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The future of group audits: Embracing technology and adapting to change

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In today’s globalized business landscape, with ever-increasing regulatory scrutiny, group audits have become increasingly complex. Emerging technologies are revolutionizing the group audit process with solutions to navigate the complexities and enhance audit quality.

With multiple entities, diverse operations and vast data sets to contend with, auditors face a daunting task in ensuring the accuracy and integrity of financial statements across the group. However, the rapid advancement of technology presents a powerful ally to auditors, offering game-changing solutions that are revolutionizing the group audit process.

What is a group audit?

A group audit is an audit of financial statements that includes the financial information of more than one component or entity. A group is made up of a parent entity and its subsidiaries, associates, joint ventures and any other entities whose financial information is included in the group’s consolidated financial statements.

Group audits are complex due to the diverse nature of the components, different geographical locations, varying legal and regulatory environments, and the need for effective communication and coordination among multiple teams. Auditors must carefully plan and execute group audits to obtain sufficient and appropriate audit evidence to support their opinion on the group’s consolidated financial statements.

Centralized data management

One of the biggest challenges in group audits is managing data from multiple sources across various entities. Traditional data extraction, consolidation and reconciliation methods are time-consuming and prone to errors. However, automation and data analytics tools offer a streamlined solution by centralizing data management and providing a unified view of the group’s financial information.

Robotic process automation can seamlessly extract and consolidate data from different systems and locations, ensuring consistency and accuracy across the group. Advanced analytics tools can then analyze this centralized data, identifying patterns, anomalies and potential risks that may have been overlooked through manual processes. This centralized approach enhances efficiency and provides auditors with a comprehensive understanding of the group’s financial position, enabling more informed decision-making.

AI-powered risk assessment and fraud detection

Assessing risk and detecting fraud across multiple group entities can be a daunting task, mainly when dealing with vast amounts of data. However, artificial intelligence is proving to be a powerful ally in this task. AI-powered tools can analyze vast data sets, identify suspicious transactions, and generate risk profiles for each entity within the group.

By leveraging machine learning algorithms, these tools can continuously adapt and refine their risk assessment and fraud detection capabilities, ensuring auditors are always ahead of the curve. Additionally, natural language processing can be used to analyze unstructured data, such as contracts and agreements, further enhancing the auditor’s ability to identify potential risks and red flags across the group.

Blockchain and continuous auditing

Blockchain technology offers a new way to improve group audits, making them more secure and open. Blockchain supports auditors checking transactions as they happen instead of reviewing them later. The approach, called “continuous auditing,” where financial activities are examined in real-time or very soon after they occur, differs from traditional auditing methods, where checks are done periodically, often annually.

The ongoing approach behind continuous auditing makes auditing faster and gives everyone involved a clearer view of what is happening, especially valuable in group audits. Because blockchain records can’t be changed once they’re made, auditors can rely less on manual checks, feel more confident that the financial information is correct, and can be relied upon across the entire group.

Regulatory compliance and legal considerations

As technology continues to reshape the auditing profession, governments and regulatory agencies are taking notice. With changing professional standards and increased scrutiny, auditors must stay ahead of evolving regulations to ensure compliance across the group.

The Security and Exchange Commission recently approved the Public Company Accounting Oversight Board’s amendments to two auditing standards, AS 1105, Audit Evidence, and AS 2301, The Auditor’s Responses to the Risks of Material Misstatement. These amendments address audit procedures, by specifying and clarifying “auditors’ responsibilities when the auditor uses [technology-assisted data analytics] tools in conducting audits.”

The PCAOB stated in a release that these amendments should help reduce an auditor’s reluctance to use technology-assisted analysis under existing auditing standards by clarifying auditor responsibilities in using reliable information in audit procedures and audit evidence for multiple purposes in addition performing tests of details.

In approving the PCAOB’s amendments, the SEC said the changes would modernize audit standards, address technological advancements in auditing, and align liability standards with other professional conduct standards. The updates are intended to enhance audit quality, increase investor protection and instill greater trust in financial markets.

Failure to adhere to these and other existing and evolving standards can result in significant fines and potential legal liabilities for audit firms and individual auditors. Regulatory bodies are increasingly utilizing advanced technologies, such as AI and data analytics, to uncover errors and deficiencies in group audits, making it imperative for auditors to prioritize compliance and implement best practices across the group.

Talent acquisition and skill development

The digital transformation of group audits demands a paradigm shift in auditors’ skill sets. While traditional accounting and auditing knowledge remains essential, auditors must also possess technical skills in areas such as data analysis, coding and cybersecurity.

