The update included the introduction of new PCAOB standards QC 1000 and AS 1000, which enhance quality control and clarify foundational auditing principles, respectively. QC 1000 mandates tailored quality control systems based on identified risks, potentially leading to higher audit fees and affecting firm registrations, while AS 1000 reinforces key auditing responsibilities. Furthermore, publications and updates, such as Deloitte's insights on disclosure committees, underscore the evolving responsibilities of audit committees.

These developments signify the dynamic nature of the regulatory environment, urging audit committees to stay proactive and adapt to new compliance and reporting standards.

Access the update on Dan Goelzer’s website.

A study of the Global Large-Mid Cap Equities Index, covering 3,373 companies, revealed that they need to be on track to keep global warming under 1.5 degrees Celsius by 2050. Only 19% are moderately aligned with temperature increases projected between 1.5 and 2 degrees Celsius. The majority are set for a rise of 2 to 3 degrees, with 23% highly misaligned (3-4 degrees increase) and 15% severely misaligned (over 4 degrees increase).

The analysis by Morningstar’s Sustainalytics evaluated the companies using Low-Carbon Transition Ratings. It highlighted significant transition risks in the energy sector due to its carbon-intensive operations, while the consumer goods sectors showed limited preparedness in managing baseline emissions. This research aims to help investors understand climate-related risks and develop informed investment strategies.

Access the brief on ESG Dive’s website and the study report on the Morningstar’s web site.

In March 2024, the CSSB published its proposals for the first Canadian Sustainability Disclosure Standards (CSDSs) based on IFRS S1 and IFRS S2, albeit with exemptions. Ten major Canadian pension funds have now responded with a joint statement.

The statement notes that global adoption of the ISSB standards as proposed is the “only credible route to secure the ISSB’s equivalence with the European Sustainability Reporting Standards (ESRS):

“Failure to adopt the global baseline in Canada may not only risk issuers falling short of meeting international and domestic investors’ expectations of their directors to oversee corporate strategy in the near-term, but also risk issuers having to adopt Canada’s final standards and European reporting standards, which could be more onerous for issuers over time.”

In particular, the pension funds take issue with the CSSB’s sustainability-related disclosures transition relief, which, they argue, might put Canadian companies at a disadvantage to foreign entities that are reporting across all sustainability-related metrics. On the transition reliefs proposed for the climate standard, the pension funds query the suggested two-year reporting exemption for Scope 3 disclosures and the CSSB’s suggestion for exemptions on conducting scenario analysis.

The statement notes that the pension funds "support the ISSB’s “building block” approach, which allows for additions to the global baseline and limits modifications or deletions." It continues to say:

“Therefore, we recommend that the CSSB consider only additions to the ISSB baseline when unique circumstances arise in the Canadian public interest, such as addressing the rights of Indigenous Peoples. We believe this approach would best serve the ISSB’s objective of achieving interoperability across jurisdictions.”

Access the statement on the CSSB’s website.

IASB finalized its Post-implementation Review (PIR) of the impairment requirements outlined in IFRS 9 Financial Instruments—Impairment. This review was undertaken to evaluate if the impairment requirements have been effective in achieving the objectives set by the IASB at the time of their development. The comprehensive analysis and feedback gathered during the PIR indicate that these impairment requirements have generally met their intended purposes. They have enabled a more timely recognition of credit losses and have been instrumental in providing insightful information to investors regarding expected credit losses. Despite these successes, there were recommendations for enhancements, particularly concerning the disclosures of credit risk to further refine the utility of the information provided to investors.

Responding to the insights and suggestions from the PIR, the IASB has acknowledged areas that require additional clarity and consistency in application. To address these issues, the IASB intends to review and possibly amend the requirements related to the modification, derecognition, and write-off of financial instruments as part of its ongoing project on Amortised Cost Measurement. Furthermore, recognizing the need for improved disclosures regarding credit risk, the IASB has initiated a new project focused on targeted improvements to the credit risk disclosure requirements detailed in IFRS 7 Financial Instruments: Disclosures. This initiative aims to enhance transparency and provide stakeholders with more detailed and useful information about financial instruments' credit risks.

Access the press release and the final report on the IFRS Foundation website.

The report highlights the approach of an “integrated mindset,” which encourages company leadership to view financial and sustainability data in an interconnected, holistic way. The report underscores the crucial role of governance in environmental, social, and governance (ESG), emphasizing a commitment to an ethical culture of integrity and highlighting red flags for accountants during their risk assessments.

