Q1 2026 Audit Committee Agenda

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This newsletter includes a comprehensive overview of current business issues, risk considerations, and recent regulatory developments to keep audit committees in the know.

Contents

Current Business Issues and Risk Considerations

PCAOB Update

Resources

Current Business Issues and Risk Considerations

2026 Shareholder Meeting Agenda

Key Regulatory and Policy Shifts Heading into 2026

  • SEC Staff Legal Bulletin 14M: Restored ability to exclude proposals on “economic relevance” and “ordinary business” grounds.
  • DEI landscape changed: Nasdaq diversity rule overturned; new Presidential EOs scrutinize corporate DEI practices.
  • Climate policy reset: SEC withdrew climate rules; state and global ESG regimes continue evolving.
  • Engagement constraints: Updated 13D/13G guidance dampens investor–issuer dialogue; more reliance on company‑led listening tours and disciplined disclosures.
  • SEC Rule 14a‑8: Substantive SEC responses to exclusion requests limited—companies must better justify omissions in their filings.
  • Proxy advisor scrutiny: Presidential Executive Order and FTC investigation raise transparency/competition questions; potential oversight or registration changes ahead.
  • Technology shift: Early adoption of AI‑enabled voting analyses by large institutional shareholders (e.g., internal stewardship platforms), with customizable frameworks on the horizon.
Recording

2026 Shareholder Meeting Agenda: How Can Directors Better Prepare?

As corporations prepare for their 2026 annual shareholder meetings, BDO invites you to explore important findings from our 2026 Shareholder Meeting Agenda publication.

View Recording
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Exercising Good Board Governance in M&A Due Diligence

Key Pitfalls and the Board’s Oversight Role

  • Strategic Alignment: Boards should probe whether the identified target fits the company’s long-term strategy and core competencies. 
  • Financial Due Diligence: Directors must make sure that management has rigorously analyzed the target’s financials, including hidden liabilities, quality of earnings, and working capital needs. 
  • Cultural Compatibility: Successful integration depends on cultural fit. Boards should ask whether cultural differences have been identified and how they will be addressed and what plans exist for aligning values and practices.
  • Legal and Regulatory Risks: Boards must confirm that legal and regulatory risks, including compliance issues and pending litigation, have been thoroughly assessed. 
  • Operational Synergies and Integration: Directors should challenge assumptions about synergies and integration costs. 
  • IT and Cybersecurity Risks: Boards need to help ensure that technology debt of the target, including IT compatibility and cybersecurity vulnerabilities, have been evaluated.
  • Human Capital and Key Talent: Retaining key personnel is vital. Boards should ask about plans for onboarding, talent retention, and leadership continuity.
  • Customer and Supplier Relationships: Directors should review the stability of major customer and supplier contracts. 
  • Communication and Stakeholder Management: Boards must oversee stakeholder engagement and communication strategies to minimize uncertainty and resistance.
  • ESG Issues: Environmental, social, and governance risks can impact reputation and value. Boards will want to know how management plans to assess and address significant ESG factors as part of the due diligence process.

Are You Ready for What’s Ahead in 2026?

Predictions Series

  • The arrival of a new year always brings more questions than answers. While it’s impossible to see into the future, today’s trends offer a glimpse into what’s ahead. In 2026, we’re forecasting:

Companies will go all-in on agentic AI

An avalanche of deals is coming

The war for specialized talent will heat up

Efficiency and agility will replace growth-at-all-costs

  • These predictions point to one overarching truth: Uncertainty is the new norm as disruptive events increase in scale and frequency. To thrive, companies need strategic resilience — the ability to navigate rapid market shifts and pivot quickly when priorities change. 
  • In our 2026 Predictions Series, we explore what’s ahead for key industries and how companies in these sectors can strengthen their resilience.

Achieving Effective Internal Control Over GenAI

This report provides a COSO-aligned way to govern GenAI responsibly by adapting COSO’s 2013 Internal Control–Integrated Framework (five components, 17 principles) into GenAI-specific practices rather than creating a new framework.

