Accounting

PCAOB ramps up enforcement as it faces possible shutdown

Published

8 hours ago

February 26, 2025

The Public Company Accounting Oversight Board increased its enforcement activity in 2024 to its highest level since 2017, according to a new report, even as the PCAOB faces the prospect of perhaps being absorbed in the Securities and Exchange Commission.

The report, released Wednesday by Cornerstone Research, found that monetary penalties levied by the PCAOB reached their highest for the third consecutive year. The report also compares PCAOB enforcement activity under President Biden to President Trump’s first term.

The report found the PCAOB publicly disclosed 51 total enforcement actions, including 40 actions involving the performance of an audit. Most of these actions came in the first half of the year, with only 10 auditing actions finalized after the Supreme Court ruled against the use of administrative law judges in SEC v. Jarkesy. At $35.7 million, the number of total monetary penalties in 2024 marked a 78% increase over 2023 and represented nearly 40% of all monetary penalties imposed since the PCAOB’s inception.

“The PCAOB continued aggressive enforcement in 2024, finalizing 30 auditing actions in the first half of 2024, more than triple the number of actions finalized in the first half of 2023,” said Jean-Philippe Poissant, one of the report’s co-authors and co-head of Cornerstone Research’s accounting practice, in a statement. “In one in five auditing actions, the PCAOB alleged violations of not only auditing standards, but quality control standards and ethics and independence, as well.”

The report compares PCAOB enforcement under the Biden administration, and found that under the Biden administration, the PCAOB finalized 160 total actions, including 124 auditing actions, compared to 126 and 101, respectively, under the Trump administration. The total value of the monetary penalties imposed were nearly seven times higher during the Biden administration, reaching approximately $68 million, compared to just over $10 million during the first Trump administration.

“The type of respondents in enforcement actions shifted from a majority of individual respondents during the Trump administration to a near even split between individual and firm respondents during the Biden administration,” said Russell Molter, a principal at Cornerstone Research and report coauthor, in a statement. “Additionally, the percentage of respondents fined in Auditing Actions climbed from a little over half (59%) to nearly all respondents (94%).”

With 2024 marking the 20th year since the PCAOB finalized its first enforcement action, the report also analyzed the agency’s enforcement results in the past two decades. In these 20 years, the PCAOB finalized 487 total actions involving 675 respondents, the majority of which (344) were individuals. The PCAOB has imposed $94 million in monetary penalties since its inception.

Changes at the PCAOB and SEC

The report’s release coincides with new concerns over the future of the PCAOB under the Trump administration, which has been laying off thousands of federal employees as part of a cost-cutting initiative, while moving to all but close down agencies such as the Consumer Financial Protection Bureau and the U.S. Agency for International Development. The aggressive work of the PCAOB has occurred under PCAOB chair Erica Williams who was brought in by former SEC chair Gary Gensler with a mandate to get tougher on auditing firms and ramp up inspections, enforcement and standard-setting. The Heritage Foundation’s Project 2025 planning document that was circulated prior to Trump’s election called for the PCAOB to be abolished, along with the Financial Industry Regulatory Authority, and said their regulatory functions should be absorbed into the SEC.

Trump has nominated Paul Atkins, a former SEC commissioner who was previously critical of the PCAOB, as the next chair of the SEC. That could prompt another wave of turnovers at the board, as occurred during the previous Trump administration and the Biden administration.

“As it relates to the PCAOB and the SEC, I think there’s been a lot of projection, a lot of hypotheses or predictions that the PCAOB would be folded into the SEC based upon prior views of the administration or Chairman Atkins,” said Andrew Gragnani, president of CBIZ CPAs P.C. “That leads to a lot of questions regarding the nature and timing of inspections, the nature and timing of funding, etc. It does not change the need to continue to perform high-quality audits. We’re not planning that there will be wholesale changes to the inspection process. I don’t think that’s a healthy way to look at how this will all play out, but there are changes that people have projected that would impact firms. I think the primary one that people are focused on with the administration is the view that there’ll be less enforcement activity, so that obviously would be one that would be most significant to the firms, given that the PCAOB, under Chairman Williams, has been very active in their enforcement against firms for inspections. That might be the most meaningful change if there was to be this folding of the PCAOB into the SEC. That’s the one major expectation from the administration that has been anticipated.”

Dan Goelzer, one of the original members of the PCAOB and later an acting chair, recently told Accounting Today that a change in the composition of the board is likely.

“I suppose it’s probably pretty likely that there will be maybe a complete change in the membership of the board,” said Dan Goelzer, one of the original members of the PCAOB and later an acting chair. “That happened both of the last times around when there was a change in administration. I don’t really say that with any pleasure. I’d rather see a less political PCAOB. But as a practical matter, I certainly think the new SEC would look to change the chair of the PCAOB — I suppose that’s quite likely at least — and some of the other board members as well.”

