The new guidance would “strengthen and clarify the auditor’s responsibilities when designing and performing substantive analytical procedures.” In addition to replacing AS 2305, the proposal would make related amendments to the PCAOB’s standards on (1) audit evidence and (2) the auditor’s responses to the risks of material misstatement.

The standard will be reorganized for better integration with other PCAOB standards and to make it more user-friendly. The PCAOB seeks feedback on these proposed amendments to ensure they meet current auditing needs.

Access the press release and the proposal for comment on the PCAOB’s website.

This rule change simplifies the process of sanctioning associated persons by only requiring proof of negligence instead of the higher threshold of recklessness. The decision to modify the rule followed extensive consultations and feedback from various stakeholders, including investors, after a proposal was put forward in September 2023. While the initial proposal was broader, the final rule maintains a more targeted approach, focusing on violations explicitly connected to the firm with which an individual is associated.

The PCAOB's adoption of this rule underscores a commitment to enforcing stricter standards within the auditing community, ensuring that those responsible for significant breaches of audit standards are held appropriately accountable. Pending approval from the U.S. Securities and Exchange Commission (SEC), the new rule will be enforced 60 days after its endorsement, enhancing the regulatory framework governing audit practices and reinforcing investor protection.

Access the amended rule on the PCAOB’s website.

The standard is being developed with the support of the World Bank, an institution dedicated to providing financing, policy advice and technical assistance to governments of developing countries. It is intended to increase transparency and enable governments and other public sector entities to make more informed decisions about their contributions towards addressing the climate emergency, hold them accountable for their interventions, and foster trust in their efforts.

The IPSASB has also published a stakeholder engagement plan outlining how stakeholders can provide feedback about the project through mechanisms that are already a central part of the IPSASB’s due process.

Access the press release on the IPSASB’s website.

This initiative recognizes carbon markets as a crucial infrastructure component for climate action.

The inaugural report offers a comprehensive overview of Voluntary Carbon Markets (VCMs). It details the process for generating a carbon credit within these markets and the considerations involved in purchasing carbon credits. It also highlights key attributes that can determine the quality of a credit.

Future installments of the series will delve deeper into the international use of carbon credits and the accounting, verification, and disclosure requirements. Additionally, these reports will explore the significant roles that professional accountants can play in enhancing the integrity of VCMs.

Access the report on the IFAC’s website.

These changes, which originated from a research project on data and technology use, aim to ensure the issuance of audit opinions with sufficient evidence and address auditors' reluctance towards employing technology-assisted methods under existing standards.

Key clarifications include evaluating electronic information's reliability, using audit evidence for multiple purposes, and investigating identified transactions and balances in detail. These amendments, pending SEC approval, are expected to keep PCAOB standards relevant amidst technological advancements and ensure the continued quality of audits for fiscal years beginning on or after December 15, 2025.

Access the press release and the amendments on the PCAOB’s website.

In his speech, Deputy Superintendent Ben Gully focused on the evolving role of boards in risk governance amid a rapidly changing risk environment. He highlighted that despite improvements in financial risk oversight post-Global Financial Crisis (GFC), recent challenges like the Archegos collapse and other financial failures underscore the need for boards to manage economic and non-financial risks actively.

Gully emphasized the importance of boards as the last line of defence against complacency in risk management, advocating for a shift in focus from traditional risk limits to broader resilience strategies, including scenario analysis and contingency planning. He also discussed the critical role of culture and accountability in effective risk governance, suggesting that boards must integrate risk management into the organization’s operations and ethos. Overall, Gully called for a proactive, vigilant approach to board governance to effectively navigate the uncertainties of today’s risk landscape.

Access the speech on the OSFI’s website.

The spotlight report highlights several critical areas concerning the current economic conditions and the audit workforce environment. Audit committee chairs discuss key economic issues with their auditors, including interest rate fluctuations, inflation, supply chain challenges, and the financial repercussions of the Russia-Ukraine war. Additionally, concerns are growing about the potential long-term effects of remote and hybrid work environments on the professional development of audit personnel. This is compounded by worries about attracting new talent into the auditing field, which could result in a shortage of qualified auditors.

Significant discussions between audit committees and auditors also encompassed a variety of topics outside of mandatory communications. These included goodwill impairment, interest rates, internal control deficiencies, fraud, liquidity, cybersecurity, and auditor independence. Such discussions are vital for maintaining the integrity and effectiveness of the audit process.

Most audit committee chairs regularly discuss monitoring quality control systems and auditor independence with their auditors. These discussions often involve reviewing auditor presentations, the firm’s latest PCAOB inspection report, and the actions taken to address any identified deficiencies. However, PCAOB staff noted that some audit committees might not devote sufficient time to these critical reviews, potentially impacting the quality and independence of audits.

Access the Spotlight report on the PCAOB’s website.

CSA in Ontario, Québec, British Columbia and Alberta (the participating jurisdictions) issued a multilateral staff notice reminding market participants that the Canadian Dollar Offered Rate (CDOR) will cease to be published after a final publication on Friday, June 28, 2024.

If market participants have not already adopted appropriate transition arrangements for existing securities, derivatives, or loan agreements that use CDOR as a reference rate, they should do so immediately. The Canadian Alternative Reference Rate Working Group has issued guidance to assist such participants.

Access the press release on the CSA’s website.

During the 23rd Annual International Conference on Policy Challenges for the Financial Sector held in Washington, OSFI’s Assistant Superintendent, Regulatory Response Sector, Tolga Yalkin, provided a comprehensive overview of how climate-related risks influence Canada's financial landscape. He highlighted the increasing frequency and severity of physical risks, such as extreme weather events, impacting property and casualty insurers' reinsurance and net retentions, potentially leading to earnings or capital volatility. He also addressed the growing transition risks stemming from international policy divergences on greenhouse gas emissions reductions, which could lead to a disorderly transition, further complicating the financial sector's stability.

The Assistant Superintendent detailed the role of the Standardized Climate Scenario Exercise (SCSE), a tool introduced by OSFI to assess and manage climate-related risks more effectively. This exercise analyzes various hypothetical scenarios to gauge potential impacts on financial institutions and the broader industry. He outlined this tool's two-phase public consultation process, which included information sessions and technical briefings on specific risk topics such as physical, credit, and market risks. The final exercise is scheduled for publication in the fall, with results from financial institutions expected by the end of the year.

The speech underscored OSFI's commitment to enhancing transparency and accountability in climate risk management and supervision within the Canadian financial sector.

Access the speech on the OSFI’s website.

The CAQ's analysis of financial restatements from 2013 to 2022 provides valuable insights into the evolving quality of financial reporting. This period saw a general decline in restatements, particularly "Big R" restatements, despite a spike in 2021 linked to exceptional purpose acquisition companies (SPACs) primarily due to issues in accounting for warranties.

Key findings indicate that errors in accounting for expenses, such as misapplications of reporting rules for accruals, reserves, and estimates, are the most common reasons for restatements. Fraud was implicated in a small percentage of cases, specifically 3% of total and 7% of "Big R" restatements. Notably, the financial, healthcare, and software industries were the most frequent sectors to report restatements. These restatements predominantly involved smaller companies, often traded on NASDAQ, highlighting a trend towards companies with potentially less mature internal control structures.

Furthermore, ineffective internal control over financial reporting (ICFR) was more likely reported post-restatement, indicating that ICFR assessments are not predictive of restatements. This analysis suggests that audit committees should particularly consider the risk of material misstatement, focusing on the familiar misstatement drivers and industry-specific risks.

Access the report on the CAQ’s website.