January 2025 financial reporting, governance, and risk management
Message from Sydney Garmong, Partner, National Office
Our thoughts are with those affected by the wildfires and straight-line winds.
After a flurry of activity from the standard-setters and regulators in late 2024, I am delighted to report January (so far) has been relatively quiet. We know that is not going to last for long, especially with transition to the new administration and changes in leadership at the federal agencies.
Last month, we participated in the 2024 American Institute of Certified Public Accountants (AICPA) and Chartered Institute of Management Accountants (CIMA) conference on Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) developments, in Washington, D.C., which some refer to as the annual nerd-fest. As good nerds do, we took notes, and Crowe issued its 2024 AICPA & CIMA SEC and PCAOB developments conference recap earlier this month.
The Financial Accounting Standards Board (FASB) wants to hear from you on what its next areas of focus should be. It has issued three invitations to comment (ITC), as follows:
- “Financial Key Performance Indicators for Business Entities,” issued Nov. 14, comments due April 30, 2025
- “Recognition of Intangibles,” issued Dec. 19, comments due May 30, 2025
- “Agenda Consultation,” issued Jan. 3, 2025, comments due June 30, 2025
The ITC on financial key performance indicators (KPIs) is important given the topic has been debated for many years, in various forums, mostly from the perspective of whether KPIs should be standardized. The FASB took an important step of posing the question on whether to add a project to its agenda. The second ITC, on intangibles, has been on the FASB’s agenda, in some form, for many years, with the topic garnering disparate views, so the FASB is seeking feedback on if and how to proceed. The latest one, which is the “what should we work on next” ITC, is a routine process but the broadest, as it will inform the board on where to focus.
The FASB is always looking for feedback on its agenda – and the process is simple. You do not even need to write a comment letter. For all “Documents Open for Comment,” the FASB provides an electronic feedback form to encourage feedback from all stakeholders.
We wish you well in 2025, and we look forward to keeping you updated. Of course, we welcome your feedback – both good and bad.
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From the federal financial institution regulators
OCC issues fall 2024 semiannual risk perspective
On Dec. 16, 2024, the Office of the Comptroller of the Currency (OCC) published its semiannual risk perspective covering key risks and issues faced by the federal banking system, based on data provided as of June 30, 2024. The report notes that the banking system remains sound, but highlights the following key risk themes, among others:
- Operational risk is elevated, as banks face a complex and evolving operating environment, including sophisticated cyber threat actors leveraging AI and other advanced technology. These actors seek to expose vulnerabilities in the financial services sector, and those of third-party providers. Banks must maintain effective change management and third-party risk management practices and should maintain key security measures such as “multi-factor authentication, hardening of systems configurations, testing software updates before implementation, phased rollouts of software updates, timely vulnerability patch management, and immutable backups.” Institutions should also monitor third parties along their information technology supply chain and assess their transition plans to test and implement post-quantum computing standards.
- Commercial credit risk is moderate and shows signs of stabilizing, despite continued stress in the office sector and elevated risks in multifamily lending, especially in the luxury segment.
- Retail credit risk is stable, with low but increasing delinquency and loss rates on residential real estate, and rising delinquencies in other retail asset classes such as credit cards and auto loans.
The report provides further commentary on compliance risk, Community Reinvestment Act (CRA)-related risks, market risks, climate-related financial risks, and the global and domestic economic operating environment. It also includes discussion on a spotlight topic of increased fraud targeting the federal banking system, including AI-enabled fraud, and fraud targeting peer-to-peer payment platforms.
Fed, FDIC announce 2025 CRA asset thresholds
On Dec. 19, 2024, the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) announced their annual updates to asset-size thresholds under the Community Reinvestment Act (CRA). The updated CRA asset-size thresholds are as follows:
- Small bank: an institution that had assets of less than $1.609 billion as of Dec. 31 of either of the prior two calendar years.
- Intermediate small bank: an institution with assets of at least $402 million as of Dec. 31 of both of the prior two calendar years, and less than $1.609 billion as of Dec. 31 of either of the prior two calendar years.
The updated thresholds are effective from Jan. 1, 2025, through Dec. 31, 2025.
