Industry publication Accounting Today (AT) is reporting that the Public Company Accounting Oversight Board (PCOAB) has delayed action on its proposed standard commonly known as NOCLAR, which is short for “NonCompliance with Laws And Regulations.”
The new standard, initially slated to be finalized by year end, would greatly expand the role of Audit firms to seek out and report noncompliance in many new areas. Accounting firms opposed to the standards have argued that NOCLAR forces auditors to take on legal roles, which is outside of their scope and expertise.
Examples of laws and regulations addressed by the interpretation of the standard include those that deal with the following types of matters:
· Fraud, corruption, and bribery
· Money laundering
· Securities markets and trading
· Banking and other financial products and services
· Data protection
· Tax and pension liabilities and payments
· Environmental protection
· Public health and safety
In its November 15 article, Accounting Today reported that, “According to a person familiar with the PCAOB process, no further action is expected until further consultation with the SEC under the incoming administration can take place. The PCAOB expects it to remain on the docket for 2025 but doesn’t want to try to jam it through this year.”
The publication added “One reason for the change of plans is that the PCAOB anticipates changes in the regulatory environment under the Trump administration, especially at the Securities and Exchange Commission, which would have to approve the final standard before it could be adopted. The Trump administration is likely to replace SEC chairman Gary Gensler, who has spearheaded many of the increased regulatory efforts at the Commission and encouraged the PCAOB to update its older standards and take a tougher stance on enforcements and inspections.”
AT continued, the “PCAOB is mindful of the difficulty of having the SEC decide whether to approve it, especially if the five-member Commission becomes evenly split among two Republican members and the two Democrats if Gensler departs or is replaced. The PCAOB feels the SEC needs adequate time to review and educate itself on the proposed standard, rather than having to jam it through a two-two commission, especially with the amount of engagement that will need to take place given such an important standard, according to a person familiar with the matter.”
“The proposed standard would have toughened requirements for auditors to be on the lookout for signs of fraud and to report on it, placing new legal responsibilities at the doorstep of firms,” according to AT Editor-in-Chef Michael Cohn.
“The SEC is likely to take a far more deregulatory stance during the Trump administration, and that’s already affecting the PCAOB’s work only a few weeks after the election,” added Cohn.
NOCLAR generated the third highest number of comment letters in the PCAOB’s history, according to PCAOB member Christina Ho, who voted against the proposal.
For detailed information about the PCAOB’s NOCLAR proposal, please see:
The Financial Accounting Standards Board (FASB) has adopted a new accounting standard that requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in tabular-style notes to financial statements.
The new rules will take effect for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, and will require companies to do the following:
· Disclose the amounts of purchases of inventory; employee compensation; depreciation; intangible asset amortization; and depreciation, depletion, and amortization recognized as part of oil and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption.
· Include certain amounts that are already required to be disclosed under current generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.
· Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.
· Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
FASB’s adoption of the new accounting standard has been in the works since 2021, as part of the standard setter’s Disaggregation of Income Statement Expenses project, or DISE. The goal was to provide more information about cost of sales, cost of goods sold, SG&A and R&D in company reports.
In press interviews, FASB member Fred Cannon has said that implementation of the rules will be costly, noting “At the board we’ve always said we recognized this isn’t going to be cheap. For many companies it’s going to be a significant expense,” adding that costs will vary significantly by industry.
Click for more detailed information about new FASB rule
Deadline Extension Requested
Beneficial Ownership Reporting Falling Short
With a little over a month remaining for most businesses to file Beneficial Ownership Information (BOI) reports with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the agency has reported receiving a fraction of the expected 32 million reports.
Starting January 1, 2024, many companies have been required to report information to the U.S. government about who ultimately owns and controls them. Businesses newly created this year (2024), are under shorter deadlines, and that group is typically composed of smaller businesses.
It’s in this small business category where FinCEN is seeing a greater delay in reporting, according to FinCEN’s beneficial ownership operations and innovations Chief Phil Lam. At the November American Institute of Certified Public Accounts (AICPA) Town Hall meeting, Lam said, “This past week, we’ve crossed over 6.5 million filings. Now this is tracking more closely towards new businesses that have been created this year.”
Concerned about the tight reporting deadlines for small businesses, the AICPA sent a letter to the chairs and ranking members of the US Senate Banking Committee and the House Financial Services Committee asking for a delay in the deadline.
“This country will see millions of small business owners become accidentally and unknowingly delinquent in their compliance,” said AICPA’s CEO Barry Melancon. “To ensure small businesses remain above board with federal laws and regulations, we believe the rule should be suspended for at least a year”.
In September 2022 the Corporate Transparency Act (CTA) became law as part of the Anti-Money Laundering Act of 2020. The CTA requires “reporting companies” to file ownership information with FinCEN within the prescribed time periods:
· Entities created before January 1, 2024 are required to file by January 1, 2025.
· Entities created or registered on or after January 1, 2024 and before January 1, 2025 are required to file within 90 days of their creation.
· Entities created or registered on or after January 1, 2025 are required to file within 30 days of their creation.
The CTA allows for 23 exemption categories. It is important for all entities to review the requirements of the new rule and exemption categories.
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