COSO Internal Control Integrated Framework Components

Supreme Court Invalidates IEEPA Tariffs, Administration Replaces with New Surcharge: What Importers Need to Know

  • In the Supreme Court’s ruling in Learning Resources, Inc., et al. v. Trump, the Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs, because tariff authority is reserved to Congress. The Court therefore invalidated the IEEPA-based tariffs, including those tied to fentanyl-related threats involving Canada, Mexico, and China and the broader “reciprocal” tariff program aimed at trade deficits.
  • Administration response: The Trump Administration announced a pivot to other legal authorities. Executive actions directed agencies to end IEEPA tariff collection as soon as practicable, continue suspending de minimis treatment, and a separate Proclamation imposed a replacement global tariff under Section 122 of the Trade Act of 1974.
  • Replacement tariff details: The Section 122 tariff is a temporary surcharge (150 days) set at 10% globally, with the President stating it will be raised to 15% (the statutory cap) during the effective period (2/24/2026 -7/24/2026).
  • Operational uncertainty for importers: Implementation depends on follow-on actions by Customs and Border Protection (CBP), Treasury, and potentially further proceedings at the Court of International Trade (CIT). Until CBP updates ACE and issues technical guidance, entries may still show IEEPA-based duties and may require post-entry corrections.
  • Refunds / collected tariffs unresolved: The decision likely supports refund claims for IEEPA tariffs, but the Court did not decide what happens to $130B already collected, nor did it provide a refund mechanism or timeline

Financial Reporting Considerations

Tariff Changes

Subsequent Events and Disclosure

  • Court rulings after the reporting date are generally non‑recognized subsequent events
  • Disclosure is required for material legal developments, but prior-period numbers are not adjusted

Potential Refunds

  • Do not recognize a receivable for anticipated tariffs as of December 31, 2025 or any periods prior to the Supreme Court ruling 
  • For reporting periods that include or follow the Supreme Court ruling:
    • Apply the principles in ASC 450‑30 for gain contingencies or
    • Apply the principles of the loss recovery model in ASC 410 (depending on how and when the refund mechanism is established)
  • Once an asset for tariff refunds is recognized, present the corresponding gain: 
    • As a reduction in the cost of that inventory (if not sold yet)
    • As a reduction of current costs of sales or other income (if the inventory was sold in prior periods)

SEC Reporting Considerations

Tariffs

Description of Business

  • Changes to strategy, operations, customer engagement strategies or suppliers due to tariffs and related market disruptions

Risk Factors

  • Material risks the registrant is facing—be specific and address risks from tariff-related impacts

Management’s Discussion and Analysis

  • Known trends and uncertainties
  • Effects on results of operations, financial condition and liquidity 
  • How do tariffs impact assumptions in critical accounting estimates

Reminder

The SEC staff has often emphasized that registrants should avoid using “boilerplate language” to address risks, trends, and uncertainties in filings and avoid describing the impact of such conditions and events as hypothetical risks when they have impacted the business. When economic uncertainty has arisen in the past, the SEC staff has asked registrants to not only expand their discussion of market disruption-related risks, but also to address the quantitative impact(s) and any mitigation efforts. For example, in light of current events, a registrant should disclose any plans to adjust prices in response to changing tariffs, modify contracts, or change suppliers to reduce the tariffs owed.

Board Takeaways: Governing for Persistent Volatility

Geopolitics and Growth – Strategic Foresight in a Volatile World

Board TakeawayBoard Action
Elevate Geopolitical RiskEmbed geopolitical, trade, and tariff risk as a standing priority in Board and Audit Committee agendas, explicitly linked to strategy and performance.
Pressure-Test AssumptionsRequire scenario analyses that stress earnings, liquidity, supply chains, and capital access across multiple geopolitical and trade outcomes.
Strengthen Reporting & ControlsConfirm that financial reporting, disclosures, and ICFR reflect tariff impacts, economic uncertainty, and heightened fraud risk.
Anticipate Shareholder/ Stakeholder ScrutinyAlign with management on a clear, consistent investor narrative covering risk exposure, mitigation strategies, and contingency planning.
Increase Engagement CadenceAssess whether more frequent briefings, special sessions, or external expertise are needed as global conditions evolve.


