This Financial Reporting Update highlights key developments and issues that are relevant to Finance and Accounting Professionals.


Financial Accounting Standards Board

On May 8th, 2024 the Financial Accounting Standards Board (FASB) held a board meeting to discuss the various topics related to the proposed Accounting Standards Update (ASU), “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” During this meeting, they made decisions related to multiple sections of the proposed ASU. Regarding joint ventures and other cost-sharing and cost-reimbursement arrangements, the board made the decision to allow an entity to either disclose aggregate reimbursement amounts, whether received or paid, as a separate line item in the tabular format disclosure, or map the reimbursement amounts to the required expense categories.  Entities must also provide a qualitative description of the expense categories that the reimbursement is tied to. During their discussions, the board also clarified information found within the Codification of the proposed ASU, deciding not to require the disaggregation of an entity’s share of profit or loss in an equity method investee or an entity’s disclosure of summarized information of results of operations of equity method investees. The final decision was also made regarding Subtopic 220-40, the so-called “Inventory and Manufacturing Expense Disaggregation Approach.” The members of the board agreed to adopt a single-level disaggregation approach for these items, which will not require inventory and manufacturing expense to be reported but will require entities to report the purchases of inventory. For further clarification, the FASB has provided an example of an income statement along with footnotes showcasing what an income statement and the disaggregation of cost of products sold may look like if the standards are adopted in the future.  It can be found at the bottom of the webpage linked here.

Securities and Exchange Commission

On May 16th, 2024 the SEC announced their adoption of amendments for Regulation S-P to protect consumers’ personal information that is handled by particular financial institutions. These amendments update the requirements for covered institutions – broker-dealers, including funding portals, investment companies, registered investment advisers, and transfer agents – to address the expanded use of technology and corresponding risks that have emerged since Regulation S-P was originally adopted in 2000. The changes to the regulation will require covered institutions to develop written policies and procedures, put them into place, and maintain them in order to detect, respond, and recover from a breach of customer data. These amendments also require that within a covered institutions’ response plan, there must be methods in place to provide notice to consumers that their data was likely breached. The amendments further require covered institutions to notify consumers no later than 30 days after they are made aware of an intrusion, and the notifications sent to consumers must include, according to the adopted changes, “details about the incident, the breached data, and how affected individuals can respond to the breach to protect themselves.”  These amendments will become effective 60 days after they have been published in the Federal Register. Larger entities will have 18 months after publication to comply, while smaller firms will have 24 months to comply.

American Institute of Certified Public Accountants

On May 16th, 2024 the AICPA Auditing Standards Board voted to revise standards related to attestation engagements (SSAEs). SSAE No. 23 amends four other standards – SSAE No. 18 – Attestation Standards: Clarification and Recodification; SSAE No. 19 – Agreed-Upon Procedures Engagements; SSAE No.21 – Direct Examination Engagements; and SSAE No. 22 – Review Engagements – with the most substantial change being the deletion of the term “other practitioner” and the creation of two new terms in its place. When referring to an “other practitioner” within an engagement team, the term “participating practitioner” should now be used, while any “other practitioner” who is not part of an engagement team will now be referred to as a “referred-to practitioner”.  These changes were made so that they could better align with AICPA standards that pertain to quality management, and that relate to financial statement audit and non-audit standards. SSAE No. 23 will become effective for all engagements performed under the scope of SSAEs starting on or after December 15th, 2025.

Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board’s (PCAOB) adopted two foundational auditing standards. The first, AS 1000, General Responsibilities of the Auditor in Conducting an Audit, aims to enhance and consolidate a group of standards provided by the AICPA for interim use when the PCAOB was formed more than two decades ago. This standard does not create any new principles or responsibilities, but it clarifies those that already existed through the interim standards. It modernizes, clarifies, and streamlines the general principles and responsibilities of auditors, making the standards easier to read, understand, and apply. It also accelerates the documentation completion date by reducing the maximum period for the auditor to assemble a complete and final set of audit documentation from 45 days to 14 days. 

The second standard, QC 1000, A Firm’s System of Quality Control, aims to create a new, risk-based system of quality management. This standard aligns with International Auditing and Assurance Standards Board (IAASB) standards that became effective in December 2022, and related AICPA standards that become effective on Dec. 15, 2025. The new standard strikes a balance between the risk-based approach to quality control and a set of mandates that ensure the QC system is designed, implemented, and operated with an appropriate level of rigor. These updates crucially aim to enhance the quality of audits, thereby better protecting investors and stakeholders. 

Furthermore, these updates are a significant step forward in the auditing industry as they reflect the PCAOB’s commitment to continuous improvement and adaptation to the evolving business landscape. By aligning with international standards, the PCAOB ensures that its guidelines remain relevant and effective in a global context. This harmonization of standards facilitates consistency and comparability across audits, enhancing the credibility and reliability of financial reporting. Ultimately, these changes aim to foster greater trust and confidence among investors, which is fundamental to the integrity and stability of the capital markets.