There may be a restructuring of the PCAOB as well, along with its possible absorption into the SEC. “The other big picture issue is whether broad efforts to restructure or streamline the government are going to include the idea of folding the PCAOB into the SEC,” said Goelzer. “That came up during the prior Trump administration and was actually proposed in one of Trump’s budgets, and it’s in the Heritage Foundation report. I suspect that will come up as a discussion item, at least. Whether it would actually make it through Congress is far from clear.”

The SEC has overhauled the membership of the PCAOB under Gensler, and during the Trump administration under former SEC chair Jay Clayton, but there were some differences.

“I do think there’s a distinguishing factor with Jay Clayton in that most, if not all, of the PCAOB board members at that time were serving on expired terms, which was different from four years later, when Gary Gensler was the chair,” said Center for Audit Quality CEO Julie Bell Lindsay.

She believes effective oversight of the audit profession requires impartiality without political considerations. “The pendulum swinging back and forth every four years is not good,” said Bell Lindsay. “It’s not conducive for long-term audit quality. It’s not conducive to market efficiency and to stability of the capital markets. We would like to avoid the pendulum swinging every four years.”

She pointed out that both the SEC and the PCAOB have enforcement authority over auditors.

“With respect to enforcement over the public company audit profession, there are two cops on the beat,” said Bell Lindsay. “Both the PCAOB and the SEC have enforcement authority when it comes to public company auditors. Where there are bad actors, bad actors need to be held to account. The pendulum has swung pretty far in one direction, and there have been some concerns about the impact of the current enforcement thinking when it comes to retention of talent in the audit profession. This is not a profession that is necessarily bursting at the seams with new talent coming in, so the impact on talent and on public company audit firms wanting to stay in the business of auditing public companies. I think it’s really important to remember that at least 75% of the mid to small cap companies in the U.S. are serviced by mid to small size public company audit firms. A huge swath of the marketplace is serviced by small to mid sized public company auditors, and the impact that standard-setting, enforcement, etc can have on those firms can have unintended consequences.”

Goelzer is seeing similar concerns expressed at small auditing firms. “I’ve certainly heard people say that smaller firms are reconsidering whether they want to be engaged in public company auditing,” he said. “If you only have a handful of public company clients, you look at these penalties and the cost of complying with new auditing standards and regulations, firms may well conclude that they’ll simply leave this space and concentrate on private company auditing or other kinds of services for clients that has a spillover effect than on smaller public companies, which have less auditor choice, and probably increased audit fees as a result.”

The PCAOB board composition is likely to change at the very least. “If you think back to the previous administration, there was a complete overhaul of the board last time around, and we expect that there will be a similar reaction to the regime change,” said Jackson Johnson, president of Johnson Global Advisory, a Washington, D.C.-based firm that helps auditing firms navigate the PCAOB inspection process. “I do expect that the majority of the board will be replaced.”

He expects to see the SEC and the PCAOB taking a less aggressive stance and levying fewer penalties. “The current board’s priorities were to use enforcement as a regulatory tool, more standards and more enforcement,” said Johnson. “The next board will be quite different. The next board will be a more collaborative mindset with firms, more information gathering with stakeholders, more economic analysis to inform standard setting, more robust economic analysis to inform standard setting.”

Accounting

Guide to the saver’s match for financial advisors

Published

2 hours ago

February 26, 2025

Business Finance News

Tens of millions of lower-income retirement savers could soon get up to $1,000 in matching contributions toward their nest eggs each year — but they’ll need financial advisors’ help.

That’s the key takeaway from a report last month by The Morningstar Center for Retirement & Policy Studies and interviews with four experts about the “saver’s match” program, which is a provision of the sweeping 2022 Secure 2.0 retirement law that’s slated to take effect in 2027. As the replacement for the current “saver’s credit,” the match provides up to 50% in annual matching contributions from the federal government on the first $2,000 flowing into a saver’s retirement account for those with modified adjusted gross income of $35,500 or less for individuals or a maximum of $71,000 for couples.

Financial advisors often focus on high net worth clients whose wealth stretches far beyond that eligibility. However, they also frequently work with clients whose businesses sponsor employer retirement plans that must adjust their systems and raise workers’ awareness to enable them to fully tap into their benefits. Many firms and advisors also regularly participate in pro bono planning that aids people of any means with volunteer services. Amid persistent racial disparities in retirement savings and the continuing flow of Secure 2.0 provisions taking effect across the retail wealth management industry, professionals will play a pivotal role in ensuring that the saver’s match reaches its potential to boost millennial and Generation Z nest eggs by a mean of 12%, the report said.

“The impact is intuitively the biggest when people are changing their behavior, taking full advantage,” said Spencer Look, an associate director of retirement studies with Morningstar’s retirement center and co-author of the report. “There could be a big impact if we do that well as an industry and we implement this well.”