CAQ Annual Institutional Investor Survey

The Center for Audit Quality and KRC Research surveyed 300 U.S. institutional investors to examine how investors perceive the audit’s role amid changing expectations around assurance, innovation, and oversight, highlighting investor priorities and the themes influencing confidence and trust in capital markets.

How often do you use each of the following types of company disclosures to make investment decisions? 


How much would you trust the accuracy of disclosures if it were audited by an independent public company audit firm?

CSRD: Final Omnibus Updates

Key Revisions:

  • Value‑chain cap: SME ≤1,000 employees limited to voluntary standards.
  • European Sustainability Reporting Standards (ESRS) simplification: ~70% fewer data points; streamlined materiality.
  • Assurance: Limited assurance only; EU standard expected July 2027.
  • Exemptions: Financial Holding Companies
Compliance WaveInitial ScopeReports Due (Under Omnibus)Omnibus Revision (Dec 2025)
Wave 1

Large Listed Entities:

  • >500 employees & 
  • >€50M revenue or >€25M assets

2025 

(FY24 Data)

Large Entities:

US companies that have >1,000 employees and revenue >€450M during the financial year, including

  1. US companies listed on an EU-regulated market and 
  2. EU subsidiaries of US companies
Wave 2

Other Large Entities:

Two of the following:

  • >250 employees
  • >€50M revenue
  • >€25M assets

2028 

(FY27 Data)

Wave 3Listed SMEs, small credit institutions and insurance undertakings
Wave 3 entities removed from scope
Wave 4

Non-EU Groups:

  • >€150M revenue in EU & branch or large/listed subsidiary

2029 

(FY28 Data)

Consolidated Groups:

US companies that 

  1. generated revenue in the EU >€450M during the previous two financial years at the group level and 
  2. have at least one EU subsidiary or branch with >€200M in the preceding financial year


Revised CSRD: Reduced Scope for EU Companies  

Omnibus: Agreed Position and What is Changing from ‘Wave 1’ Entities Position


Revised CSRD: Reduced Scope for Non-EU Companies   

Which Entities are in Scope?

  • Non-EU groups that:
    • Generate EU net turnover; and
    • Have ≥ one EU subsidiary or branch.
  • Financial holding company exemption applies.


Scope Thresholds for Non-EU Parent Groups

  • EU net turnover ≥ 450m EUR in each of the last two consecutive financial years; and
  • EU subsidiary/branch net turnover ≥ 200m EUR in the previous financial year.


Other Key Requirements

  • EU subsidiary/branch shall publish and make available a group-level sustainability report (prepared by the non-EU parent)
  • Timing: First reporting for FY 2028 (published in 2029).
  • Standards:
    • Sustainability reporting standards for third- country companies (expected 2027)
    • Option to report in accordance with ESRS


Climate-Related Disclosures: California SB 261 and SB 253*


SB 261: Climate-Related Financial Risk DisclosureSB 253: Climate Corporate Data Accountability Act
Applicability Companies >$500M in global revenues are required to disclose biennially climate related-risks and adaption measuresCompanies >$1 billion in global revenues are required to disclose and obtain assurance over annual Scope 1, 2 and 3 greenhouse gas (GHG) emissions data
ScopeDoes business in CA Does business in CA 
Type of EntityPublic & PrivatePublic & Private
TimelinesReporting of climate-related risks delayed pending resolution of hearing held by the Ninth Circuit Court on January 9th, 2026.

2026: Disclosure of Scope 1 & 2 (2025 Data) ^

2027: Disclosure of Scope 3 (2026 Data)

AssuranceNone

Limited assurance on Scope 1 and 2 emissions (from 2027) ^^

Reasonable assurance on Scope 1 and 2 emissions (2030)

Limited assurance on Scope 3 emissions (2030)

Penalties for non-compliance*Up to $50,000 per reporting yearUp to $500,000 per reporting year
Additional relevant updatesRefer to timelines above.

^ Only for 2026 and for those companies that were not collecting Scope 1 and 2 emissions when the Enforcement Notice was issued in December 2024. Such entities should submit a non-reporting statement to CARB’s public docket.

^^ Limited assurance is not required for 2026 submissions.

* Companies should consult with legal counsel to determine their obligations under California’s climate disclosure laws.

