[Global Financial Insights] PCAOB Sanctions Two Public Accounting Firms for Non-Compliance with Reporting Requirements and More

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update.

1. PCAOB Sanctions two Public Accounting Firm for non-compliance with reporting requirements

The Public Company Accounting Oversight Board (PCAOB) has sanctioned two public accounting firm for violating PCAOB rules and standards related to reporting requirements.

1.1 Public Accounting Firm failure to furnish Form 2

PCAOB Rule 2200 requires the registered public accounting firm to file an annual report with the Board on “Form 2”. The firm should furnish all the information relating to any issuer or broker, or dealer audit reports issued during the reporting period in this form. One of the public accounting firms based in New York indicated in its annual report that it had not issued any audit reports during the reporting period, the details of which are to be furnished in Form 2. However, the filings made with U.S. Securities and Exchange Commission indicate that the firm had issued an audit report whose details will be furnished in Form 2.

The inspection was conducted by the PCAOB Division of Enforcement and Investigations, which investigated the facts and found the firm guilty of not furnishing complete and accurate information in Form 2 and thereby violating PCAOB Rule 2200. The PCAOB has sanctioned the firm with $25,000 and has also directed the firm to establish policies and procedures for ensuring compliance with PCAOB reporting requirements.

1.2 Public Accounting Firm failure to furnish Form 3

PCAOB Rule 2203 requires the registered public accounting firm to file a special report on “Form 3” to report any event specified in that form within thirty days of the event’s occurrence. One such reportable event is a proceeding initiated on the firm or any of its associated persons.

In the extant case, a firm was aware that it had become a respondent in certain disciplinary proceedings. Such proceedings constituted a reportable event under Form 3, and the firm was required to report the event to the Board on Form 3 within 30 days of occurrence. However, the firm did not furnish any details on Form 3 and inappropriately notified the PCAOB of initiating and concluding a relevant disciplinary proceeding after the applicable deadline, thereby violating the PCAOB Rule 2203.

To protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports, the Board has sanctioned the firm with civil monetary penalty of $ 20,000.

Source: PCAOB News Release

2. IFRS issues updates on SME’s Accounting Standard

To maintain transparency, the International Financial Reporting Standards (IFRS) constantly issues updates. These updates are summary of news, events and other information. Recently, IFRS has issued an update on SME’s Accounting Standard. These updates are briefly discussed here:

(a) Reminder to get involved in consultation on Addendum Exposure Draft

IFRS considers user comments valuable, so it requests its users to submit their comments on the Addendum Exposure Draft. These feedbacks shall be considered in finalising the third edition of the IFRS, SMEs Accounting Standard. This exposure draft sets out two groups of proposals:

(i) Supplier Finance Arrangements

This shall require the SME to disclose its supplier finance arrangements including their terms and conditions, the amount of liabilities that are part of the arrangements, the range of payment due dates and the type and effect of non-cash changes.

(ii) Lack of Exchangeability

The amendment shall also require the SME to apply consistent approach in assessing whether a currency can be exchanged into another currency and estimating the exchange rate to use when it can not be exchanged into another currency.

The addendum exposure draft is open for comment till 31 July, 2024.

(b) Overview of SME Implementation Group Meeting

The SME Implementation Group (SMEIG) is an advisory body that assists the International Accounting Standard Board (IASB) in the international adoption, implementation and application of the IFRS for SMEs Accounting Standards. A virtual SMEIG meeting will be held on 3 September, 2024. In this meeting, SMEIG shall discuss the tentative decisions the IASB has made on the proposals in the 2022 Exposure Draft and shall also respond to the feedback of users on the addendum exposure draft.

(c) IASB Decision on proposals in the 2022 Exposure Draft

IASB has been constantly making decisions on the 2022 Exposure Draft at its every meeting. This update discusses the IASB’s tentative decisions taken at meetings held between April and May 2024. The decision has been made in respect of “Revenue from Contracts with Customers”, “Consolidated and Separate Financial Statements”, and various other topics.

Source: IFRS Foundation

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