CPAJ News Briefs: FASB, AICPA, PCAOB

FASB News

Improvement to Supplier Finance Program Disclosure Rule is Credit Positive, Moody’s Says

FASB’s recent decision to make changes to the disclosure of supplier finance program obligations, also known as reverse factoring, “is a much-needed improvement, as there is currently a lack of explicit guidance,” Moody’s Investors Service noted in an accounting spotlight. This comes as credit rating agencies like Moody’s, as well as other analysts and investors, have asked FASB, to increase the disclosure of qualitative and quantitative information about supplier finance programs. The Big Four CPA firms also requested the board tackle aspects of the accounting and disclosure of the programs. FASB first issued an exposure draft in December 2021, and on July 20, 2022, decided to adopt revisions to existing rules. The updated standard, which requires companies to disclose specified “key terms,” will be issued in the fall. Companies that use reverse factoring must start to disclose the extra information, including payment terms, starting from January 1, 2023. “The expediency of this standard’s effective date is credit positive and a significant win for investors currently struggling to use existing financial statements to understand if supplier finance programs present liquidity risks,” according to Moody’s Sector Comment published on July 25, 2022. It was written by David Gonzales, vice president–senior accounting analyst, who is a member of the FASB’s Financial Accounting Standards Advisory Council, and Alastair Drake, senior vice president–senior accounting analyst.

AICPA News

Auditing Standards Board Votes to Issue Updated Compliance Audits Standard

The AICPA’s Auditing Standards Board (ASB) voted to issue a final standard related to compliance audits during a meeting on July 19. This project was intended to makes changes to AU-C section 935, “Compliance Audits,” to update the appendix following revisions to other auditing standards, including on audit evidence and risk assessment. Thus, the ASB made conforming changes. Statement on Auditing Standards (SAS) 148, Amendment to AU-C Section 935SAS amendments 117, Compliance Audits. SAS 142, Audit Evidence (AU-C section 500), was issued in July 2020. SAS 145, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AU-C section 315), was issued in Oct. 2021. The amendment to the appendix related to AU-C section 501, “Audit Evidence—Specific Considerations for Selected Items,” becomes effective for compliance audits for fiscal periods ending on or after Dec. 15, 2022, in order to align with the effective date of SAS 142. All other amendments in SAS 148 are effective for compliance audits for fiscal periods ending on or after December 15, 2023, according to Ahava Goldman, associate director for audit and attest standards with the Association of International Certified Professional Accountants. “The ASB will more fully consider the comments received on the exposure draft at its October 2022 meeting,” Goldman noted.

PCAOB News

PCAOB to Consider Adding Audit Quality Indicator Project to Agenda

Following requests by it investor advisors, the PCAOB is considering picking back up an old project that got shelved several years ago due to resistance from audit firms (and, to a lesser extent, audit committees). The project in question is the development of audit quality indicators (AQI) as part of a broader effort to improve audit quality. “I really appreciate this question from Lynn [Turner]. Many of our stakeholders, as you know, have indicated that audit quality indicator is of great interest to them, and we are looking into options for adding a standard-setting project or research project related to AQIs to our agenda, and I hope to provide an update very soon,” PCAOB Chair Erica Williams said at a July 28 event commemorating the 20th anniversary of the Sarbanes-Oxley Act of 2002, which created the audit regulatory board to better oversee the auditing profession following contemporary accounting scandals at Enron, WorldCom, and others. Over the years, members of the board’s Investor Advisory Group had pressed the PCAOB to move ahead with the stalled project. Now, with new leadership at the board, AQIs might become a reality.

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