PCAOB Update

PCAOB Leadership and Advisory Group Updates

On February 10th, the PCAOB swore in the new Chairman and two board members at a ceremony at the SEC.

  • Chairman Demetrios (Jim) Logothetis
    • Term Expires: Oct. 24, 2030
    • Background: Former Ernst & Young leader (40-year career; senior assurance/advisory and global accounts roles); audit committee chair at Republic Bank of Chicago; advisory council member at CrossCountry Consulting; former HUD senior advisor (led audit coordination for Ginnie Mae).
  • Board Members: 
    • Dr. Mark A. Calabria 
      • Term Expires: Oct. 24, 2027
      • Background: Former OMB Associate Director & Chief Statistician and CFPB Senior Advisor; prior roles include FHFA Director, HUD leadership roles, and senior economist at the National Association of Realtors.
    • Steven D. Laughton
      • Term Expires: Oct. 24, 2026
      • Background: Former Board Counsel at PCAOB; 30+ years at U.S. Treasury (helped establish PPP; supervised legal teams; advised on Dodd-Frank, banking/securities law, disclosure, privacy, and financial markets).
    • Additional SEC appointments: 
      • Kyle Hauptman appointed to the Board; George R. Botic continues his term as a Board Member thru October 2028

PCAOB Advisory Group member updates can be found here. 

PCAOB Updates Standard Setting Projects

Recently Completed or Effective Standard Setting Projects

ProjectEffective DateDate of Board AdoptionDate of SEC Approval
Other AuditorsEffective for audits of fiscal years ending on or after December 15, 2024.June 2022August 12, 2022
ConfirmationEffective for audits of fiscal years ending on or after June 15, 2025.September 2023December 1, 2023
Quality ControlEffective on December 15, 2026.

The first evaluation period is for the period beginning on the effective date of the standard (i.e., December 15, 2026) and ending on September 30, 2027. The firm’s first evaluation must be reported to the PCAOB on Form QC no later than November 30, 2027.

May 2024September 9, 2024
Amendments Related to Aspects of Designing and Performing Audit Procedures that Involve Technology-Assisted Analysis of Information in Electronic Form Effective for audits of financial statements for fiscal years beginning on or after December 15, 2025.  June 2024August 20, 2024
General Responsibilities of the Auditor in Conducting an Audit (AS 1000)Effective for audits of fiscal years beginning on or after, December 15, 2024, except for the 14-day documentation completion date. Firms that issued < 100 issuer audit reports during calendar year ending December 31, 2024, effective date of the 14-day documentation completion date requirement is for fiscal years beginning after December 15, 2025.  May 2024August 20, 2024
Firm and Engagement MetricsSubject to approval by the SEC, the final rules and reporting forms would take effect on October 1, 2027 with a phased implementation period as follows:

Firm-level metrics reporting:

  • Firms that issued audit reports with respect to more than 100 issuers in 2027 – first reporting as of September 30, 2028 with Form FM due by November 30, 2028; and
  • All other firms reporting would be as of September 30, 2029 with Form FM due by November 30, 2029.
Engagement-level metrics reporting 35 days after issuance of the auditor’s report:
  • Firms that issued audit reports with respect to more than 100 issuers in 2026 - for audits of companies with fiscal years beginning on or after October 1, 2027; and
  • All other firms – for audits of companies with fiscal years beginning on or after October 1, 2028.
November 2024Withdrawn

To access Recently Completed Projects, click here. 

