Accounting

PCAOB calls off NOCLAR standard for this year

Published

1 month ago

November 15, 2024

Facing a backlash from audit firms over its proposal to toughen the standards for failing to detect noncompliance with laws and regulations, the Public Company Accounting Oversight Board has decided to delay action on the standard this year.

The PCAOB proposed the so-called NOCLAR standard in June, with the goal of strengthening its requirements for auditors to identify, evaluate and communicate possible or actual noncompliance with laws and regulations, including fraud. However, the proposed standard provoked resistance from a number of auditing firms and state CPA societies like the Pennsylvania Institute of CPAs and spurred a comment letter-writing campaign organized by the Center for Audit Quality and the U.S. Chamber of Commerce that was supported by prominent business trade groups like the American Bankers Association, the Business Roundtable, the Retail Industry Leaders Association and more.

Earlier this week, the PCAOB issued staff guidance outlining the existing responsibilities of auditors to detect, evaluate and communicate about illegal acts. The PCAOB was slated to finalize the NOCLAR standard by the end of this year, but after the election it has put the standard on hold for now, anticipating the upcoming change in the administration in Washington, D.C.

“Following the recent issuance of staff guidance, the PCAOB will not take additional action on NOCLAR this year,” said a PCAOB spokesperson. “We will continue engaging with stakeholders, including the SEC, as we determine potential next steps. As our process has demonstrated, the PCAOB is committed to listening to all stakeholders and getting it right.”

One reason for the change of plans is that the PCAOB anticipates changes in the regulatory environment under the Trump administration, especially in the Securities and Exchange Commission, which would have to approve the final standard before it could be adopted. The Trump administration is likely to replace SEC chairman Gary Gensler, who has spearheaded many of the increased regulatory efforts at the Commission and encouraged the PCAOB to update its older standards and take a tougher stance on enforcement and inspections. President-elect Trump, in contrast, has promised to eliminate regulations, and Gensler’s push for increased regulation has attracted the ire of many in the financial industry.

According to a person familiar with the PCAOB process, no further action is expected until further consultation with the SEC under the incoming administration can take place.

Questions have arisen over whether the PCAOB might decide to repropose the standard with modifications given the amount of opposition it has attracted. That is to be determined pending review of the comment letters that have been received, as well as a roundtable from earlier this year, along with responses from targeted inquiries from firms in their approach relating to NOCLAR.

PCAOB board members Christina Ho and George Botic were asked about the NOCLAR proposal on Wednesday at Financial Executives International’s Current Financial Reporting Insights Conference, and Ho acknowledged the pushback.

“We’ve heard strong opposition from the auditing profession, public companies, audit committees, investors, academics and others,” said Ho. “The PCAOB has received 189 individualized comments to date on that proposal. This proposal now has the third highest number of comment letters in the history of PCAOB. That did get a lot of attention. Commenters overwhelmingly called for a reproposal or withdrawal of the proposed standard so that that is definitely something that I am looking at a lot, and I also voted against the proposal. I have spoken to various stakeholders, including investors, audit committee chairs and members, and some preparers as well. The question I got asked repeatedly was, what problem is PCAOB trying to solve? And the people I spoke to believe that there have been improvements in financial reporting quality over the past 20 years, and that obviously is consistent with the CAQ study noting a consistent decline in restatements. While there’s always room for improvement, they noted that a balance is necessary between increased investor protection and increased auditor implementation costs that are ultimately passed on to issuers, and that the NOCLAR proposal lacks such a balance. That is what I have heard from the comment letters, so that pretty much summarizes what I have seen, and I’m still obviously thinking about it.”

Botic noted that the proposal came before he joined the board, but he referred to the staff guidance that had been issued earlier in the week by the PCAOB on the existing requirements.