CFPB issues final rule on overdraft protection fees
On Dec. 12, 2024, the Consumer Financial Protection Bureau (CFPB) issued a final rule subjecting large financial institutions to statutory consumer credit protection requirements when these institutions extend certain overdraft credit. The final rule amends Regulation Z such that “above breakeven overdraft credit” offered by a large financial institution (insured depository institutions and credit unions with more than $10 billion in assets) no longer qualify as an exception to the statutory definition of a “finance charge.” The rule requires covered institutions to determine their own breakeven point using a prescribed costs and losses calculation, or otherwise use a standard “benchmark” overdraft fee of $5. Covered institutions also have the option of treating overdraft protection as credit defined by the Truth in Lending Act, thus requiring further compliance measures.
The long-awaited final rule is slated to become effective Oct. 1, 2025. On the day it was issued, the American Bankers Association (ABA) together with other banking associations and financial institutions filed a lawsuit challenging the rule in the U.S. District Court for the Southern District of Mississippi. In the complaint, the plaintiffs assert that the final rule will harm consumers by making it “costlier and more difficult for a financial institution to provide overdraft services.” The future of the final rule might also be impacted by the Trump administration and legislative efforts of new leadership in congressional banking committees.
Treasury issues report on artificial intelligence in financial services
On Dec. 19, 2024, the U.S. Department of the Treasury published a report summarizing key themes and stakeholder feedback from its June 2024 request for information on artificial intelligence in financial services and providing recommendations on how the public and private sectors should approach the technology going forward. The report observes stakeholder support of certain government actions, such as providing improved definitions on AI models and systems and clarity on data privacy and security standards for firms using AI, expanding consumer protections, developing consistent federal-level standards and regulatory frameworks, and “facilitating domestic and international collaboration among governments, regulators, and the financial services sector.”
The department’s recommendations include encouraging continued domestic and international collaboration, continued analysis and stakeholder engagement to remedy gaps in the regulatory framework, collaboration and information-sharing between the financial services sector and government agencies, and prioritization of AI use case review prior to deployment for financial institutions.
FSOC issues annual report to Congress
On Dec. 6, 2024, the Financial Stability Oversight Council (FSOC) published its annual report on stability risks faced by the U.S. financial system. The report identifies financial vulnerabilities in 14 risk areas, noting that risk areas are similar to last year’s report, but that many have since “evolved in consequential ways.” It also provides regulatory and legislative recommendations in those areas.
Highlights from the report include:
- Commercial real estate (CRE): Signs of increasing CRE credit risk were observed over 2024, with particular concern surrounding the office sector and emerging risks to the multifamily subsector. Prices of commercial mortgage-backed securities are an indicator of weakness in the CRE market.
- Depository institutions: Financial institution systems remained sound and resilient, although relatively high funding costs, CRE exposure, and poor performance of certain consumer loans continue to indicate potential vulnerabilities. The FSOC encourages banks to continue to “engage in effective liquidity management and planning” including ensuring access to contingent liquidity facilities. It also recommends finalization of a proposal to require certain large banking organizations to “maintain outstanding long-term debt that can provide additional loss protection” in resolution, and completion of Basel III reforms.
- Cybersecurity: Global cyberattacks have “almost doubled since before the COVID-19 pandemic” and continue to pose a significant threat to financial stability. Further, foreign conflicts heighten the U.S. financial system’s exposure to cyberattacks. Ransomware attacks have risen in frequency in recent years and continue to pose a significant risk, as do insider threats and misinformation spread through technology. Cyber incidents can also be facilitated through advancements in newer technologies, such as digital assets, artificial intelligence, and quantum computing.
- Third-party service providers: The increasing frequency and complexity of arrangements with third-party service providers continues to present a risk to financial stability. Such arrangements might decrease an institution’s oversight and control over, and insight into, its data or systems.
From the Financial Accounting Standards Board (FASB)
FASB clarifies effective date for expense disaggregation disclosures
On Jan. 6, 2025, the FASB issued Accounting Standards Update (ASU) 2025-01, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date,” to provide clarification to the interim effective date for ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” for public business entities that do not have an annual reporting period that ends on Dec. 31.
The ASU clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after Dec. 15, 2026, and interim periods within annual reporting periods beginning after Dec. 15, 2027.
