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Three developments every audit committee should pay attention to.
Several proposals from the Securities and Exchange Commission (SEC) and a change in new leadership at the Public Company Accounting Oversight Board (PCAOB) could meaningfully reshape audit committee oversight and financial reporting standards in the coming years. I recently led a board briefing hosted by CBM Network with Tony Anderson, audit committee chair at Marsh and former vice chairman and Midwest area managing partner at Ernst & Young, and identified three developments that every audit committee should be paying attention to.
1. Discussion of semi-annual and quarterly reports
The SEC's proposal to allow semi-annual reporting is intended to encourage more companies to enter the public markets by reducing the reporting burden. Anderson said in the conversation that companies will have the flexibility to determine what reporting frequency is reasonable in their individual circumstances, based on the needs of their stakeholders.
The proposal generated extensive feedback, including a comment letter from (ACC), an independent advisory committee to the CAQ. Both letters emphasize that management will decide whether to elect to report semi-annually, based on input from investors, the board of directors, and the audit committee. Additionally, financial information provided to the investing public (such as earnings releases provided on Form 8-K) must be reliable.
In other comment letters, stakeholders expressed concern that when companies have choices, investors will receive less transparency and insight to help make investment decisions. Proponents argue that semi-annual reporting improves the quality and cost-effectiveness of corporate decision-making.
There are many questions for audit committees to consider as they move forward with their proposals.
- How does your company think about the frequency of interim financial information reporting?
- If this proposal is adopted, is semi-annual reporting the right choice?
- What do investors expect and how will this affect items such as: Financial information provided outside of the quarter? Debt limits? Quarterly management process? Are there plans for internal and external audits? Committee operations?
CAQ is closely monitoring this proposal and whether it is adopted as proposed by the SEC.
2. Changes in Filer Status and 404(b) Questions
Another SEC proposal would raise the public float threshold. Large accelerated filer status increased from $700 million to $2 billion. Other publicly traded companies are classified as non-accelerated filers and are not required to obtain auditor certification of internal control over financial reporting under Section 404(b). Explaining his view, Mr. Anderson said that 404(b) has led to improvements in the quality of internal controls since its introduction.
Under the new proposal, 19% of public companies would It is a large accelerated filer, accounting for approximately 93.5 percent of the total public float. The remaining 81% of companies typically Auditor attestation requirements for internal control over financial reporting. The SEC views this proposal as follows: Although he is encouraging more companies to go public, Mr Anderson warned that it would take five years to do so. Large fast filers may be too long for large companies.
Audit committees and other interested parties with broader views on ramp provisions or threshold changes are encouraged to submit comments before the end of the July 20 period.
3. New direction for the PCAOB
The PCAOB will appoint four directors in 2026, including new Chairman Demetrios (Jim) Logothetis, a former EY audit partner who is focused on evolving the PCAOB to support capital markets. In response to the PCAOB's request for comment on strategic priorities, the ACC recommends prioritization in three key areas.
- Strengthen the PCAOB inspection program Prioritize improving focus, consistency, and timeliness of inspections.
- Promoting regulatory efficiency and durable standards It provides clear benefits compared to costs and is applied consistently across the enterprise. and
- Prioritize initiatives that have the greatest impact Rather than an overly expansive agenda.
The PCAOB also posted a call for public comment on the standard-setting topic, with comments due August 7. This gives the audit committee an opportunity to share their views on areas that require the board's attention. As regulatory proposals and standards continue to emerge, we will continue to monitor how changes impact the role of audit committees to effectively oversee the financial reporting that supports confidence in the U.S. capital markets.
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