How will new PCAOB auditing standards affect future PCAOB audits? New accounting guidance can direct how to proceed with your next engagement. Talk with your audit team to see if any recently issued accounting standards will change your PCAOB audit or apply to your first quarterly review.
ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
This new standard affects the accounting for contract assets and liabilities acquired in a business combination. In a shift from existing guidance, ASU 2021-08 mandates contract assets and liabilities to be accounted for as if the acquirer entered into the original contract at the same time and same date as the acquiree.
ASU 2021-08 is effective for publicly held companies for fiscal years, including interim periods within those fiscal years, beginning December 15, 2022.
ASU 2021-05 Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments
The FASB issued ASU 2021-05 to improve the lease classification guidance in ASC 842 regarding a lessor’s accounting for specific leases with variable lease payments. Under this guidance, a lessor is required to classify and account for a lease that has variable lease payments as an operating lease if specified criteria are met.
ASU 2021-05 is effective for your PCAOB audit as follows:
- Public business entities that adopted ASC 842 as of July 19, 2021, the provisions of ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, and during interim periods within those fiscal years.
- For all other entities that adopted ASC 842 as of July 19, 2021, the amendments of ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, and for interim periods within the fiscal years beginning after December 15, 2022.
- Early adoption is permitted for all entities that adopted ASC 842 as of July 19, 2021.
ASU 2021-04 Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)
ASU 2021-04 simplifies how to treat written call options, such as warrants that remain equity classified after a modification or exchange. ASU 2021-04 will help CPA auditors ensure continuity and prevent diversity in reporting during a public company audit.
ASU 2021-04 is effective for fiscal years after December 15, 2021, and includes interim periods with early adoption permitted.
ASU 2020-06 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
ASU 2020-06 streamlines the accounting guidance for certain financial instruments that are found to be debt or equity. This new standard directly affects the complexities related to debt instruments. ASU 2020-06 removes convertible debt with bifurcated derivative (BCF) and convertible debt with a cash conversion feature (CCF).
ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, for any SEC public company audit, excluding smaller reporting companies defined by the SEC. For all other entities, ASU 2020-06 is effective for fiscal years after December 15, 2023. Early adoption is permitted with caveats.
New PCAOB Auditing Standards and Your Next Audit
To be prepared for your next PCAOB Audit, periodically review new PCAOB auditing standards and recent guidance. Discuss with your audit team how it will affect your organization.
As a PCAOB registered firm, Assurance Dimensions understands the complex rules associated with regulatory compliance. Contact us today to learn how we can help prepare your next public company audit report.
