The PCAOB, SEC and the Federal Accounting Standards Board (FASB) all have changes in the works that could affect financial reporting and auditing.
The following description of the changes comes from CFO Dive, which provides finance news and analysis.
The SEC is considering an easing of the restrictions on consulting services provided by audit firms.
Firms now can’t provide non-audit services to their clients or their clients’ affiliates, but the SEC may limit the restriction to affiliates that are “material contributors” to the company.
If the auditor determines the affiliate isn’t a material contributor, the firm can provide it consulting services without that being considered a compromise of auditor independence.
The auditor would be able to decide if the affiliate is a material contributor, CFO Dive reported.
The current treatment of non-audit work has been a problem for the Big 4 audit firms expanding into consulting. Last year, PwC paid the SEC $7.9 million to settle charges that it compromised its independence by providing consulting services to more than a dozen affiliates of its audit clients.
Another change affecting public companies is under consideration by the standards-setter PCAOB. The regulator is considering aligning its quality control rules with a proposal by the International Auditing and Assurance Standards Board.
A company’s governance structure for the first time could be held accountable under those standards. That means PCAOB would look at whether the firm’s culture “promotes a commitment to quality, has leadership that’s held accountable for its strategic decisions, and recognizes responsibility for ensuring the firm is serving the public interest,” CFO Dive reports.
FASB this year plans to address how accountants will differentiate between equity and liabilities and how they treat goodwill.
FASB has proposed reducing confusion among accountants and investors over how to differentiate between equity and liabilities. Current guidance is considered “overly complex, internally inconsistent, and the source of frequent financial statement restatements,” FASB Chair Russell Golden said in a statement last year.
Golden, whose term ends in July, is making treatment of goodwill and equity and liabilities a priority.
Should all the changes go through — from the SEC, PCAOB and FASB – learning how to implement them will be a focus of staff and audit committees.