The new standard (AS 2501), which is effective for fiscal years ending on or after December 15, 2020, replaces three existing standards relative to auditing accounting estimates. While this replacement implies that much of the content already existed, the PCAOB has adopted this standard because the use of complex accounting estimates and fair value measurements continues to grow. Their oversight activities have revealed a pattern of audit deficiencies in these areas of the audit that are also often some of those areas with the greatest audit risk.

Currently, there are no specific rules or requirements for investment companies relating to the financial statements of acquired funds. Instead, investment companies apply the general SEC requirements of Rule 3-05 and the pro-forma financial information requirements in Article 11 requiring disclosure and information, which are not always relevant to investment companies.

On August 17, 2018, the SEC adopted what effectively amounts to “housekeeping items” for a variety of public issuers. These updates are effective November 5, 2018. 

On August 23, 2018, the PCAOB provided supplemental information to PCAOB Release No. 2017-001, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This standard clarifies the principles for recognizing revenue and offers a common revenue standard between U.S. GAAP and IFRS.

As detailed in a previous post, Regulation S-X Rule 2-01(c)(1)(ii)(A) (the "Loan Rule") prohibits accounting firms from having certain financial relationships with their audit clients and affiliated entities. 

In October 2016, the SEC adopted amendments to Regulation S-X as part of its Investment Company Reporting Modernization efforts. These amendments:

• Update specific disclosure requirements for most types of derivatives
• Update disclosures for other investments as well as investments in and advances to affiliates
• Amend certain rules regarding the general form and content of financial statements

Most of the disclosure requirements are already in place in the industry.  The effective date of these amendments is August 1, 2017. However, certain modifications have been made that are important to communicate. Below, you’ll find a summary of the significant points in the recent amendments along with brief notes on changes from current practice.

There has been much press recently about potential independence issues for certain Big Four auditors of mutual funds as a result of the SEC’s “Loan Rule.”  However, it is not uncommon for large audit firms to have independence issues outside of the “Loan Rule” given their volume of employees, relationships with banks, advisors, etc., as well as audit clients.

Almost two years ago, the SEC adopted amendments to the rules that govern money market mutual funds meant to address the risk of investor runs in money market funds. In summary, the rules in part:

1. Require a floating NAV for institutional prime money market funds
2. Allow for fees and gates to discourage and/or suspend redemptions temporarily at certain asset thresholds

Subject to the approval of the SEC, new PCAOB rules will require individual audit partner disclosure on audit reports issued after June 30, 2017, along with other information regarding other accounting firms participating in the audit. The disclosure will take place in a filing separate from that which includes the Report of the Registered Public Accounting Firm - Form AP.