Accounting and disclosures
Organizations continue to be affected by macroeconomic factors such as inflation, rising interest rates, supply chain disruptions and stock market volatility, as well as the war in Ukraine and its ripple effects. We expect that audit committees will continue to evaluate these evolving impacts and changes in the business environment on their financial reporting processes.
Companies should continue to update their disclosures and consider the financial statement effects of the current market conditions (e.g., inflation, pandemic) and their expectations for the future. It will be important for audit committees not only to understand management’s view of future economic conditions, but also validate that the organization provides transparent disclosures regarding these views.
SEC rulemaking and other reporting considerations
The SEC has continued to engage in rulemaking that impacts public companies in Q3, including a final rule on proxy advice and proposed rule amendments relating to shareholder proposals.
Regarding proxy advice, the SEC adopted amendments that rescind two conditions added in 2020 that proxy voting advice businesses have had to meet to qualify for exemption from the proxy rules’ information and filing requirement. Those conditions required that (1) registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner and (2) clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice. These amendments are effective as of 19 September 2022.
The SEC also proposed amendments to its shareholder proposal rule, Exchange Act Rule 14a-8, which generally requires companies to include shareholder proposals in their proxy statements absent a basis for exclusion. The proposed amendments would narrow certain substantive bases that permit the exclusion of shareholder proposals in proxy statements. Comments on this proposal are due by 12 September.
The SEC is currently considering the public’s feedback on its proposal to enhance and standardize disclosures that public companies make about climate-related risks, their climate-related targets and goals, their greenhouse gas (GHG) emissions and how the board of directors and management oversee climate-related risks. The proposal would also require registrants to quantify the effects of certain climate-related events and transition activities in their audited financial statements. The SEC received thousands of comment letters on the proposal and now must decide whether and how to amend the proposal before voting on a final rule. If the rules are adopted as proposed by the end of 2022, the compliance date (which depends on a registrant’s filer status), would be phased in beginning with fiscal year 2023.
In June, the SEC also issued an updated rulemaking agenda for the coming months, which includes plans to propose rules to require disclosures on human capital later this year and board diversity in 2023.
Audit committees should consider how their companies should be preparing for potential regulatory changes, which could impact reporting requirements, disclosures and enforcement trends.