Advisors, employers and other parts of the 401(k) and retirement-savings ecosystem require some time to “not only to get the infrastructure, the plumbing in place,” but try to “target the potentially eligible participants in their plans and make sure they understand this is free money to them,” said Jack VanDerhei, the director of retirement studies with Morningstar’s retirement center and the other co-author of the study. For example, some of the eligible workers who aren’t currently 401(k) plan participants may need to set up their first individual retirement account in order to receive the government matching contributions. At the very least, advisors should know that the saver’s match and other parts of Secure 2.0 are “certainly going to influence the entire landscape going forward,” VanDerhei said.

“It’s a given that, if the 2017 tax modifications are going to be salvaged in 2025, a number of retirement situations will come into play as far as taking looks at things like mandatory Rothification,” he said. “This is something that’s already been put in place and is going to be perceived by many as being a big help in terms of some of the retirement gaps going forward.”

What the study found

The current saver’s credit has reached fewer than 6% of filers due to design shortcomings like the requirement that they have an income-tax liability and a lack of knowledge among eligible savers, Morningstar’s report said. The researchers found “reasons to believe that the saver’s match will be more effective than the saver’s credit,” including the facts that savers will no longer be obligated to have federal income tax liability, that the money “will be directly deposited into their retirement accounts — a more tangible benefit that could encourage greater participation,” and that the law instructs agencies such as the Treasury Department to promote it, they wrote.

“That said, the success of the saver’s match will largely depend on how effectively it is implemented,” Look and VanDerhei wrote. “To maximize impact, the government and retirement industry should reduce barriers and minimize savings friction wherever possible, within limits. Clear and accessible communication and education — including an awareness campaign — are also critical to ensure qualified individuals understand and use the program effectively.”

The maximum match of $1,000 on top of the first $2,000 in retirement savings each year will go to taxpayers with modified adjusted gross income of $20,500 or less as individuals, $30,750 or lower for heads of households and as much as $41,000 among couples. For those with higher modified adjusted gross income, the matching contributions phase out at respective levels of $35,500, $53,250 and $71,000. Among millennials and Gen Z savers, roughly 49% of Hispanic households, 44% of Black Americans, 29% of white taxpayers and 26% of other racial and ethnic groups will qualify for some level of matching contributions.

Using census data on those generations in terms of gender, marriage status and race and a simulation model called the “Morningstar Model of U.S. Retirement Outcomes,” Look and VanDerhei predicted that single women’s wealth at retirement could jump 13%, that of Black savers could grow 15% and Hispanic households could surge by 12%. Those figures assume that they get the highest matching contribution in 2027 and retire when they’re 65 years old, and that the program spurs more people to open retirement accounts and save more in order to take advantage. But even without behavioral changes, the saver’s match could boost the generations’ retirement nest eggs by 8%.

“When looking at the results from different demographic perspectives, we found that single women, non-Hispanic Black Americans and Hispanic Americans see greater benefits compared with other groups,” Look and VanDerhei wrote. “Moreover, our results show that workers in industries with a higher risk of running short of money in retirement are projected to experience a more significant increase in their retirement wealth under the new program.”

Help needed

The match necessitates “buy-in from everyone” across employees, employers, advisors, recordkeepers and governments, plus ample financial wellness education, according to Pam Hess, the executive director of the Defined Contribution Institutional Investment Association’s Retirement Research Center, which has worked on prior research about the potential impact of the saver’s match as part of a joint effort with the Morningstar center and the Aspen Institute Financial Security Program called the Collaborative for Equitable Retirement Savings. In addition, the findings of the latest study explain why more employers are considering how they could provide emergency savings, paycheck advances or low-interest loans, she said.

“Peoiple need help meeting their short-term financial struggles,” Hess said. “Employers are coming up with other solutions to help their workforce. You put those together with the saver’s match, and it could be really meaningful.”

Until the policy starts in 2027, advisors could get a head start by trying to increase the number of households using the existing credit, according to Catherine Collinson, CEO and president of the nonprofit Transamerica Institute and its division Transamerica Center for Retirement Studies, which found in a survey earlier this month that only 51% of workers are aware of the saver’s credit. The match “essentially reimagines and replaces and takes the saver’s credit to the next level, and the saver’s credit is available right now,” she said.

“Most people don’t wake up in the morning thinking about taxes everyday, unless it’s April 14 — the day before everything is due,” Collinson said, noting that many people also push back on the idea that they are among the “low-to-moderate income retirement savers” eligible for the credit. “The general public does not relate to that messaging, so this is where it’s so critical for financial advisors who can help to get the word out.”