To meet this demand, audit firms are actively recruiting candidates with diverse backgrounds, including data scientists, engineers and computer science graduates. In addition to heavily investing in technology, firms are focusing on upskilling and continuous learning programs to ensure existing auditors have what it takes to meet the transformational changes occurring in the audit profession.

Furthermore, soft skills such as collaboration and communication remain crucial in navigating the complexities of group audits. Auditors must be able to share information across multiple entities effectively, communicate findings to stakeholders, and address the complex relationships within the group.

What’s ahead

New technologies and the more complex and stringent global regulatory environment demand a paradigm shift in how we approach the complexities of auditing multinational entities.

As we embrace centralized data management, AI-powered risk assessment, blockchain-enabled continuous auditing and other emerging technologies, auditors are not just enhancing efficiency — we are fundamentally reimagining the audit process. These advancements offer unprecedented opportunities to improve accuracy, increase transparency and provide deeper insights into the financial health of complex organizations.

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Accounting

Inventory Management For Financial Accuracy and Operational Success

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Inventory Management

In the dynamic world of business operations, precise inventory management is more than a routine task—it is a critical factor in achieving financial accuracy and operational efficiency. Beyond simple stock tracking, accurate inventory recording plays a vital role in financial reporting, resource planning, and strategic decision-making. This article explores the essential practices for maintaining accurate inventory records and their profound impact on business performance.

At the heart of effective inventory management is the implementation of a real-time tracking system. By leveraging technologies such as barcode scanners, RFID tags, and IoT sensors, businesses can maintain a perpetual inventory system that updates stock levels instantly. This ensures accuracy, reduces the risk of stockouts or overstocking, and enables better forecasting and planning.

A standardized process for receiving, storing, and dispatching inventory is equally important. Documenting each step—from goods received to final distribution—establishes a clear audit trail, reduces errors, and minimizes the potential for discrepancies. Properly labeled and organized inventory not only saves time but also supports efficient workflows across departments.

Regular physical counts are essential for verifying recorded inventory against actual stock. Whether conducted through periodic cycle counts or comprehensive annual inventories, these audits help identify issues such as shrinkage, theft, or obsolescence. Combining physical counts with real-time systems ensures alignment and strengthens the accuracy of inventory records.

The use of inventory management software has transformed the way businesses maintain inventory data. Advanced systems automate data entry, provide centralized visibility across multiple warehouses or locations, and generate actionable analytics. Features like demand forecasting, low-stock alerts, and real-time reporting empower businesses to make informed decisions and optimize inventory levels.

Accurate inventory valuation is another cornerstone of sound inventory management. Businesses typically choose from methods such as First-In, First-Out (FIFO), Last-In, First-Out (LIFO), or the weighted average cost method. Selecting and consistently applying the appropriate method is essential for financial accuracy, tax compliance, and reflecting inventory flow in financial statements.

Inventory management also has direct implications for financial reporting, tax preparation, and securing business financing. Reliable inventory records instill confidence in stakeholders, demonstrate operational efficiency, and support compliance with accounting standards and regulatory requirements. Additionally, precise data allows businesses to assess their inventory turnover ratio—a key metric for evaluating operational performance and profitability.

In conclusion, accurate inventory recording is a strategic imperative for businesses aiming to enhance financial precision and operational excellence. By adopting advanced technologies, implementing standardized processes, and conducting regular audits, companies can ensure their inventory records remain accurate and reliable. For business leaders and finance professionals, effective inventory management is not just about compliance—it is a powerful tool for driving profitability, improving resource allocation, and maintaining a competitive edge in the market.

Mastering inventory management creates a foundation for long-term success, allowing businesses to operate efficiently, make better decisions, and deliver consistent value to stakeholders.

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Accounting

New IRS regs put some partnership transactions under spotlight

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Final regulations now identify certain partnership related-party “basis shifting” transactions as “transactions of interest” subject to the rules for reportable transactions.

The final regs apply to related partners and partnerships that participated in the identified transactions through distributions of partnership property or the transfer of an interest in the partnership by a related partner to a related transferee. Affected taxpayers and their material advisors are subject to the disclosure requirements for reportable transactions. 

During the proposal process, the Treasury and the Internal Revenue Service received comments that the final regulations should avoid unnecessary burdens for small, family-run businesses, limit retroactive reporting, provide more time for reporting and differentiate publicly traded partnerships, among other suggested changes now reflected in the regs.

