The year ahead in regulation

The SEC and FASB were busy last year. Regulators implemented new cybersecurity disclosure rules and new tax reporting requirements, and proposed new environmental reporting requirements. They aren’t easing up in 2024, either.

To get a sense of what organizations can expect and how they should be preparing for, new regulations in 2024, CFO Brew spoke with Bob Malhotra, chief accountant at KPMG US. Malhotra’s been with KPMG since 1997, and served a stint at the SEC as a senior advisor to the agency’s then-chief accountant.

We’ve seen a lot of increased enforcement from the SEC and the PCAOB over the last year. How would you characterize the regulatory environment in 2023?

There certainly has been additional proposed rulemaking at the SEC, and the FASB’s agenda has been quite active…focused on a number of items, but two areas with broad applicability to many participants in the financial reporting ecosystem. The two items being additional efforts that the FASB is in the process of proposing related to income tax disclosures, which is focused on further disaggregation of the components of the effective tax rate, as well as additional details related to income taxes paid.

The second item is related to proposals that are moving their way through the FASB’s process that will enhance the disclosures related to segments that are required to be disclosed by companies and by preparers. And they’re also focused on additional disaggregation of certain expenses that will need to be disclosed.

So a lot of additional standard setting from FASB. The SEC rulemaking has continued as well, with recent rulemaking related to cybersecurity and clawbacks released [in 2023] and that [were] implemented at the end of [2023], and into 2024.

This is a two-part question: With organizations under so much pressure from geopolitical tensions, economic and interest rate uncertainty, how have you seen them prioritizing regulatory change over the last year or so, and how do you see them doing that in the future as some of these new rules do take effect?

We’ve discussed the concept of compound volatility, and compound volatility is really getting at the heart of both of your questions. There’s a combination of two factors that are occurring; one is that there are continuing more frequent near-term focuses that companies need to devote resources to. Those could be related to economic change as well as other factors, being combined with the longer term resources that need to be devoted toward some of the longer term structural matters that are developing, that are driven, in part, by some of the additional regulatory and compliance needs that are being put on companies.

A company needs to balance the resources it has available to address both the near term issues at hand, as well as continuing to make sure it’s appropriately planning for some of these longer term structural matters that will impact the organization.

In your view, how prepared are organizations to deal with those new regulations in 2024?

I would suspect that as these new rules go into effect…companies will look at best practices and look to additional guidance that the regulators may provide. They will continue to adjust and enhance their compliance with these requirements. It’s an acute matter that requires the attention of organizations and companies. They’re going into it thoughtfully and in a way we would expect from a preparatory standpoint.

These rules take a long time to develop and there’s lots of public interaction, and there shouldn’t be any regulatory surprises in 2024. But what do you see FASB and the SEC prioritizing in 2024?

I would say that the FASB has been focused on ensuring that the views and perspectives of all its stakeholders, including investors, are top of mind, we would expect that that will continue. As the FASB considers additional projects that it might add to its agenda, we would expect that at the forefront of those considerations…it’ll be quite focused on whether or not those projects are meeting the needs and requirements that investors have expressed. So we would expect that to continue, like it has in 2023.