Helping clients meet their business challenges begins with an in-depth understanding of the industries in which they work. That’s why KPMG LLP established its industry-driven structure. In fact, KPMG LLP was the first of the Big Four firms to organize itself along the same industry lines as clients.

How We Work

We bring together passionate problem-solvers, innovative technologies, and full-service capabilities to create opportunity with every insight.

Learn more

Careers & Culture

What is culture? Culture is how we do things around here. It is the combination of a predominant mindset, actions (both big and small) that we all commit to every day, and the underlying processes, programs and systems supporting how work gets done.

Learn more

Q1 2023 Financial reporting and auditing update

A quarterly update for audit committees on accounting and financial reporting developments, including SEC matters and an ESG reporting update.

Current quarter financial reporting matters 

A global deal has been reached to ensure that certain multinational companies pay a new global minimum top-up tax of at least 15% of income in each jurisdiction in which they operate. The tax is intended to level the playing field for more even profit distribution globally.

While the SEC has a packed regulatory agenda for the remainder of 2023, including the highly anticipated climate and cybersecurity rules and a rule proposal on human capital (all targeted for April), the first quarter was fairly quiet for rulemaking. However, the SEC’s new “compensation clawback rules”—issued October 2022—are gaining attention as companies plan for implementation.

Companies should also continue to monitor for macroeconomic trends and events and consider their potential impacts on financial reporting and disclosure.

Monitoring for impacts of economic uncertainty on accounting and financial reporting

Our January Directors Quarterly highlighted various areas of financial reporting that are frequently affected by economic uncertainty, such as threats of a potential recession, rising interest rates, inflation, pressure in the banking sector, and geopolitical events. As companies look ahead to 2023, it is important for them to remember that the economic impacts of these macroeconomic trends and events continue to evolve rapidly and should be monitored.

Companies are encouraged to revisit their disclosures and maintain close communications with their boards of directors, audit committees, external auditors, legal counsel, and other service providers as the circumstances develop.

Accounting for the global minimum tax

The Organisation for Economic Cooperation and Development (OECD) continues to implement the Base Erosion and Profit Shifting 2.0 framework, an international tax reform initiative designed in part to address concerns over uneven profit distribution. Its release of model rules in December 2021 provides a template for countries to implement a top-up tax on profits, known as the “global anti-base erosion” (GloBE) rules. 

The GloBE rules subject large multinational enterprises with consolidated group revenue exceeding €750 million in at least two out of the last four years to a minimum tax of 15% on income arising in each jurisdiction in which they operate. The 15% minimum tax is enforced through a set of top-up tax rules.

Because the GloBE top-up tax is based on financial statement net income with certain adjustments, it is in the scope of Topic 740 (income taxes). At the February 1 Board meeting, the FASB staff stated its view that the GloBE top-up tax is an alternative minimum tax (AMT). As the GloBE top-up tax is an AMT, companies will not record GloBE-specific deferred taxes or remeasure existing deferred taxes under local regular income tax systems to the GloBE rate. Instead, they will recognize the incremental effect of the GloBE top-up tax as incurred. Further, companies are not required to consider the GloBE top-up tax in their valuation allowance determinations.

Companies should consider whether to include disclosures related to the GloBE top-up tax in management’s discussion and analysis.

ESG reporting update

SEC regulatory update

On January 4, the SEC released its updated regulatory agenda, which lists April 2023 for action on its final climate and cybersecurity rules as well as its human capital disclosure proposal. However, the SEC’s diligence process is extensive, and the SEC is not bound by this timeline.

SEC examination priorities

In February, the SEC’s Division of Examination announced its 2023 examination priorities. In its press release, it indicated a continued focus on ESG-related advisory services and funds, including whether funds are operating as disclosed and products identified as “ESG” are appropriately labeled.

Our January Directors Quarterly discussed key themes emerging from the continued probing of climate-related disclosures by staff from the Division of Corporation Finance. We expect the staff to continue asking questions about climate-related disclosures, and recommend that companies use the illustrative comment letter issued by the staff in September 2021 to help them prepare for potential questions.

ISSB developments

In February, the ISSB made its last major decisions before finalizing the first two standards on (1) general sustainability-related matters, and (2) climate-related matters.

It confirmed that the effective date of the standards will be January 1, 2024, subject to adoption by local jurisdictions. There will be some transition options available—including relief from disclosing comparative information and Scope 3 greenhouse gas emissions. 

In a supplementary meeting held in April, the ISSB agreed to relief that would allow companies to adopt a “climate-first” approach. Under the relief, companies will have the option of reporting only on climate-related risks and opportunities in the first year of application while still claiming compliance with IFRS Sustainability Disclosure Standards.