  • Increased dollar threshold for basis increase in a TOI. The threshold amount for a basis increase in a TOI has been increased from $5 million to $25 million for tax years before 2025 and $10 million for tax years after. 
  • Limited retroactive reporting for open tax years. Reporting has been limited for open tax years to those that fall within a six-year lookback window. The six-year lookback is the 72-month period before the first month of a taxpayer’s most recent tax year that began before the publication of the final regulations (slated for Jan. 14 in the Federal Register). Also, the threshold amount for a basis increase in a TOI during the six-year lookback is $25 million. 
  • Additional time for reporting. Taxpayers have an additional 90 days from the final regulation’s publication to file disclosure statements for TOIs in open tax years for which a return has already been filed and that fall within the six-year lookback. Material advisors have an additional 90 days to file their disclosure statements for tax statements made before the final regulations. 
  • Publicly traded partnerships. Because PTPs are typically owned by a large number of unrelated owners, the final regulations exclude many owners of PTPs from the disclosure rules. 

The identified transactions generally result from either a tax-free distribution of partnership property to a partner that is related to one or more partners of the partnership, or the tax-free transfer of a partnership interest by a related partner to a related transferee.

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The tax-free distribution or transfer generates an increase to the basis of the distributed property or partnership property of $10 million or more ($25 million or more in the case of a TOI undertaken in a tax year before 2025) under the rules of IRC Sections 732(b) or (d), 734(b) or 743(b), but for which no corresponding tax is paid. 

The basis increase to the distributed or partnership property allows the related parties to decrease taxable income through increased cost recovery allowances or decrease taxable gain (or increase taxable loss) on the disposition of the property.

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Treasury, IRS propose rules on commercial clean vehicles, issue guidance on clean fuels

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The Treasury Department and the Internal Revenue Service proposed new rules for the tax credit for qualified commercial clean vehicles, along with guidance on claiming tax credits for clean fuel under the Inflation Reduction Act.

The Notice of Proposed Rulemaking on the credit for qualified commercial clean vehicles (under Section 45W of the Tax Code) says the credit can be claimed by purchasing and placing in service qualified commercial clean vehicles, including certain battery electric vehicles, plug-in hybrid EVs, fuel cell electric vehicles and plug-in hybrid fuel cell electric vehicles.  

The credit is the lesser amount of either 30% of the vehicle’s basis (15% for plug-in hybrid EVs) or the vehicle’s incremental cost in excess of a vehicle comparable in size or use powered solely by gasoline or diesel. A credit up to $7,500 can be claimed for a single qualified commercial clean vehicle for cars and light-duty trucks (with a Gross Vehicle Weight Rating of less than 14,000 pounds), or otherwise $40,000 for vehicles like electric buses and semi-trucks (with a GVWR equal to or greater than 14,000 pounds).

“The release of Treasury’s proposed rules for the commercial clean vehicle credit marks an important step forward in the Biden-Harris Administration’s work to lower transportation costs and strengthen U.S. energy security,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo in a statement Friday. “Today’s guidance will provide the clarity and certainty needed to grow investment in clean vehicle manufacturing.”

The NPRM issued today proposes rules to implement the 45W credit, including proposing various pathways for taxpayers to determine the incremental cost of a qualifying commercial clean vehicle for purposes of calculating the amount of 45W credit. For example, the NPRM proposes that taxpayers can continue to use the incremental cost safe harbors such as those set out in Notice 2023-9 and Notice 2024-5, may rely on a manufacturer’s written cost determination to determine the incremental cost of a qualifying commercial clean vehicle, or may calculate the incremental cost of a qualifying clean vehicle versus an internal combustion engine (ICE) vehicle based on the differing costs of the vehicle powertrains.

The NPRM also proposes rules regarding the types of vehicles that qualify for the credit and aligns certain definitional concepts with those applicable to the 30D and 25E credits. In addition, the NPRM proposes that vehicles are only eligible if they are used 100% for trade or business, excepting de minimis personal use, and that the 45W credit is disallowed for qualified commercial clean vehicles that were previously allowed a clean vehicle credit under 30D or 45W. 

The notice asks for comments over the next 60 days on the proposed regulations such as issues related to off-road mobile machinery, including approaches that might be adopted in applying the definition of mobile machinery to off-road vehicles and whether to create a product identification number system for such machinery in order to comply with statutory requirements. A public hearing is scheduled for April 28, 2025.

Clean Fuels Production Credit

The Treasury the IRS also released guidance Friday on the Clean Fuels Production Credit under Section 45Z of the Tax Code.

Section 45Z provides a tax credit for the production of transportation fuels with lifecycle greenhouse gas emissions below certain levels. The credit is in effect in 2025 and is for sustainable aviation fuel and non-SAF transportation fuels.

