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Financial Reporting and Regulatory Update

Third Quarter 2018

From the CAQ

Broker-dealers use of a service organization

The CAQ released a tool, on Aug. 22, 2018, for broker-dealers that use service organizations. Although the tool is addressed to auditors, it contains matters that broker-dealer management also would want to consider in assessing internal controls related to the use of service organizations.

Critical audit matters

On July 24, 2018, the CAQ released a resource, Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Other Users of Financial Statements,” to help audit committees, investors, and other users understand critical audit matters (CAMs). CAMs will be included in the auditor’s report for large accelerated filers in fiscal years ending on or after June 30, 2019, and for other public companies (except for emerging growth companies, brokers and dealers reporting under Exchange Act Rule 17a-5, investment companies other than business development companies, and benefit plans) in fiscal years ending on or after Dec. 15, 2020.

The CAQ states that “many audit firms are performing dry runs” with respect to CAM implementation in auditors’ reports, and this resource is “a first step in raising awareness about the underlying requirements of CAMs.” The publication addresses the identification and reporting of CAMs, and it includes answers to eight questions frequently asked by audit committees and others.

In addition, an appendix compares the PCAOB CAMs and the International Auditing and Assurance Standards Board (IAASB) key audit matters (KAMs) in their respective expanded auditor reporting standards. The PCAOB has acknowledged similarities between CAMs and KAMs.

SEC Regulations Committee highlights

On Sept. 21, 2018, the CAQ released highlights from the July 12, 2018, joint meeting of the SEC Regulations Committee and the SEC staff where the following topics were discussed:

  • Revenue recognition disclosures under Topic 606
  • Release of serious deficiency letters on EDGAR
  • Amendments to the SRC definition – transition questions
  • Rule 3-10 of Regulation S-X
  • Financial statement requirements in an S-4 and/or merger proxy for an operating company merging with a special-purpose acquisition company
  • Emerging growth company transition issues