FASB proposes improvements related to environmental credits and obligations
On Dec. 17, 2024, the FASB issued a proposed ASU, “Environmental Credits and Environmental Credit Obligations (Topic 818).” It would require the recognition of an environmental credit as an asset when it is probable that the credit will be transferred to another party in an exchange transaction or used to settle an environmental credit obligation. For all other environmental credits, any costs to obtain would be expensed when incurred. The proposed ASU would require the recognition of an environmental credit obligation as a liability when events have occurred on or before the reporting date which result in an environmental credit obligation. It also has detailed guidance on measurement, disclosure, and presentation matters.
The proposed ASU does not yet include an effective date and would be applied retrospectively through a cumulative-effect adjustment to the opening balance of retained earnings as of the beginning of the annual reporting period of adoption. Early adoption would be permitted.
Comments are due April 15, 2025.
FASB requests comment on agenda consultation
On Jan. 3, 2025, the FASB published an invitation to comment (ITC), “Agenda Consultation,” offering the opportunity for stakeholders to provide input on future standard-setting. The FASB will consider the comments when making decisions about potential changes to its agenda, including which topics to add and the order of priority. Many of the topics that were suggested for standard-setting efforts, as described within the ITC, focus on targeted improvements to GAAP, not major changes. In addition to the request for feedback on improvements to financial accounting and reporting, the FASB seeks to understand:
- If there is potential for significant improvement in the areas identified in the ITC
- The priority and urgency of addressing each topic
- Which potential solution(s) should be considered
- For any potential solution, the expected benefits and expected costs
- If there are other topics, not already identified in the ITC, that should be considered for the agenda
Comments are due June 30, 2025.
FASB requests comment on recognition of intangibles
On Dec. 19, 2024, the FASB issued an ITC, “Recognition of Intangibles,” to solicit feedback on whether it should pursue a project on standard setting on intangibles. The FASB is looking to gain insight into:
- Whether there is a need to improve GAAP related to the accounting for and disclosure of intangibles
- Which intangibles, or groups of intangibles, should be considered
- What potential solutions should be considered and the expected benefits and expected costs of the potential solutions
- Whether different accounting approaches should exist depending on how the intangible asset is obtained
- What information about intangibles an investor utilizes for its analysis and how that information influences capital allocation decisions
The ITC contains 15 questions for stakeholders to provide feedback on accounting guidance for intangibles.
Comments are due May 30, 2025.
From the Securities and Exchange Commission (SEC)
SEC approves electronic submission and FOCUS report amendments
On Dec. 16, 2024, the SEC voted to approve a final rule to expand electronic filing requirements (and structured data requirements, where applicable) to most forms and other filings required to be submitted to the SEC under the Securities and Exchange Act of 1934. The requirements apply to certain forms, filings, and submissions made by self-regulatory organizations, registered clearing agencies, and broker-dealers and non-bank security-based swap entities.
The final rule becomes effective March 24, 2025. Compliance dates vary for specified forms and other elements of the final rule but are phased in beginning the effective date through June 2028.
SEC adopts amendments to broker-dealer customer reserve requirement computation
On Dec. 20, 2024, the SEC voted to adopt new amendments increasing the required frequency of certain reserve-related activities under the broker-dealer customer protection rule. Under the amendments, certain broker-dealers must increase the required frequency of customer reserve computations and related deposits into reserve bank accounts from weekly to daily. The amendments apply to carrying broker-dealers with average total credits equal to or greater than $500 million, based on a 12-month rolling average. The final rule also includes amendments to the broker-dealer net capital rule and customer protection rule to lower the permitted reduction of aggregate debit items from 3% to 2%.
The final amendments become effective March 14, 2025. Firms may adopt the debit reduction on or after this date but must provide their designated examining authority with at least 30 days written notice. Carrying broker-dealers must comply with the daily frequency requirement no later than six months after meeting the threshold. For example, a firm that meets the threshold as calculated over the 12-month period ending June 30, 2026, would need to perform daily computations beginning no later than Dec. 31, 2026.
SEC announces additional leadership changes
Following the November departure announcements of Chair Gary Gensler and Commissioner Jaime Lizárraga, the SEC announced the departures of several additional members of agency leadership:
- Haoxiang Zhu, director of the Division of Trading and Markets, effective Dec. 10, 2024. David Saltiel will serve as acting director upon Zhu’s departure. Saltiel previously served as a deputy director in the Division of Trading and Markets and head of the division’s Office of Analytics and Research.
