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IAASB issued new standard for Audits of Less Complex Entities

Dec 06, 2023

On December 6, 2023, the International Auditing and Assurance Standards Board (IAASB) published the International Standard on Auditing for Audits of Financial Statements of Less Complex Entities, known as the ISA for LCE.

The ISA for LCE is a standalone global auditing standard designed specifically for smaller and less complex businesses and organizations. Built on the foundation of the International Standards on Auditing (ISAs), audits performed using this standard provide the same level of assurance for eligible audits: reasonable assurance. The standard is effective for audits beginning on or after December 15, 2025, for jurisdictions that adopt or permit its use.

Released alongside the ISA for LCE are a Basis for Conclusions, which details feedback from the public consultation period, a high-level fact sheet, and a frequently asked questions document. Additional materials to help jurisdictions navigate adoption will be issued in 2024, including supplementary guidance, a fact sheet on adoption, and a first-time implementation guide.

In May 2023, in its comment letter to the IAASB, the Auditing and Assurance Standards Board (AASB) indicated that it will continue to monitor and provide input to the IAASB as it works towards providing solutions in this area.

Review the materials  and the comment letter on the IAASB website.

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SEC Chair warns companies against “AI Washing”

Dec 06, 2023

On December 06, 2023, the Securities and Exchange Commission (SEC) Chair, Gary Gensler, highlighted concerns about companies potentially overstating their AI capabilities, drawing parallels with the concept of "greenwashing."

Gary’s recent warnings against "AI Washing" underscore the rapid evolution of AI and its potential implications on corporate behavior, particularly within the realms of corporate and securities litigation. In a speech before an AI industry group, Gensler emphasized the importance of accurate and fair descriptions of AI-related processes, cautioning against misleading investors.

He also discussed the challenges of assessing AI-related litigation risks and explores concerns regarding the financial services industry's adoption of AI tools and potential impacts on decision-making processes, highlighting the broader legal principles that apply in the context of emerging technologies like AI.

Access the article on The D&O Diary’s website

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IFRS Interpretations Committee holds November 2023 meeting

Dec 05, 2023

On December 5, 2023, the IFRS Interpretations Committee (IFRS IC) discussed two new items, the finalization of one agenda decision and gave input into three International Accounting Standards Board (IASB)’s projects, after the meeting in London on November 28-29, 2023.

  • New item: IAS 37 Provisions, Contingent Liabilities and Contingent Assets — Climate-related Commitment
  • New item: IFRS 8 Operating Segments — Disclosure of Revenues and Expenses for Reportable Segments
  • Finalization of agenda decision: IAS 27 Separate Financial Statements — Merger between a Parent and Its Subsidiary in the Separate Financial Statements
  • Input to IASB project: Climate-related and Other Uncertainties in the Financial Statements
  • Input to IASB project: Provisions —Targeted Improvements
  • Input to IASB project: Power Purchase Agreements

Review the meeting highlights on the IFRS website.

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SEC Chief Accountant Discusses Importance of Statement of Cash Flows to Investors

Dec 04, 2023

On December 4, 2023, the Securities and Exchange Commission (SEC) Chief Accountant, Paul Munter released a statement emphasizing the importance of the statement of cash flows in providing investors with high-quality financial information.

Mr. Munter noted that preparers and auditors did not always apply the same rigor and attention to the statement of cash flows as they did to other financial statements. Accordingly, he reminded preparers and auditors of their professional responsibilities related to the statement of cash flows.

Key takeaways from Mr. Munter’s statement include the following:

  • To mitigate the risk of restatements, it is critical for issuers and auditors to perform an objective materiality analysis of “both the financial statement and ICFR impacts [footnote omitted] of an error in the statement of cash flows, including the significance of the statement of cash flows to the investor’s complete understanding of the financial condition of the company.”
  • With respect to disclosures related to the statement of cash flows, issuers should “focus on investor needs when determining how best to communicate relevant cash and noncash information.”
  • It is essential to have “appropriate risk assessment processes and controls in place to facilitate risk identification, analysis, and response related to the preparation and presentation of the statement of cash flows.”

Access the statement on SEC’s website.

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PCAOB Chair delivers keynote urging firms to increase audit quality and ensure investors are protected

Dec 04, 2023

On December 4, 2023, Public Company Accounting Oversight Board (PCAOB) Chair, Erica Y. Williams delivered remarks reminding auditors that investors depend on high-quality audits to secure and maintain trust and confidence in the capital markets

Williams discussed the need for updating standards, citing proposals and changes made by the PCAOB. She outlined efforts to address issues such as noncompliance and emphasized the importance of public comments in shaping standards. She also discussed PCAOB's enforcement actions, including sanctions and penalties, to ensure accountability and protect investors.

Williams encouraged firms to focus on quality control and remediation for improved audit quality and concluded by emphasizing the crucial role auditors play in fostering confidence in the financial system and protecting investors.