Last week, the PCAOB updated its standard-setting and rulemaking agendas before the outcome of the election was known. Now with the uncertainty over the regulatory environment, the PCAOB is mindful of the difficulty of having the SEC decide on whether to approve it, especially if the five-member commission becomes evenly split among two Republican members and the two Democrats if Gensler departs or is ousted. The PCAOB feels the SEC needs adequate time to review and educate itself on the proposed standard, rather than having to jam it through a two-two commission, especially with the amount of engagement that will need to take place given such an important standard, according to a person familiar with the matter.

The PCAOB expects it to remain on the docket for 2025 but doesn’t want to try to jam it through this year. However, the PCAOB announced Friday that it has scheduled an open board meeting next Thursday, Nov. 21, on another proposed standard on firm and engagement metrics, which has also provoked pushback from many commenters, but is still slated to be finalized this year.

Accounting

In the blogs: On the horizon

Published

7 hours ago

December 17, 2024

Business Finance News

Crypto’s future; sobering CTC; inside and outside; and other highlights from our favorite tax bloggers.

On the horizon

Withum (https://www.withum.com/resources/): President-elect Trump has proposed several projects to boost the crypto sector, including dispensing capital gains tax for Bitcoin transactions and building a centralized Bitcoin holding account (a strategy reminiscent of America’s domination during the dot-com years). More clearly governed and with the support of the government, the crypto market could significantly increase in 2025.
Tax Vox (https://www.taxpolicycenter.org/taxvox): In 2025, the Tax Policy Center estimates that 17 million children younger than 17 will receive less than the full value of the Child Tax Credit because their parents earn too little. Most of these children also live in families that earn at least $2,500, the required minimum for any CTC beyond taxes owed. Congress has options when it debates the future of the CTC.
Institute on Taxation and Economic Policy (https://itep.org/category/blog/): As Congress negotiates federal funding during the lame-duck session, lawmakers would be wise to remember that stripping funds from the IRS costs more than it saves.
Dean Dorton (https://deandorton.com/insights/): Next year could be a big one for the M&A market. A look at key metrics good and bad, from lower borrowing costs and thawing credit to valuation gaps and regulatory scrutiny.
Avalara (https://www.avalara.com/blog/en/north-america.html): Canada gets ready to “join the sales tax holiday fun.”
Sikich (https://www.sikich.com/insights/): Sikich has entered into an agreement to acquire the federal contracts of Cherry Bekaert Advisory LLC supporting the U.S. Patent and Trademark Office.
HBK (https://hbkcpa.com/insights/): Reclassifying cannabis to Schedule III could expand access to banking, insurance, and other services for cannabis businesses. It may also ease the financial burden of Sec. 280E, which prohibits cannabis companies from taking standard business deductions due to marijuana’s current Schedule I status.
U of I Tax School (https://taxschool.illinois.edu/blog/): Interesting note on the beneficial ownership information reporting suspension: It invalidated much coursework and time in many tax schools this fall.

Good moves

Taxing Subjects (https://www.drakesoftware.com/blog): Preparing for the real season coming in the spring, from more IRS notices to high-net-worth clients to using artificial intelligence responsibly in your practice.
Canopy (https://www.getcanopy.com/blog): The importance of accountant-client privilege, the challenges in this age of technology and complex regulations, and how an accounting-based CRM platform is fundamental.
Turbotax (https://blog.turbotax.intuit.com): The “Moves That Matter” series kicks off with Drew, a lover of the outdoors from Montana. Interesting model in how to write a customer profile.
MBK (https://www.mbkcpa.com/insights): Estate planning is in many ways a big contingency plan. What about contingency plans for the beneficiaries?
Gordon Law (https://gordonlawltd.com/blog/): ‘Tis the season to tell them to stop sputtering: Why are bonuses taxed so heavily?

Virtual realities

Virginia – U.S. Tax Talk (https://us-tax.org/about-this-us-tax-blog/): How the “Bitcoin Jesus” now finds himself in a legal maelstrom after being arrested in Spain on U.S. charges of mail fraud, tax evasion and filing false returns.
Don’t Mess with Taxes (http://dontmesswithtaxes.typepad.com/): As internet betting continues to explode, a look at suggested tax rates of 15% to 25% of gross gaming revenue for new states where those feeling lucky can put their money down with a click.
TaxConnex (https://www.taxconnex.com/blog-): Holiday shopping season offers probably the year’s golden chance for your online biz clients, not only through sales on their own sites but also through household-name marketplace facilitators like Amazon. The glistening-once-again season also offers a big danger for your clients to ignite economic sales tax nexus.