Final ISSB standards are expected in June 2023.

EU developments

The European Financial Reporting Advisory Group’s (EFRAG’s) first set of draft ESRSs was sent to the European Commission (EC) for approval in November 2022. As part of its own due process, the Commission will have its own short public consultation after receiving feedback from 10 regulatory bodies. Final approval of the standards is expected by June 30, 2023.

EFRAG’s second set of draft ESRSs was expected to include sector-specific standards. However, in late March 2023, the Commission called on EFRAG to prioritize efforts on implementation of the first set of standards ahead of developing sector-specific standards, which are now delayed for an indefinite period. For the same reason, EFRAG has deprioritized the standards for non-EU parents, which will apply from 2028 (for reporting in 2029).

Greenhouse gas (GHG) emissions reporting

While the forthcoming climate-related disclosure requirements of the SEC, ISSB, and EU are different in a number of ways, they share a common anchor: GHG emissions. Our new Handbook, GHG emissions reporting, provides an introductory explanation of emissions reporting (based on the GHG Protocol).

Climate risk in the financial statements

Climate risk continues to dominate current ESG headlines with a focus on next steps from the SEC, ISSB, and EU. But the question of how climate risk affects the financial statements—absent climate-specific U.S. GAAP requirements—has been harder to pin down.

Transactions linked to emissions reductions are also increasing—including arrangements with carbon credits and emissions-linked compensation—testing the application of U.S. GAAP in cases where there might not be explicit guidance.

These factors raise the importance of understanding how climate risk might manifest in a company’s financial statements based on its specific facts and circumstances.

See the KPMG Handbook: Climate risk in the financial statements.

SEC compensation clawback rules—recent developments

In October 2022, the SEC issued new Exchange Act Rule 10D-1, which directs the national securities exchanges to establish listing standards that require issuers to develop, implement, and disclose a compensation recovery policy that “claws back” incentive-based compensation paid to executive officers when an accounting restatement changes financial performance measures that would have affected the amount of the compensation.

Specifically, the recovery policy must be triggered when an issuer is required to prepare an accounting restatement that corrects an error in previously issued financial statements:

  • that is material to the previously issued financial statements (i.e., “Big R” restatements); or 
  • that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period (i.e., “little r” restatements).

Also see Implementing compensation clawback requirements.

New listing standards

In response to the requirements of the final rules, on February 22, 2023, the national exchanges (NYSE and Nasdaq) released proposed listing standards intended to meet the minimum requirements of the clawback rules. The listing standards closely align to the applicable text in the final rules and outline existing and amended delisting proceedings in the event that an issuer does not implement or comply with its recovery policy. The proposed listing standards for the NYSE and Nasdaq provided a comment period that ended April 3, 2023. The SEC will review the proposed listing standards and must approve the final standards no later than November 28, 2023. Listed entities will need to adopt recovery policies that comply with the final listing standards within 60 days of that effective date.

For more detail about these and other issues potentially affecting you in the current period or near term, see the KPMG Q1 2023 Quarterly Outlook.

Receive the latest insights from the Board Leadership Center

Sign up to receive Board Leadership Weekly and Directors Quarterly

Thank you

Thank you for subscribing. We're excited to welcome you to our community. You can now look forward to the latest news, trends, upcoming events, and thought leadership delivered directly to your inbox.

Subscribe to insights from KPMG Board Leadership Center

Board Leadership Weekly - A weekly email providing the latest news, trends, upcoming events, and thought leadership focused on the board and C‑suite from KPMG, the BLC, and other leading sources. 

Directors Quarterly - A compilation of articles, insights, and upcoming events.

Select publications you want to receive and any topics of interest below. Select all that apply.

By submitting, you agree that KPMG LLP may process any personal information you provide pursuant to KPMG LLP's Privacy Statement.

An error occurred. Please contact customer support.

Thank you!

Thank you for contacting KPMG. We will respond to you as soon as possible.

Contact KPMG

Use this form to submit general inquiries to KPMG. We will respond to you as soon as possible.

By submitting, you agree that KPMG LLP may process any personal information you provide pursuant to KPMG LLP's Privacy Statement.

An error occurred. Please contact customer support.

Job seekers

Visit our careers section or search our jobs database.

Submit RFP

Use the RFP submission form to detail the services KPMG can help assist you with.

Office locations

International hotline

You can confidentially report concerns to the KPMG International hotline

Press contacts

Do you need to speak with our Press Office? Here's how to get in touch.