We are pleased to release MaloneBailey's November 2023 issue of The Crunch, our newsletter highlighting recent accounting, regulatory and tax updates. Please note that the updates provided in this newsletter are not a comprehensive list.

We encourage you to visit the SEC, FASB and IRS websites for more information as well as a complete list of updated rules, regulations and proposals.  We invite you to contact us should you have any questions about the information provided in this issue.  Please visit our website to review archived versions of this newsletter containing past accounting, regulatory and tax updates.

The MaloneBailey Team

www.malonebailey.com

What's the Crunch?



Featured Podcast

• Preparing for the New CPA Exam

Recent Accounting & Regulatory Updates



Recent FASB & AICPA Updates

• FASB Accounting Standards Updates - Accounting Standards Update No. 2023-05 — Business Combinations—Joint Venture Formations (Subtopic 805-60) – Recognition and Initial Measurement 
• Foreign Currency –IASB Amends IAS 21 for Accounting Requirements for When a Currency is Not Exchangeable
• Professional Qualifications –AICPA Code of Professional Conduct Updated 

Recent SEC & PCAOB Updates

• Engagement Quality Reviews –PCAOB Staff Report Addresses Rising Audit Deficiencies Related to Engagement Quality Reviews
• Regulation S-K –SEC Staff Publishes New Edition of Interpretation
• Confirmation -PCAOB Adopts New Standard on Auditors' Use of Confirmation
• Audit Committees –PCAOB Releases a New Staff Spotlight Publication
• Investment Companies -SEC Adopts Rules Enhancements for Investment Fund Names 
• September 09, 2023: Sample Letter to Companies Regarding Their XBRL Disclosures

Extra Crunch

• SEC’s 2024 Examination Priorities

About MaloneBailey, LLP

Preparing for the New CPA Exam

Summary - The CPA exam will undergo many changes beginning January 1, 2024 and many are faced with the challenge of preparing for an exam they don't know much about. For the latest edition of Everybody Counts, we discussed with Riley Ma how she plans on preparing for an exam that has never been seen before.



Simply click on the image below to listen to the podcast. For this podcast and many more, please visit the Resources section of our website.

FASB Accounting Standards Updates - Accounting Standards Update No. 2023-05 — Business Combinations—Joint Venture Formations (Subtopic 805-60) – Recognition and Initial Measurement

Summary - The FASB issued Accounting Standard Update (ASU) No. 2023-05, Business Combinations— Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, intended to (1) provide investors and other allocators of capital with more decision-useful information in a joint venture’s separate financial statements and (2) reduce diversity in practice in this area of financial reporting.

The ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification® Master Glossary. While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements, specifically the joint venture’s recognition and initial measurement of net assets, including businesses contributed to it. Stakeholders noted that the lack of guidance has resulted in diversity in practice in how contributions to a joint venture upon formation are accounted for by the joint venture.

The amendments in the ASU provide decision-useful information to a joint venture’s investors and reduce diversity in practice by requiring that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance).

The amendments in this ASU are effective prospectively for all joint ventures with a formation date on or after January 1, 2025, and early adoption is permitted. Additionally, a joint venture that was formed before the effective date of the ASU may elect to apply the amendments retrospectively if it has sufficient information.

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Foreign Currency –IASB Amends IAS 21 for Accounting Requirements for When a Currency is Not Exchangeable

Summary - The IASB has issued amendments to International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates, that will require companies to provide more useful information in their financial statements when a currency cannot be exchanged into another currency.

The amendments respond to stakeholder feedback and concerns about diversity in practice in accounting for a lack of exchangeability between currencies. The IASB intends the amendments to help companies and investors by addressing a matter not previously covered in the accounting requirements for the effects of changes in foreign exchange rates.

These amendments will require companies to apply a consistent approach in assessing whether a currency can be exchanged into another currency and, when it cannot, in determining the exchange rate to use and the disclosures to provide.

The amendments will become effective for annual reporting periods beginning on or after January 1, 2025, with early application permitted. 

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Professional Qualifications –AICPA Code of Professional Conduct Updated 

Summary - The AICPA has published updates to its Code of Professional Conduct. Items updated include:

• ET Part 1: Members in Public Practice: 1.400 Acts Discreditable;
• ET Part 1: Members in Public Practice - ET sec. 1.230.030 Determining Fees for an Attest Engagement, ET sec. 1.230.040 Fee Dependency, ET sec. 1.210.010 Conceptual Framework for Independence, ET sec. 1.224.010 Client Affiliates.1.200.001 Independence Rule;
• ET Part 2: Members in Business - ET sec. 2.400.020 Professional Qualifications or Competencies; and
• ET Part 3: Other Members - ET sec. 3.400.020 Professional Qualifications or Competencies. 

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Engagement Quality Reviews –PCAOB Staff Report Addresses Rising Audit Deficiencies Related to Engagement Quality Reviews

Summary - The PCAOB has published a Staff Report, Inspection Observations Related to Engagement Quality Reviews. This new report reveals that 42% of firms the PCAOB inspected in 2022 had a quality control criticism related to engagement quality reviews (EQRs), up from 37% in 2020. The report focuses on the PCAOB-mandated EQR process, in which a reviewer who is not part of the engagement team evaluates significant judgments made by the audit engagement team. In addition to covering recent trends in audit deficiencies related to EQRs, the staff report provides good practices and reminders for auditors so they can avoid such deficiencies. It also highlights key questions related to EQRs that audit committees might want to consider as discussion points as they engage with external auditors.

