On Tuesday, the Public Company Accounting Oversight Board (PCAOB) proposed changes to auditing standards that would increase auditors’ responsibility for uncovering and alerting stakeholders to fraud and other types of noncompliance with laws and regulations (NOCLAR), in an effort to better protect investors.

The proposed amendment would revise Auditing Standard (AS) 2110, Identifying and Assessing Risks of Material Misstatement and replace AS 2405, Illegal Acts by Clients, with a new standard titled A Company’s Noncompliance With Laws and Regulations, among other changes.

The proposed amendment, the PCAOB said, would primarily affect how auditors identify and evaluate instances of NOCLAR, and how they communicate with management and the audit committee around NOCLAR. Some significant changes include:

• Identifying NOCLAR: Under current standards, auditors need to identify noncompliance with laws and regulations that “have a direct and material effect on financial statements,” according to PCAOB. The proposal would instead require auditors to identify noncompliance with laws and regulations that “could reasonably result in a material effect” on financial statements. (Emphasis ours.)
• Evaluating NOCLAR: Under the proposed amendment, auditors would need to assess whether NOCLAR took place and how it might affect the financial statements and the remainder of the audit. They would have to formally consider using the help of legal experts and other specialists in transactions beyond the ones they’re auditing, in which they lack sufficient information to determine whether anything illegal has occurred.
• Communicating around NOCLAR: The proposed amendment would require auditors to alert management and the audit committee “as soon as practicable” once they become aware that noncompliance “has or may have occurred.” It would also introduce a new requirement for auditors to communicate with management and the audit committee after performing their evaluation.

Keep reading.—CV

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The Securities and Exchange Commission is cracking down on crypto. Just one day after the SEC sued Binance, the world’s largest cryptocurrency exchange, it also sued Coinbase, setting the stage for an industry-wide reckoning.

In the lawsuits, the SEC accused Binance of engaging in “an extensive web of deception” amounting to a “calculated evasion of the law,” while Coinbase, currently the biggest US crypto platform, was accused of failing to register as an exchange, among other charges.

And the hits didn’t stop there. On Tuesday evening, the SEC asked a federal court for a temporary restraining order to freeze Binance’s US assets to ensure Binance. US customers’ assets remain protected “through the resolution of the SEC’s pending litigation of this matter.”

The one-two punch is part of a broader push by SEC Chair Gary Gensler to wrangle the industry he’s labeled the “Wild West” with respect to regulation. 

Since 2022, the SEC has launched more than 30 crypto-related enforcement actions, while ramping up its efforts against celebrity investors in recent months.

Keep reading.—NP

Tomorrow’s problems are not yesterday’s problems and CFOs will be in the driver’s seat navigating a new business environment. That’s the key message from Gartner’s Chief of Research for CFOs Alexander Bant, in his introductory remarks at the Gartner CFO & Finance Executive Conference at the end of May.

“This past 12 months for CFOs has really been about getting used to a higher cost of capital, planning for a recession, managing efficiency across the business, managing expenses, shutting down unprofitable parts of your company, and challenging teams to be more productive,” Bant told CFO Brew in an interview before his conference appearance.

But that’s all in the past, and CFOs need to orient themselves differently now. “Our main point is CFOs get paid to live 12 months in the future,” Bant said.

Looking forward, he said CFOs need to be preparing for the next business cycle, and “a return back to growth.” That means CFOs will have to manage a wide range of responsibilities within the organization.

That can range from ESG and DE&I work, about which Bant noted that “activist investors are really pressuring CFOs,” to hiring and handling compensation amid rising pay expectations, and concerns about burnout.

But essential to all of that is a focus on growth, and how to get there with an understanding of the trade-offs. In his firm’s study of 1,200 public companies during prior downturns, Bant said, “we found that only 5% of organizations were able to drive simultaneous top line growth faster than their peers and expand margins at the same time.”

Finally, he said, in many companies, CFOs are charged with not only transforming the finance function in a new digital age, but also leading broader digital transformation efforts, from transaction handling to supply-chain analytics, to additional areas of data and AI work.

And the bosses don’t think they’re ready: “About four out of five CEOs and boards would say we’re not meeting expectations on those transformations.”

Stay tuned; we’ll hear more from Bant on “efficient growth” strategy next week.—SW

Today’s top finance reads.

Stat: 5%. That’s the percentage of its staff that Reddit is cutting, amounting to about 90 layoffs. Can we give that decision a downvote? (Reuters)

Quote: “The weak exports confirm that China needs to rely on domestic demand as the global economy slows. There is more pressure for the government to boost domestic consumption in the rest of the year, as global demand will likely weaken further in the second half.”—Zhiwei Zhang, chief economist at Pinpoint Asset Management, on the contraction of Chinese exports, which fell 7.5% in May (CNN Business)

Read: Inside the secret and controversial merger between the PGA Tour and LIV Golf. (the Wall Street Journal)

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