Short-term Standard-setting Projects

Project
Effective Date
Date of Board Adoption
Date of SEC Approval
Attestation Standards Update
Consider the requirements in the interim attestation standards in connection with the PCAOB’s interim standards project.
Proposal
2026*
Going Concern
Consider the auditor’s evaluation and reporting of a company’s ability to continue as a going concern in response to changes in financial reporting, the auditing environment, and stakeholder needs, including by considering how AS 2415, Consideration of an Entity's Ability to Continue as a Going Concern, should be revised.Proposal
2026*
Substantive Analytical ProceduresConsider changes to an auditor’s use of substantive analytical procedures to better align with the auditor’s risk assessment and to address the increasing use of technology tools in performing these procedures, including whether to revise AS 2305, Substantive Analytical Procedures.Adoption
2026*
Noncompliance with Laws and Regulations
Consider changes to an auditor’s consideration of possible noncompliance with laws and regulations including how AS 2405, Illegal Acts by Clients, should be revised to integrate a scalable, risk-based approach that takes into account recent developments in corporate governance and internal control practices.
TBD (pending further analysis)
2026*
InventoryConsider updates to AS 2510, Auditing Inventories, in connection with the Interim Standards project to reflect changes in the auditing environment.
Proposal
2026*
Auditor Reporting in Specified CircumstancesConsider updates to AS 3105, Departures from Unqualified Opinions and Other Reporting Circumstances, and other interim standards in the AS 3300 series.Proposal2026*  

To access Short-Term Standard-Setting Projects, click here 

*Updated by BDO to 2026

Mid-term Standard-setting Projects

Project
Project Description
Use of a Service Organization
Consider how AS 2601, Consideration of an Entity’s Use of a Service Organization, should be amended to reflect changes in how companies use services of third parties that are relevant to the company’s own internal control over financial reporting and developments in practice. 
Fraud
Consider how AS 2401, Consideration of Fraud in a Financial Statement Audit, should be revised to better align an auditor’s responsibilities for addressing intentional acts that result in material misstatements in financial statements with the auditor’s risk assessment, including addressing matters that may arise from developments in the use of technology. 
Interim Ethics and Independence Standards
In connection with the PCAOB’s interim standards project, consider whether existing obligations of PCAOB registered firms and their associated persons should be enhanced and updated to better promote compliance through improved ethical behavior and independence.
Internal Audit
Consider updates to AS 2605, Consideration of the Internal Audit Function, in connection with the Interim Standards project to reflect changes in the auditing and reporting environment.
Interim Standards
Consider whether the remaining “interim” standards, as adopted upon the establishment of the Board, should be amended, replaced, or eliminated, as appropriate. As part of this analysis, evaluate which standards are necessary to retain and, of those, which should be retained with minimal updates, and which require more significant changes. Separate projects, including requests for comment on potential standards to eliminate, will be added to the standard-setting agenda as the staff completes its analysis.
Interim Financial Information Reviews
Consider updates to AS 4105, Reviews of Interim Financial Information, in connection with the Interim Standards project to reflect changes in the auditing and reporting environment.
Subsequent Events and Other Matters Arising After the Date of the Auditor’s Report
Consider updates to interim standards that address auditor responsibilities related to (i) certain events occurring between the balance sheet and the auditor’s report date and (ii) certain matters arising after the auditor’s report date, such as subsequently discovered facts and reissuance of the auditor’s report. This project considers updating AS 2801, Subsequent Events, AS 2905, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report, and certain other interim standards.

To access Mid-term Standard-setting Projects, click  here

Research Projects

Project
Project Description
Data and Technology
Assess whether there is a need for guidance, changes to PCAOB standards, or other regulatory actions considering the increased use of technology-based tools by auditors and preparers. This includes evaluating the role technology innovation plays in driving audit quality. Research from this project may give rise to individual standard-setting projects and may also inform the scope or nature of other projects that are included on the standard-setting agenda.
Communication of Critical Audit Matters
The project seeks to understand why there continues to be a decrease in the average number of critical audit matters (CAM) reported in the auditor’s report over time and whether there is a need for guidance, changes to PCAOB standards, or other regulatory action to improve such reporting, including the information that is provided as part of the CAM reporting. The staff continues to conduct research, taking into account recent insights shared by the Investor Advisory Group.
To access Research Projects, click here

Rulemaking Projects

Project
Project Description
Next Board Action
Date of SEC Approval
Contributory Liability
Consider changes to the Board’s ethics rule, PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations. 
Adopted June 2024
August 20, 2024
Registration
Consider changes to enhance the PCAOB’s registration program.
Adopted November 2024
January 2, 2025
Firm ReportingConsider changes to audit firm reporting requirements including periodic reporting requirements, special reporting requirements, and other enhancements to the audit firm reporting framework.
Adopted November 2024
Withdrawn

To access Rulemaking projects, click here

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