Compliance
The Financial Accounting Standards Board (FASB) this week made an initial decision to provide several workarounds for the compliance difficulties that may arise from its proposed expense classification disclosure rules. The new rules (Subtopic 220-40) would require public companies to disclose more information on expense categories such as inventory, employee compensation, and depreciation. The two-tier disaggregation method, previously a concern for the manufacturing industry, has been proposed to be changed to a single-tier disaggregation method to reduce compliance complexity. KPMG audit partner Valerie Boissou reminded that companies may only have a few years to complete system and process upgrades and need to proactively address investor inquiries about the new information.
Global insurance brokerage and consulting firm WTW said on Tuesday that nearly two-thirds (58%) of companies in the S&P 1500 have incorporated ESG into CEO performance metrics, compared to just 23% in 2019. Despite legal and political pressures, the link between climate goals and executive incentive plans has strengthened notably, but DEI-related metrics have diverged due to legal risks.
A report jointly released by the American Institute of Certified Public Accountants (AICPA) and CPA.com states that generative artificial intelligence (Gen AI) will impact the accounting profession as significantly as the internet or smartphones, but with faster adoption and easier use. This technology is expected to help small accounting firms compete with larger peers by improving efficiency, optimizing data analysis, and mitigating staffing shortages. The report also lists nine types of tasks that financial executives consider most suitable for AI, cites insights from several industry professionals, and reminds readers of data security and ethical risks.
Trump Media and Technology Group dismissed its audit firm BF Borgers on May 3, the same day the SEC announced a $12 million fine against the firm for alleged widespread fraud and false audits. The company has hired Semple, Marchal & Cooper to take over the audit work.
A Splunk survey of 1,650 executives shows that although 93% of cybersecurity leaders' organizations have deployed generative AI, only 34% of users have established protective measures against security threats. About two-thirds of respondents (65%) admitted they do not fully understand the risks of generative AI, and 44% prioritize it above cloud security.
The U.S. Securities and Exchange Commission (SEC) announced on Friday that audit firm BF Borgers agreed to pay a $12 million civil penalty to resolve fraud charges related to false audits of client financial statements. The firm and its owner, Benjamin F. Borgers, were accused of affecting at least 1,625 public filings between January 2021 and June 2023 and fabricating audit documents. Trump Media & Technology Group was a client of the firm but was not mentioned in the SEC's penalty order.
The Institute of Internal Auditors (IIA) released a research report sponsored by Deloitte on Monday, recommending that internal audit leaders hire more tech-savvy and resilient new employees to address disruptive innovation. The report shows that the number of accounting graduates has declined for six consecutive years, while internal audit departments show the strongest preference for accounting backgrounds (80%) in hiring, but only 43% for computer science and technology backgrounds. IIA CEO Anthony Pugliese emphasized that technological developments require internal audit to expand its talent pool and place importance on soft skills such as leadership and communication.
In Macquarie Infrastructure Corp. v. Moab Partners, the U.S. Supreme Court ruled that the mere omission of information required by the SEC does not itself constitute a basis for private securities fraud lawsuits, providing some buffer for listed companies in responding to the SEC's new cybersecurity rules. However, analysts caution that residual risks such as 'misleading half-truths' still warrant vigilance.
Former HeadSpin CEO Manish Lachwani was sentenced to 18 months in prison on Friday for securities fraud and wire fraud. The U.S. Securities and Exchange Commission accused him of falsifying revenue data between 2017 and 2020, misleading investors and leading to an inflated company valuation. Lachwani has pleaded guilty and was fined $1 million.
In a policy document released on April 15, the US Department of Justice clarified that a company's CEO or CFO (or equivalent position holders) who voluntarily discloses corporate misconduct does not qualify for a non-prosecution agreement (NPA). The pilot program has expanded from the Southern District of New York to nationwide and may become a permanent initiative.