Access the speech on the PCAOB website

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SEC Approves PCAOB Standard on Auditor’s Use of Confirmation

Dec 04, 2023

On December 4, 2023, the Securities and Exchange Commission (SEC) released an order approving the PCAOB’s amendments related to the auditor’s use of confirmation, which were published in the Federal Register on October 17, 2023.

These amendments are intended to strengthen and modernize the requirements for the confirmation process by describing principles-based requirements for all methods of confirmation, including paper-based and electronic means of communications.

According to PCAOB’s Chair Erica Williams’s, “the new standard, which replaces a standard that had not been significantly updated in twenty years, is also a big step forward as the Board continues to execute its strategic goal of modernizing PCAOB standards.”

Access the order on SEC’s website.

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ISSB at COP28: Nearly 400 Organizations Across 64 Jurisdictions Pledge to Advance Global Climate Baseline

Dec 04, 2023

On December 4, 2023, the International Sustainability Standards Board (ISSB) announced that nearly 400 organizations from 64 jurisdictions have pledged to advance the adoption or use of its climate-related reporting standards at a global level.

Earlier this year, the ISSB Standards were endorsed by the global body for international securities regulators—IOSCO—and since then companies, jurisdictions, and other market players from around the world have been paving the way towards adopting or using the ISSB Standards.

Corporate membership groups representing thousands of companies globally have signed the statement, joined by more than 140 companies preparing public disclosures who also chose to demonstrate support directly. Companies have been calling for standards that enable them to communicate to investors comprehensive information about their climate resilience strategy.

The ISSB’s key partners in the sustainability disclosure landscape including the Global Reporting Initiative (GRI), CDP and the Taskforce on Nature-related Financial Disclosures (TNFD) also reaffirmed their support for the work of the ISSB. The ISSB continues to work closely with these partners to reduce market fragmentation in the sustainability disclosure landscape. 

Review the press release on the IFRS website.

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ISSB at COP28: IFRS Foundation and ISO commit to future cooperation towards effective communication about sustainability-related risks and opportunities

Dec 03, 2023

On December 3, 2023 the IFRS Foundation and the International Organization for Standardization (ISO) confirmed their shared commitment to cooperate to support efficient and resilient global economies.

ISO 14000 Environmental management and greenhouse gas emission standards aid companies in fulfilling sustainability and climate commitments, facilitating alignment with IFRS S2 disclosures. Firms with these management system standards are well-positioned to engage with investors using ISSB Standards.

As ISO Standards support consistent approaches internationally in the internal management of sustainability-related matters, ISO supports the work of the ISSB to establish a truly global baseline of sustainability-related financial disclosures.

Furthermore, ISO and the IFRS Foundation are committed to advancing capacity building initiatives that focus on supporting organisations to build internal expertise and understanding that advance practices and reporting.

Access the press release on the IFRS website.

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IASB publishes proposed amendments regarding financial instruments with characteristics of equity

Nov 29, 2023

On November 29, 2023, the International Accounting Standards Board (IASB) published proposed amendments aiming at clarifying the classification requirements in IAS 32 'Financial Instruments: Presentation', including their underlying principles, to address known practice issues that arise in applying IAS 32. Comments are requested by March 29, 2024.

IAS 32 Financial Instruments: Presentation sets out how a company that issues financial instruments should distinguish debt instruments from equity instruments. The distinction is important because the classification of the instruments affects the depiction of a company’s financial position and performance.

IAS 32 works well for most financial instruments. However, the instruments have evolved since this IFRS Accounting Standard was initially issued—they are more complex and present new reporting challenges for companies. Companies’ solutions to the reporting challenges differ, resulting in diverse accounting practices that make it difficult for investors to assess and compare companies’ financial position and performance. Investors are calling for better information, particularly about equity instruments.

To address these challenges, the proposals in the Exposure Draft would amend IAS 32, IFRS 7 Financial Instruments: Disclosures, and IAS 1 Presentation of Financial Statements.

The IASB proposes:

  • to clarify the underlying classification principles of IAS 32 to help companies distinguish between debt and equity;
  • to require companies to disclose information to further explain the complexities of instruments that have both debt and equity features; and
  • to issue new presentation requirements for amounts—including profit and total comprehensive income—attributable to ordinary shareholders separate to the amounts attributable to other holders of equity instruments.

Comments on the proposed changes are requested by March 29, 2024.

Access the press release and the exposure draft on the IFRS Foundation website.

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XRB publishes guidance on Climate-related matters in financial

Nov 23, 2023

On November 23, 2023, The New Zealand External Reporting Board (XRB) published staff guidance on climate-related matters in financial statements.

The introduction to the guidance notes:

“With the introduction of mandatory climate-related disclosures climate reporting entities will need to help users understand whether, how, and to what extent, climate-related matters are reflected in an entity's financial statements. Financial statements and climate-related disclosures supplement and complement each other and together should present a coherent picture”

The publication analyses the coherence between financial statements and climate-related disclosures in three broad chapters:

  1. Impact of climate-related matters in financial statements
  2. Coherence between financial statements and climate-related disclosures
  3. Differences between financial statements and climate-related disclosures

It also offers an appendix on the coherence principle.

Access the XRB guide here

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