Weinberg & Company

Simply Stated Newsletter – December 2020

By December 20, 2020 No Comments


Newly elected Board Member of the Public Company Accounting Oversight Board (PCAOB), Megan Zietsman, announced that 2021 will see an increase in inspections of audits of companies most affected by the COVID-19 pandemic, including those in retail, manufacturing, entertainment, hospitality and transportation.

Zietsman made the announcement during a speech at the December 7 AICPA Conference on Current SEC and PCAOB Developments. She had served as the PCAOB’s Chief Auditor before being sworn in to its Board in November.

The Journal of Accountancy reports that in light of COVID-19, the PCAOB “will continue to review how audit professionals are completing and documenting procedures in compliance with standards. Areas such as remote auditing, time constraints, availability of information, and access to management, that may have been affected by the pandemic, will also receive increased focus.”

Under this increased scrutiny, the PCAOB says it will be less predictable in the audits it inspects and that it will increase the percentage of audits selected randomly for inspection. In addition, the PCAOB will target areas that may pose more risk of material misstatement or that are the subject of recurring audit deficiencies, reports the Journal.

The PCAOB was created by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies and is authorized to inspect registered audit firms to assess compliance with certain laws, rules and professional standards in connection with a firm’s audit work for public companies, other issuers, and broker-dealer clients.

Internal Controls

At the same AICPA Conference, SEC Deputy Chief Accountant Diana Stolzfus stressed the importance of maintaining strong internal controls in financial reporting, particularly at a time when the pandemic may have impacted a company’s day-to-day operations.

Stolzfus reminded company management that although the pandemic forced changes in daily operations and work environments, including shifting employees to remote work, they were still bound by the requirements of Sarbanes-Oxley.

“Part of management’s responsibilities as a result of Sarbanes-Oxley include the requirement for officers to certify information contained in annual and interim reports,” she said. “Among other things, the rules require that officers certify that they have included an evaluation of internal controls, including whether there have been any significant changes in an entity’s internal controls.”

Stolzfus added that company management should be particularly aware of new pandemic-related risks, which may require additional controls and procedures to be put into place.


The House of Representatives on December 2nd unanimously approved a bill that would prohibit foreign companies from trading on US exchanges if their auditors are not subject to PCAOB inspections. The legislation, which was unanimously passed by the Senate in May, has been sent to the White House, where the President’s signature is expected.

The legislation, called the “Holding Foreign Companies Accountable Act”, applies to all foreign companies, but particularly targets Chinese companies listed on US exchanges. It would force Chinese-based US issuers to allow US PCAOB-registered auditors to inspect their financial reports, or face delisting. Chinese issuers would have three years from the enactment of the legislation to comply or be delisted from all US exchanges, including the over-the-counter markets.

The process would begin with the SEC identifying foreign issuers whose financial reports are not subject to PCAOB inspections. The bill specifically addresses non-compliant Chinese issuers and would require them to do the following:

  1. Submit to the Commission (SEC) documentation that establishes that the covered issuer is not owned or controlled by a governmental entity in the foreign jurisdiction.
  2. Disclose if they are either owned or controlled by the Chinese government.
  3. Disclose the percentage of the shares owned by governmental entities in the jurisdiction in which the issuer is incorporated or organized.
  4. Disclose the names of each member of the Chinese Communist Party who is a member of the company’s board of directors, or is a member of an operating company related to the issuer company.
  5. Disclose whether the articles of incorporation of the issuer (or equivalent organizing document) contains any charter of the Chinese Communist Party, and include the text of any such charter.

If the SEC determines that an issuer has three consecutive non-inspection years, the SEC can delist the company or prohibit trading in the over-the-counter markets.

For a text of the bill, please see: Text of Bill


Is it in the bill?

With both houses of Congress feverishly working on a new stimulus package, it’s unclear whether pressure exerted by over 500-plus business and trade associations will be successful in overturning an IRS ruling denying deductibility of 2020 business expenses paid with Paycheck Protection Program (PPP) loans.