The guidance includes both a notice of intent to propose regulations on the Section 45Z credit and a notice providing the annual emissions rate table for Section 45Z, which refers taxpayers to the appropriate methodologies for determining the lifecycle GHG emissions of their fuel. In conjunction with the guidance released Friday, the Department of Energy plans to release the 45ZCF-GREET model for use in determining emissions rates for 45Z in the coming days.

“This guidance will help put America on the cutting-edge of future innovation in aviation and renewable fuel while also lowering transportation costs for consumers,” said Adeyemo in a statement. “Decarbonizing transportation and lowering costs is a win-win for America.”

Section 45Z provides a per-gallon (or gallon-equivalent) tax credit for producers of clean transportation fuels based on the carbon intensity of production. It consolidates and replaces pre-Inflation Reduction Act credits for biodiesel, renewable diesel, and alternative fuels, and an IRA credit for sustainable aviation fuel. Like several other IRA credits, Section 45Z requires the Treasury to establish rules for measuring carbon intensity of production, based on the Clean Air Act’s definition of “lifecycle greenhouse gas emissions.”

The guidance offers more clarity on various issues, including which entities and fuels are eligible for the credit, and how taxpayers determine lifecycle emissions. Specifically, the guidance outlines the Treasury and the IRS’s intent to define key concepts and provide certain rules in a future rulemaking, including clarifying who is eligible for a credit.

The Treasury and the IRS intend to provide that the producer of the eligible clean fuel is eligible to claim the 45Z credit. In keeping with the statute, compressors and blenders of fuel would not be eligible.

Under Section 45Z, a fuel must be “suitable for use” as a transportation fuel. The Treasury and the IRS intend to propose that 45Z-creditable transportation fuel must itself (or when blended into a fuel mixture) have either practical or commercial fitness for use as a fuel in a highway vehicle or aircraft. The guidance clarifies that marine fuels that are otherwise suitable for use in highway vehicles or aircraft, such as marine diesel and methanol, are also 45Z eligible.

Specifically, this would mean that neat SAF that is blended into a fuel mixture that has practical or commercial fitness for use as a fuel would be creditable. Additionally, natural gas alternatives such as renewable natural gas would be suitable for use if produced in a manner such that if it were further compressed it could be used as a transportation fuel.

Today’s guidance publishes the annual emissions rate table that directs taxpayers to the appropriate methodologies for calculating carbon intensities for types and categories of 45Z-eligible fuels.

The table directs taxpayers to use the 45ZCF-GREET model to determine the emissions rate of non-SAF transportation fuel, and either the 45ZCF-GREET model or methodologies from the International Civil Aviation Organization (“CORSIA Default” or “CORSIA Actual”) for SAF.

Taxpayers can use the Provisional Emissions Rate process to obtain an emissions rate for fuel pathway and feedstock combinations not specified in the emissions rate table when guidance is published for the PER process. Guidance for the PER process is expected at a later date.

Outlining climate smart agriculture practices

The guidance released Friday states that the Treasury intends to propose rules for incorporating the emissions benefits from climate-smart agriculture (CSA) practices for cultivating domestic corn, soybeans, and sorghum as feedstocks for SAF and non-SAF transportation fuels. These options would be available to taxpayers after Treasury and the IRS propose regulations for the section 45Z credit, including rules for CSA, and the 45ZCF-GREET model is updated to enable calculation of the lifecycle greenhouse gas emissions rates for CSA crops, taking into account one or more CSA practices.    

CSA practices have multiple benefits, including lower overall GHG emissions associated with biofuels production and increased adoption of farming practices that are associated with other environmental benefits, such as improved water quality and soil health. Agencies across the Federal government have taken important steps to advance the adoption of CSA. In April, Treasury established a first-of-its-kind pilot program to encourage CSA practices within guidance on the section 40B SAF tax credit. Treasury has received and continues to consider substantial feedback from stakeholders on that pilot program. The U.S. Department of Agriculture invested more than $3 billion in 135 Partnerships for Climate-Smart Commodities projects. Combined with the historic investment of $19.5 billion in CSA from the Inflation Reduction Act, the department is estimated to support CSA implementation on over 225 million acres in the next 5 years as well as measurement, monitoring, reporting, and verification to better understand the climate impacts of these practices.

In addition, in June, the U.S. Department of Agriculture published a Request for Information requesting public input on procedures for reporting and verification of CSA practices and measurement of related emissions benefits, and received substantial input from a wide array of stakeholders. The USDA is currently developing voluntary technical guidelines for CSA reporting and verification. The Treasury and the IRS expect to consider those guidelines in proposing rules recognizing the benefits of CSA for purposes of the Section 45Z credit.

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