Lowering the barter

Tax Foundation (https://taxfoundation.org/blog): The combined effect of net smuggling of cigarettes into U.S. states was a loss of more than $4.7 billion in forgone excise tax revenue in 2022. The annual effect of cigarette smuggling is significant, but the cumulative impact of annual smuggling from 2007 to 2022 demonstrates the severity of the issue when left to fester.
Mauled Again (http://mauledagain.blogspot.com/): “Analyzing the Federal Income Tax Consequences of a Crappy Barter Proposal.” Heavy on the “crappy.”
John R. Dundon II EA (http://johnrdundon.com/blog/): What to remind clients in biz partnerships about the difference between inside and outside basis.
Boyum & Barenscheer (https://www.myboyum.com/blog/): What to remind biz-owner clients about the good and bad of retained earnings.

Accounting

KPMG grows global revenue to $38.4 billion

Published

12 hours ago

December 17, 2024

Business Finance News

KPMG International reported annual aggregated revenues of its member firms globally grew 5.1% to $38.4 billion for the fiscal year ending Sept. 30, 2024.

The 5.1% increase over fiscal year 2023 was in local currency, and measured 5.4% in U.S. dollars.

The Big Four firm attributed this growth to its “collective strategy” and multibillion-dollar investments in aligned global priorities, while supporting clients through disruptions like artificial intelligence and shifting environmental, social and governance priorities.

The firm reported that tax and legal services grew by 10%, which the firm said was driven by client demand for its AI-enabled managed service and transformation capability, legal capability, and helping clients navigate global tax reform. KPMG also grew audit 6% and advisory 2%.

Last year, KPMG announced a U.S. $4.2 billion investment plan over three years as part of its collective strategy to build trust and drive growth, with over U.S. $1.7 billion invested across the KPMG network in FY24, with a focus on technology and AI, talent and ESG.

The offices of KPMG LLP in the Canary Wharf business and shopping district in London

KPMG grew its headcount by 1% to 275,288, which included targeted hiring in areas like tax and technology.

In terms of KPMG’s regional growth, the Europe, Middle East and Africa region was up 8%, the Americas up 4%, and Asia Pacific up 1%.

The firm also noted it has continued to invest in ESG services due to client demand, and previously addressed its commitment to becoming more responsible within its own business in the firm’s “Our Impact Plan” report.

Accounting

FASB proposes ASU on environmental credits

Published

13 hours ago

December 17, 2024

Business Finance News

The Financial Accounting Standards Board today proposed an Accounting Standards Update related to environmental credits and environmental credits obligations.

The changes in the proposed ASU aims to improve the understandability of financial accounting and reporting information about environmental credits and environmental credit obligations, and improve the comparability of that information by reducing diversity in practice.

Patrick Dorsman/Financial Accounting Foundation

Stakeholders noted that entities are increasingly subject to emissions-related government mandates and regulatory compliance programs, which often results in obligations that are settled with environmental credits. In addition, some entities voluntarily purchase environmental credits from third parties. Stakeholders also noted that generally accepted accounting principles does not provide specific guidance on how to recognize and measure this activity, which results in diversity in practice.

The proposed ASU provides recognition, measurement, presentation and disclosure requirements for all entities that purchase or hold environmental credits or have a regulatory compliance obligation that may be settled with those credits.

However, as the FASB’s role is to establish and improve financial accounting and reporting standards, this proposal only addresses amounts reported in financial statements. Measuring or tracking an entity’s voluntary emissions initiatives or actual greenhouse gas emissions are not addressed by the FASB or these proposed amendments.

The FASB is accepting review and input until April 15, 2025. The proposed ASU and information on how to submit comments is available at www.fasb.org.