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It’s been a busy half-year in regs, especially in audit. Here are some of the biggest regulatory developments in the first six months of 2024:
PCAOB on a spree: Regulators tend to move at a turtle’s pace, but not the PCAOB under Chair Erica Williams. As part of a push to modernize regulations, and amid concerns that audit deficiencies are on the rise, it’s been releasing updates at an unusually fast pace.
In May, the agency overhauled regulations that had been in place since it was established in 2003. It adopted AS 1000, “General Responsibilities of the Auditor in an Audit,” a consolidation and clarification of four existing standards dealing with principles auditors need to follow, and shortened the audit documentation from 45 days to 14.
The agency also released QC 1000, an update to quality control standards that had existed since before the PCAOB’s founding in 2002. QC 1000 stipulates that audit firms must identify their risks and report on how their quality control systems address such risks on an annual basis. It also requires firms performing 100 or more audits per year to have their QC systems overseen by an external party.
And, in June, the PCAOB amended regulations around technology-assisted audits to provide greater clarity, and tightened a standard around when auditors could be found liable for contributing to firms’ noncompliance with rules and regulations.
Climate rule arrived, then paused: In March, the SEC released its long-awaited climate disclosure rule, stating that public companies would need to disclose information about their climate risks and their plans for addressing such risks, and about their Scope 1 and 2 emissions. The rule was softened from the SEC’s original proposal in that it did not require companies to report on Scope 3 emissions, but for many companies that was a moot point, as they were reporting on Scope 3 already to comply with EU or California regs.
In April, however, the SEC paused implementation of the rule to give courts time to address the many lawsuits against it.
SPACs standardized: In January, the SEC deployed rules that brought the treatment of special purpose acquisition companies, or SPACs, more in line with that of traditional IPOs. The rules stated that SPACs must disclose more information about conflicts of interest, sponsor compensation, dilution risk, and other factors to investors, and removed a safe harbor provision that limited SPACs’ liability for projections. They also increased target companies’ liability for disclosures made during registration statements.