and compensation (firm-level only), (10) audit firms’ internal monitoring, and (11) restatement history (firm-level only).

The proposal would require reporting of firm-level metrics annually on a new Form FM, for firms that serve as the lead auditor for at least one accelerated filer or large accelerated filer. Reporting of engagement-level metrics for audits of accelerated filers and large accelerated filers would happen via a revised Form AP, which would be renamed “Audit Participants and Metrics.” Finally, the proposal would allow, but not require, limited narrative disclosures on both Form FM and Form AP to provide context and explanation for the required metrics.

The firm reporting proposal would, if adopted, amend the PCAOB’s annual and special reporting requirements to facilitate the disclosure of more complete, standardized, and timely information by registered public accounting firms. As is current practice, much information would be disclosed publicly, and some would be available to the PCAOB only for oversight.

The Board is proposing to enhance the required reporting of information by registered firms on the PCAOB’s public Annual Report Form, also known as Form 2, and the Special Reporting Form, also known as Form 3, in several key areas (financial information, governance information, network information, special reporting and cybersecurity).

The deadline for public comment on both proposals is June 7, 2024.

Access the press release on the PCAOB’s website.

Adopted by a 3-2 vote on March 6, 2024, following two years of public debate, the Climate Rules have gained significant attention, with over 24,000 comments received by the SEC from various stakeholders.

 Initially, nine cases challenging the Climate Rules were filed across various circuit courts and on March 19, 2024, the SEC requested these cases to be consolidated into a single venue. This request was granted, and all cases were transferred to the Eighth Circuit Court of Appeals on March 21, 2024.

Critics argue that the SEC exceeded its statutory authority by enforcing regulations that should primarily protect against financial fraud, not promote social views. However, the SEC maintains that the rules fall within its authority and are supported by academic literature linking climate risks and firm fundamentals.

 The final rule requires registrants to provide comprehensive climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2025, for calendar-year-end large, accelerated filers. Depending on when the legal challenges are resolved, the mandatory compliance dates may be retained or delayed.

Access the order issuing stay and the final rule on climate-related disclosure on the SEC’s website.