More ways to get involved

On the other side of the equation, the sponsors and recordkeepers could use a nudge from the advisors to ensure they’re giving the employees the means to get the biggest match “systematically, in a way that is doable and viable,” Hess said. Right now, many employers simply don’t “have all the information they need to know who’s eligible and who’s not,” based on their modified adjusted gross income, she noted.

“We know that engaging employees is really hard — getting that connection is increasingly hard in a noisy world,” Hess said. “First you have to figure out who qualifies, and then you have to get the dollars from the government into that account, which is not a connection that’s in place today.”

Advisors’ expertise could overcome some further barriers to participation based on the continuing problems that “there’s still a major trust issue going on any time the government gets involved” and some people may not understand how to open an IRA, VanDerhei said. They’ll also be able to point out that the match would benefit “a lot of people” to a certain extent, so it’s not just for those of the lowest means, Look said.

“Pro bono work, volunteering to help educate and talk through with people in the community who may be eligible is very, very important,” he said.

Accounting

GASB posts report on fair value standard

Published

3 hours ago

February 26, 2025

Business Finance News

The Governmental Accounting Standards Board today published a post-implementation review report on GASB Statement No. 72, Fair Value Measurement and Application.

The report, issued by GASB staff, says the fair value standard met the three PIR objectives: The standards accomplish their stated purpose, costs and benefits are in line with expectations, and the Board followed its standard-setting process.

The report concludes that Statement 72 resolved the underlying need for the statement, which involved valuation issues from a financial reporting perspective. It also concludes that the statement was operational and its application provides financial-report users with decision-useful information such as fair value measurements used in the analysis of governmental financial information and fair value-related disclosures.

Statement 72 is eligible to undergo more extensive PIR procedures, culminating in a final report.

Accounting

CohnReznick gets PE investment from Apax

Published

4 hours ago

February 26, 2025

Business Finance News

CohnReznick, a Top 25 Firm based in New York, is the latest accounting firm to receive a private equity investment, in this case from funds advised by Apax Partners, a private equity investment advisory firm also based in New York.

This represents the first institutional investment in CohnReznick. The firm plans to use the extra funding to accelerate its growth strategy, deliver more client services and attract talent. Apax will support CohnReznick in expanding service lines, developing technology for client solutions, entering new markets, developing talent and advancing its existing tech platform to drive further innovation and efficiency. Apax also plans to support CohnReznick in pursuing a targeted acquisitions strategy to further grow its client base. CohnReznick was the result of a merger in 2012 between JH Cohn and Reznick Group.

CohnReznick has over 5,000 global employees and more than 350 partners in 29 offices across the U.S. It earned $1.12 billion in revenue in fiscal year 2025. It ranked No. 16 on Accounting Today‘s 2024 list of the Top 100 Firms. The firm has clients in a variety of industries, including real estate, financial services and financial sponsors, private client services, consumer, manufacturing, renewable energy and government advisory.

“Our partnership with Apax is a milestone moment in CohnReznick’s history,” said CohnReznick CEO David Kessler in a statement Wednesday. “We have consistently delivered strong growth and cemented our position in the mid-market, thanks to our best-in-class talent, industry expertise, and comprehensive service offerings. This strategic investment from the Apax Funds will help us continue on our growth trajectory, expanding our solutions and geographic presence to meet client needs while continuing to create exciting career growth for our people. We were impressed by the Apax team’s track record in the professional services sector and their experience in driving operational excellence in complex businesses like ours, while continuing to create a best-in-class experience for employees and clients.”

Once the transaction closes, CohnReznick will operate in an alternative practice structure, as has become common with private equity funding of accounting firms CohnReznick LLP, a licensed CPA firm, will be led by Kelly O’Callaghan as CEO and provide attest services. CohnReznick Advisory LLC (which will not be a licensed CPA firm) will provide tax, advisory and other non-attest services, and will be led by Kessler as CEO.

“Over the past two years, we have built a strong relationship with the CohnReznick team and have been deeply impressed by the company’s culture, vision, and the consistent growth they have achieved,” Ashish Karandikar, a partner at Apax Partners, said in a statement. “We are excited to partner with David and the firm’s leadership team to fuel the next phase of growth. Together, we aim to accelerate service line expansion, explore new geographic opportunities, and drive innovation. We look forward to what we are confident will be a highly successful and rewarding partnership.”

Apax was advised by Guggenheim Securities, LLC and CohnReznick was advised by William Blair & Company, LLC. Koltin Consulting Group served as an additional financial advisor to both Apax and CohnReznick.

“It was love at first sight,” Allan Koltin, CEO of Koltin Consulting Group, said in a statement. “I can’t recall two firms and their leaders culturally and strategically aligning as fast as they did. When one side talked, the other side finished the sentence. No question in my mind, this combination will produce one of the next $2 billion firms in the accounting profession, but more importantly produce a lot of successful people and clients along the way.”