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Regulation S-K –SEC Staff Publishes New Edition of Interpretation

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its Compliance and Disclosure Interpretation, Regulation S-K. Corp Fin has revised question 118.08 and issued new questions 128D.14-128D.22. Corp Fin has updated this interpretation to provide additional guidance on the SEC’s pay-vs-performance rules.

For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Confirmation –PCAOB Adopts New Standard on Auditors’ Use of Confirmation

Summary - The PCAOB adopted a new standard to strengthen and modernize the requirements for the auditor’s use of confirmation. The new standard reflects changes in technology, communications, and business practices since the interim standard was first adopted by the PCAOB in 2003 after being issued by the AICPA in 1991. The updated standard is intended to better protect investors by strengthening procedures that enhance an auditor’s ability to identify fraud in certain circumstances and improving overall audit quality.

The new standard establishes principles-based requirements designed to stay relevant as technology evolves by applying to all methods of confirmation, including electronic and paper-based communications. In addition, the new standard better integrates with the PCAOB’s risk assessment standards. Among its key provisions, the new standard:

• Includes a new requirement regarding confirming cash and cash equivalents held by third parties or otherwise obtaining relevant and reliable audit evidence by directly accessing information maintained by a knowledgeable external source;
• Carries forward the existing requirement regarding confirming accounts receivable, while addressing situations where it is not feasible for the auditor to perform confirmation procedures or otherwise obtain relevant and reliable audit evidence for accounts receivable by directly accessing information maintained by a knowledgeable external source;
• States that the use of negative confirmation requests alone does not provide sufficient appropriate audit evidence;
• Emphasizes the auditor’s responsibility to maintain control over the confirmation process and provides that the auditor is responsible for selecting the items to be confirmed, sending confirmation requests, and receiving confirmation responses; and
• Identifies situations in which alternative procedures should be performed by the auditor.
• The adoption of the new confirmation standard was informed by input from an extensive notice-and-comment process, including issuance of a concept release and two proposing releases.



The new standard will apply to all audits conducted under PCAOB standards. Subject to approval by the SEC, the new standard will take effect for audits of financial statements for fiscal years ending on or after June 15, 2025. 



For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Audit Committees –PCAOB Releases a New Staff Spotlight Publication

Summary - The PCAOB has made it a strategic priority to engage directly and regularly with audit committees, which play a vital role in furthering the collective goal that public companies have appropriate policies and controls for the preparation of accurate financial statements and share a goal of promoting high-quality auditing through the oversight of external auditors.



In 2022, more than 200 audit committee chairs accepted the PCAOB’s invitation to discuss topics related to the 2021 audit of their company’s financial statements. PCAOB staff took notes during those conversations and analyzed them for recurring themes, which are presented as high-level observations and takeaways in the publication. 



For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Investment Companies –SEC Adopts Rule Enhancements for Investment Fund Names

Summary - The SEC adopted amendments to the Investment Company Act “Names Rule,” which addresses fund names that are likely to mislead investors about a fund’s investments and risks. The amendments modernize and enhance the Names Rule and other names-related regulatory requirements to further the Commission’s investor protection goals and to address developments in the fund industry in the approximately 20 years since the rule was adopted.

The SEC indicates that the Names Rule currently requires “registered investment companies whose names suggest a focus in a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments (an “80 percent investment policy”). The amendments to the Names Rule will enhance the rule’s protections by requiring more funds to adopt an 80 percent investment policy, including funds with names suggesting a focus in investments with particular characteristics, for example, terms such as “growth” or “value,” or certain terms that reference a thematic investment focus, such as the incorporation of one or more Environmental, Social, or Governance factors. The amendments will also include a new requirement that a fund review its portfolio assets’ treatment under its 80 percent investment policy at least quarterly and will include specific time frames – generally 90 days – for getting back into compliance if a fund departs from its 80 percent investment policy.”

The amendments will include enhanced prospectus disclosure requirements for terminology used in fund names, including a requirement that any terms used in the fund’s name that suggest an investment focus must be consistent with those terms’ plain English meaning or established industry use. The amendments will also include additional reporting and recordkeeping requirements for funds regarding compliance with the names-related regulatory requirements.



The amendments will become effective 60 days after publication in the Federal Register. Fund groups with net assets of $1 billion or more will have 24 months to comply with the amendments, and fund groups with net assets of less than $1 billion will have 30 months to comply.  



For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

September 09, 2023: Sample Letter to Companies Regarding Their XBRL Disclosures

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Their XBRL Disclosures. This illustrative letter contains sample comments that, depending on the particular facts and circumstances, and type of filing under review, Corp Fin may issue to certain companies. These sample comments do not constitute an exhaustive list of the issues that companies should consider as they prepare their XBRL and Inline XBRL disclosures.  



For more information, click here.

© 2023 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC’s 2024 Examination Priorities

Summary - The SEC's Division of Examinations prioritizes examinations of certain practices, products, and services that it believes present potentially heightened risks to investors or the integrity of the U.S. capital markets. This year’s examinations will prioritize areas that pose emerging risks to investors or the markets, as well as examinations of core and perennial risk areas.

To read more about the 2024 Examination Priorities, please visit here.