Fearing an unexpectedly steep 2020 tax bill, the PPP Deductibility Coalition sent a letter to Congressional leaders pleading for year-end legislation that would reverse the IRS’s treatment of expenses paid by funds borrowed under the PPP. They cited that failure to do so would inflict a surprise tax of up to 37 percent on already struggling businesses.

In the 21-page letter sent to House Speaker Nancy Pelosi (D), House Minority Leader Kevin McCarthy (R), Senate Majority Leader Mitch McConnell (R), and Senate Minority Leader Chuck Schumer (D), the Coalition argued that failure to clarify the IRS’s rulings would “transform tax-free loan forgiveness into taxable income.”

The groups were referring to IRS Notice 2020-32, which specified that “no deduction is allowed under the Internal Revenue Code …if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the [CARES Act].”

The group contended that the effect of this ruling is to transform tax-free loan forgiveness into taxable income, raising the specter of a surprise tax increase on small businesses when they file their taxes for 2020.

In its letter, the Coalition urged for legislative action noting that “allowing the IRS position to stand will result in a significant tax increase on small business owners already suffering from the effects of COVID-19 shutdowns. This tax will hit small business owners after their PPP loan has already been spent, and just as many states are re-imposing mandatory closures of thousands of businesses in the face of spiking numbers of COVID-19 cases.”

The PPP was created as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which authorized loans to certain businesses affected by the pandemic. Under the loan program, if businesses used these government loans for certain qualified business expenses, then some or all of the loans could be forgiven.

To read the letter, please see: Trade Group Letter

IRS to Allow Workaround for SALT Tax Deductions

The Department of the Treasury and the IRS intend “to issue proposed regulations to clarify that State and local income taxes imposed on and paid by a partnership or an S corporation on its income are allowed as a deduction by the partnership or S corporation in computing its non-separately stated taxable income or loss for the taxable year of payment.”

The proposed regulations will allow a workaround of the $10,000 cap on state and local income tax (SALT) deductions that can be claimed on a federal tax return.

However, neither single member LLCs nor sole proprietorships can benefit from this workaround.

This latest ruling comes amid taxpayer complaints stemming from the Tax Cuts and Jobs Act of 2017, which set a $10,000 SALT deduction cap. The impact was most severe in predominantly high tax states, including New York, New Jersey and Connecticut. Those states established creative workarounds, which were quickly blocked by the IRS.

For details on the IRS ruling, please see: IRS.gov



A survey of more than 400 accounting and finance executives conducted by LeaseQuery showed that 61 percent said cost cutting has been a top priority to stay in business in 2020, with 31 percent saying they were “rightsizing” their real estate footprint due to COVID-19, and 22 percent saying they expect to reduce their real estate portfolio in 2021.

“Reassessing real estate and lease portfolios appear to be top targets for cost savings following the rise of the remote workforce, shifts in demand, and declines in traditional brick-and-mortar commerce,” said the November survey, which reported that 51% of the respondents represented public companies.

According to the survey, about one-third of the company executives said they asked for rent concessions in 2020, with the impact particularly pronounced in hard-hit industries such as restaurants (92%), and retail (54%).

When asked to describe how the pandemic and economic environment shifted their accounting and finance department’s priorities for 2021, 66 percent said cost cutting was a priority, followed by increasing flexibility (63%) and bolstering liquidity (45%). 

LeaseQuery’s Lease Liabilities Index Report found that “the new lease accounting requirements resulted in average balance sheet liabilities to increase by 15x. Whether public or private, being or appearing overleveraged, could be a major ­flag to stakeholders or investors in a challenging economic climate, making it all the more important that companies understand their full lease portfolio and build in flexibility where possible.”

According to Moody’s analytics, the office vacancy rate could reach nearly 20% in 2021.

For a deep dive into the survey, please see: Leasequery.com/Lease impact report.pdf

An Audited Legacy of Quality

Weinberg & Company is consistently at the very top when it comes to the quality of our work– just check our legacy of stellar PCAOB inspection reports.

 We thought we were building a leading, international accounting firm by providing Big 4 expertise with personal service at reasonable fees.

Turns out we were also building “An Audited Legacy of Quality.”

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