- Erik Gerding, director of the Division of Corporation Finance (CorpFin), effective Dec. 31, 2024. Cicely LaMothe will serve as acting director upon Gerding’s departure, having previously served as deputy director, Disclosure Operations, among other leadership roles in CorpFin.
- Paul Munter, chief accountant, will be retiring from federal service effective Jan. 24, 2025.
SEC issues annual report on small-business capital formation
On Dec. 12, 2024, the Office of the Advocate for Small Business Capital Formation issued its annual report, providing data analysis on capital formation, policy recommendations, and a summary of activities of the office and the SEC’s Small Business Capital Formation Advisory Committee in 2024. Policy recommendations included proposals for continued and improved SEC engagement with small businesses and their investors, supporting private/public collaborations and mentorship, exploring Regulation Crowdfunding initiatives, providing more defined pathways to establish networks with sophisticated investors, diversify capital allocators and decision-makers, and more.
From the Public Company Accounting Oversight Board (PCAOB)
PCAOB publishes report on culture and audit quality
On Dec. 5, 2024, the PCAOB published “Spotlight: Insights on Culture and Audit Quality,” exploring the link between audit deficiencies and audit firms’ culture and audit quality. The PCAOB performed interviews, analyzed inspection results, and reviewed firms’ quality control systems. The report focuses on aspects of quality control that may affect audit firm culture including governance and leadership, resources, engagement performance, and information and communication. The PCAOB identified the following key insights related to firm culture:
- Audit firm culture can positively or negatively affect audit quality.
- Centralization and standardization may be correlated with audit quality.
- The remote/hybrid work environment affects audit firm culture.
- Audit firms need to promote a culture of accountability to support audit quality.
- Certain firm personnel may lack foundational skills.
- Audit leadership sends mixed messages.
This report might assist audit committees in evaluating their audit firm.
SEC approves amendment on audit firm registration information
On Jan. 2, 2025, the SEC approved the PCAOB’s rule amendment to enhance the usefulness of an audit’s firm registration information as adopted on Nov. 14, 2024. The amendment allows the PCAOB to address situations in which a registered firm has ceased to exist, is nonoperational, or no longer wishes to remain registered, as demonstrated by its failures to file annual reports on PCAOB Form 2 and pay annual fees for at least two consecutive reporting years.
The amended rule will take effect initially for annual reports and annual fees that are due in 2025, meaning that a registered firm that does not file an annual report and does not pay an annual fee for both the 2025 and 2026 reporting years could be deemed withdrawn from registration under Rule 2107(h) beginning in the fall of 2026.
SEC extends comment periods for two PCAOB final rules
On Jan. 14, 2025, the SEC extended the comment periods for two PCAOB final rules – “Firm Reporting” and “Firm and Engagement Metrics and Related Amendments to PCAOB Standards” – until Feb. 4, 2025. The PCAOB adopted the final rules on Nov. 21, 2024, and the rules are subject to approval by the SEC.
FASB materials reprinted with permission. Copyright 2025 by Financial Accounting Foundation, Norwalk, Connecticut. Copyright 1974-1980 by American Institute of Certified Public Accountants.
Contact us
Learn about OCC semiannual risk perspective, FASB invitations to comment, SEC capital formation report, PCAOB culture & audit quality report & more.
Read about AICPA SEC conference; Fed semiannual supervision and regulation report; FDIC, NCUA Q3 results; FASB request for comments on KPIs; and more.
Read about CFPB open banking rule, FASB ASU 2024-03, SEC commissioner thoughts on regulatory environment, CAQ fall audit partner survey results.
Learn about OCC semiannual risk perspective, FASB invitations to comment, SEC capital formation report, PCAOB culture & audit quality report & more.
Read about AICPA SEC conference; Fed semiannual supervision and regulation report; FDIC, NCUA Q3 results; FASB request for comments on KPIs; and more.
Read about CFPB open banking rule, FASB ASU 2024-03, SEC commissioner thoughts on regulatory environment, CAQ fall audit partner survey results.