Advocating for a “whole of business” approach to anti-corruption, the report calls on professional accountancy organizations to encourage their members to fully embrace their role in combatting corruption by:

• Recognizing themselves as key anti-corruption stakeholders.
• Supporting integrated thinking across their organizations.
• Being champions of Collective Action.

Access the publication on the IFAC’s website.

The guidance covers the following eight real economy sectors:

• Aquaculture 
• Biotechnology and Pharmaceuticals 
• Chemicals 
• Electric Utilities and Power Generators 
• Food and Agriculture 
• Forestry and Paper 
• Metals and Mining 
• Oil and Gas

At the same time, additional guidance for financial institutions and value chains has been released. The guidance for financial institutions includes guidance on the TNFD recommended disclosures and disclosure metrics for banks, (re)insurance companies, asset managers and owners, and development finance institutions. The guidance on value chain details how organizations can analyze their upstream and downstream value chains. 

Access the press release and the guidance on the TNFD’s website.

The SEC's order highlighted that the company needed a robust system to ensure that access to its IT systems was strictly controlled by management, nor did it have adequate procedures to disclose cybersecurity risks and incidents.

The settlement is notable in two key respects:

• It departs from the traditional disclosure-related theories that have underpinned previous settlements related to cyber incidents and
• It extends the internal accounting controls provisions of Section 13(b)(2)(B) of the Exchange Act, which the SEC has already used to resolve other financial reporting and disclosure cases, to a company’s IT systems and related policies and procedures relating to cybersecurity.

The order reflects the Commission's stance regarding the scope of its authority. It articulates its belief that it can use its authorities relating to internal accounting controls to regulate public companies’ cyber-related procedures (including vendor management and incident response) even in the absence of unauthorized access to a company’s financial or accounting systems.

Access the press release on the SEC’s website.

Access the article from The D&O Diary

Commissioner Peirce emphasized the challenges in quantifying diverse ESG factors such as climate change, biodiversity, and labour rights, which complicate their integration into consistent investment strategies. She criticized the shifting standards of ESG compliance, which add to the complexity and inconsistency in evaluations. Additionally, she pointed out potential conflicts with the fiduciary duties of asset managers, who should prioritize financial returns for investors. Still, she may be swayed by the broad ESG mandates to make decisions not aligned with shareholder interests.

Concluding her speech, Commissioner Peirce called for a return to principles-based regulatory approaches that focus on material financial information rather than expansive ESG criteria. She advocated for more precise definitions and stricter criteria to ensure that ESG measures contribute to sustainable growth without undermining economic dynamism and financial integrity. This approach, she argued, would prevent ESG metrics from diverting corporate attention from innovation and value creation.

Access the speech on the SEC’s website.

The podcast highlights some of the projects that were discussed during the meeting, including:

• Post-implementation review of IFRS 16
• Joint IASB-FASB meeting
• Provisions — Targeted improvements
• Pollutant pricing mechanisms
• Management Commentary

The podcast can be accessed here on the IFRS Foundation website

During his keynote at the IFRS Foundation Conference, Mr.Barckow addressed the escalating complexities in financial reporting. He pinpointed the growing intricacy of business transactions as a central issue stemming from rapid changes and complexities in the business environment. This evolution affects financial reporting, making it challenging for companies to communicate their financial narratives to investors clearly and for investors to utilize this information effectively. Mr. Barckow also highlighted complexities introduced by intricate supply chains and risk factors, which add difficulty in understanding and managing financial data.

In his speech, Mr. Barckow acknowledged criticisms of the IASB as a source of complexity for those applying and using IFRS Accounting Standards. However, he emphasized the Board's commitment to navigating this complexity thoughtfully, balancing the need for detailed information against the quest for simplicity. He outlined the IASB's approach to managing these challenges, including issuing new standards like IFRS 18 and IFRS 19, taking strategic steps such as enhancing collaboration among technical teams, prioritizing projects effectively, and providing tools like the IFRS Accounting Taxonomy to simplify stakeholder access to information. Furthermore, Mr. Barckow discussed the IASB's cooperation with the International Sustainability Standards Board (ISSB) to integrate financial and sustainability reporting, illustrating a proactive approach to meet evolving investor needs while maintaining impartiality and informed decision-making.

Access the speech on the IASB’s website.