Accounting Trends Snapshot: New Regulations on the Horizon

Posted 04/08/21 Team Vaco

A second year of the global pandemic is getting underway, and the world is facing unprecedented changes to both the economic and political climates. These changes have led to a fundamental shift in the business and financial landscape, and regulatory updates are on the horizon. As a result, many financial leaders are searching for answers to a constantly-evolving web of questions.

Fortunately, there are a few key trends and changes that leaders can address immediately—and a few predictions that may help them plan for the future. 

Our upcoming virtual CPE “Accounting Trends for Financial Leaders” will take an in-depth look at pivotal recent accounting trends, changes, and updates that may arrive in the near future, and how financial leaders can prepare for new requirements and standards. 

In this article, we preview some of the most important information that will be covered in our Accounting Trends CPE.

The Biden administration’s biggest priorities and how they affect financial leaders

Before President Joe Biden took office in January, his administration announced their top out-of-the-gate priorities: COVID-19, racial equality, climate change, and the economy. 

President Biden’s climate change plans, in particular, stand in stark contrast to the previous administration’s policies. 

The Biden-Harris administration’s goals for domestic climate change are lofty, including a 100% clean energy economy and net-zero emissions by 2050. Recently, the administration unveiled an infrastructure and economic recovery plan—the American Jobs Plan—that includes funding for America’s transportation infrastructure, green energy and electric cars, drinking water infrastructure, and expanded broadband access, among other initiatives.

Additionally, President Biden has ordered a complete review of the Trump Administration’s NEPA reforms from July 2020, and may reinstate many regulations that were rolled back or eliminated.

As the political landscape centers on climate change, social issues, and pandemic recovery, financial leaders and investors are following suit. Environmental, Social and Governance (ESG) factors are being incorporated into investment decisions by a greater number of investors than ever before. In fact, U.S. sustainable funds grew to over $17 trillion in 2020, a 42 percent increase from 2018. 

With regulatory requirements for better, more accurate ESG data growing, the Securities and Exchange Commission (SEC) will increase enforcement for public companies. New regulatory frameworks and disclosure requirements may be instituted, as evidenced by the multiple statements, orders, and speeches the SEC has released in the past several months.

Learn more about how new regulations and disclosure requirements will impact businesses by attending our virtual CPE, “Accounting Trends for Financial Leaders.”

2020 provided a stark reminder that the world and its markets are often unpredictable. A preference for long-term, sustainable business plans will continue to grow among market participants.

The SEC’s response to growing demand for climate disclosure and ESG information

Recently, the SEC has made multiple announcements and released several statements regarding ESG disclosure for public companies:

  • On February 24, Acting Chair of the SEC, Allison Herren Lee, issued a public statement directing the Division of Corporate Finance to intensify its focus on climate-related disclosures in filings by public companies. In the same statement, Lee also announced plans to update the SEC’s 2010 guidance on disclosures related to climate change.
  • On March 2, Gary Gensler, President Biden’s nominee for chair of the SEC, testified before the Senate Banking Committee that he supported updating climate risk disclosure rules.
  • On March 3, the SEC’s Division of Examinations announced its 2021 examination priorities. Climate and ESG-related risks were among the Division’s top priorities for this year. 
  • On March 4, the SEC announced the formation of an enforcement task force that would focus specifically on climate and ESG-related issues and identifying ESG-related misconduct.
  • On March 11, the Acting Director of the Division of Corporate Finance released a public statement that outlined the Division’s considerations for an “effective ESG disclosure system.”
  • On March 15, Acting Chair of the SEC, Allison Herren Lee, released a statement requesting public input on climate change disclosures. Public comments will be accepted until June 15. 

The SEC is currently assessing public companies’ compliance with the disclosure requirements that are already in effect.

How will updated ESG disclosure requirements affect public companies?

Updated ESG disclosure requirements are likely to have a significant impact on business, as companies will need to establish mechanisms for identifying and tracking information that isn’t currently being captured. Additional data will need to be identified, tracked, and audited, with corresponding controls being applied to ensure the accuracy of the data. 

Additionally, the indirect impact may become more significant over time, as ESG disclosures impact investor sentiment and federal tax structures.

Additional regulatory changes that will affect financial leaders

Here’s a snapshot of additional regulatory changes that may affect accounting and finance leaders this year:

  • LIBOR (London Interbank Offered Rate) will be phased out in December 2021.
  • Cybersecurity and data privacy concerns are a top priority of federal and state authorities following the widespread transition to remote work in 2020.
  • The SEC issued interim final amendments on the Holding Foreign Companies Accountable Act (HFCAA).

The recent economic and political changes are likely to drive steady shifts in the accounting and finance space for the foreseeable future. As new updates unfold, financial leaders must be aware and prepared, with resources and solutions that meet their timelines. 

Get more insight on current accounting trends and the changes awaiting industry leaders by attending our virtual CPE, “Accounting Trends for Financial Leaders.” 

Register now

Authors: Jared Benedict, executive director, accounting and transaction services, MorganFranklin Consulting and Erica Baker, managing director & partner, Vaco

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