The pace and intricacies of regulatory change in the investment industry are, at times, nothing short of overwhelming. Yet, organizations in this space need to have a clear understanding of evolving regulations, their timing and overall impact.
To help you stay up to date, below is Cohen & Company’s quarterly recap of the latest developments at a variety of regulatory agencies likely to impact our clients.
Adoption of New Requirements for Lead Auditors’ Use of Other Auditors
In June, the PCAOB issued new auditing standard AS 1206: Dividing Responsibility for the Audit with Another Accounting Firm, and modified several others to further their rulemaking around using other auditors. These amendments aim to improve the quality of audits performed when more than one firm is involved by enhancing the requirements of the lead auditor.
Lead auditors must now:
- Apply a risk-based supervisory approach to their oversight of other auditors; and
- Perform certain procedures when planning and supervising an audit that involves other auditors.
The new and revised standards are effective for audits of fiscal years ending on or after December 15, 2024.
Read the entirety of the adopted rule to learn more.
Impact: With investor protection in mind, the amendments hold lead auditors more responsible for the work of others. The PCAOB has been working on this rule for several years and feels its final content will produce higher quality audits through increased communication between firms and better identification of deficiencies in the work of other firms.
Adoption of Rules to Require Electronic Filing for Investment Advisers and Institutional Investment Managers
To promote efficiency, transparency and operational resiliency, on June 23, 2022, the SEC adopted amendments to require investment advisers, institutional investment managers and certain other entities to file/submit specific documents electronically. The amendments also make technical amendments to modernize Form 13F and enhance the information provided.
Except for the amendments to Form 13F, the new rules and form amendments will be effective 60 days after publication in the Federal Register. The amendments to Form 13F will be effective on January 3, 2023.
Read the entirety of the proposed rule to learn more.
Impact: Doing business during the COVID pandemic has forced changes in many facets of operations. However, it also has opened our eyes to possible operational efficiencies, including the benefits of electronic communications. This rule is a positive result of the unanticipated changes our industry, like many, had to accept over the past two years to continue moving forward.
New Accounting Standard on Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
On June 30, 2022, the FASB issued ASU 2022-03, which:
- Clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction; and
- Requires specific disclosures related to such an equity security.
As outlined in ASU 2022-03, a “contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security” and is not included in the equity security’s unit of account. Therefore, the ASU prohibits an entity from applying a discount (in recognition of the sale restriction) in determining fair value of the security. Furthermore, the ASU includes prohibitions on considering the sale restriction from being a separate unit of account. Conversely, when the restriction is that of the actual issuance, the restriction should be considered in the fair value of the equity security.
FASB points out that the guidance provided in ASU 2022-03 is consistent with the current provisions of ASC 820, in that an entity only has to be able to access the market (not necessarily able to sell a security) on the measurement date to measure such a security at fair value using market prices.
The new disclosure requirements introduced in the ASU include the following items:
- The fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet
- The nature and remaining duration of the restriction
- The circumstances that could cause a lapse in the restriction
Find the new Concept Statements on FASB’s website.
Impact: There has been diversity in how fair value of securities under the scope of this ASU are determined throughout the industry. As a result, this amendment clarifies current guidance and will allow investors to more easily compare financial reports.
Contact Julie Lowry at email@example.com or a member of your service team to discuss this topic further.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.