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PCAOB staff shares best practices for auditor independence

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The Public Company Accounting Oversight Board staff released best practices recommendations pertaining to auditor independence. 

Auditor independence—the obligation of auditors to function as objective, impartial third parties—is crucial to maintaining quality control at a firm. However, it is an area of common deficiencies every year, according to PCAOB inspections. The PCAOB staff observed an increasing number of comment forms related to independence issues in all inspection categories over the last three inspection periods, from 2021 to 2023. 

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The PCAOB staff recommends the following practices:

  • Increasing the use of technology-based tools: Some audit firms increasingly use technology-based tools to promote early detection of potential personal independence violations.
  • Enhancing the frequency of personal independence representations.: Certain audit firms have increased the frequency for personnel to provide independence compliance representations on a quarterly or semi-annual basis. Also, to enhance the process, certain audit firms have tailored the representations based on their personnel’s financial interests and/or services provided to audit clients.
  • Enhanced processes: Certain audit firms employed an enhanced process that includes mandatory meetings with firm personnel skilled in independence matters to guide personnel through their financial holding disclosures, and those of close family members, to ensure proper considerations are given to reporting all financial holdings. 
  • Establishing disciplinary actions: Audit firms have put in place specific policies and procedures providing sanctions for personal independence policy violations, including failure to timely complete semi-annual or quarterly personal independence representations. The procedures include audit firms assessing the severity, frequency and nature of personal independence policy violations and determining disciplinary actions commensurate with the violations.
  • Use of templates: Using a global template with standardized language for all audit engagement letters for clients subject to SEC and PCAOB independence standards and rules. This template has helped prevent the inclusion of indemnification clauses, contingent fees and other prohibited fees or services in the engagement letters of “other auditors.”

The PCAOB report also provided reminders for auditors and audit committee considerations.

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Acting IRS commissioner reportedly replaced

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Gary Shapley, who was named only days ago as the acting commissioner of the Internal Revenue Service, is reportedly being replaced by Deputy Treasury Secretary Michael Faulkender amid a power struggle between Treasury Secretary Scott Bessent and Elon Musk.

The New York Times reported that Bessent was outraged that Shapley was named to head the IRS without his knowledge or approval and complained to President Trump about it. Shapley was installed as acting commissioner on Tuesday, only to be ousted on Friday. He first gained prominence as an IRS Criminal Investigation special agent and whistleblower who testified in 2023 before the House Oversight Committee that then-President Joe Biden’s son Hunter received preferential treatment during a tax-evasion investigation, and he and another special agent had been removed from the investigation after complaining to their supervisors in 2022. He was promoted last month to senior advisor to Bessent and made deputy chief of IRS Criminal Investigation. Shapley is expected to remain now as a senior official at IRS Criminal Investigation, according to the Wall Street Journal. The IRS and the Treasury Department press offices did not immediately respond to requests for comment.

Faulkender was confirmed last month as deputy secretary at the Treasury Department and formerly worked during the first Trump administration at the Treasury on the Paycheck Protection Program before leaving to teach finance at the University of Maryland.

Faulkender will be the fifth head of the IRS this year. Former IRS commissioner Danny Werfel departed in January, on Inauguration Day, after Trump announced in December he planned to name former Congressman Billy Long, R-Missouri, as the next IRS commissioner, even though Werfel’s term wasn’t scheduled to end until November 2027. The Senate has not yet scheduled a confirmation hearing for Long, amid questions from Senate Democrats about his work promoting the Employee Retention Credit and so-called “tribal tax credits.” The job of acting commissioner has since been filled by Douglas O’Donnell, who was deputy commissioner under Werfel. However, O’Donnell abruptly retired as the IRS came under pressure to lay off thousands of employees and share access to confidential taxpayer data. He was replaced by IRS chief operating officer Melanie Krause, who resigned last week after coming under similar pressure to provide taxpayer data to immigration authorities and employees of the Musk-led U.S. DOGE Service. 

Krause had planned to depart later this month under the deferred resignation program at the IRS, under which approximately 22,000 IRS employees have accepted the voluntary buyout offers. But Musk reportedly pushed to have Shapley installed on Tuesday, according to the Times, and he remained working in the commissioner’s office as recently as Friday morning. Meanwhile, plans are underway for further reductions in the IRS workforce of up to 40%, according to the Federal News Network, taking the IRS from approximately 102,000 employees at the beginning of the year to around 60,000 to 70,000 employees.

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Accounting

On the move: EY names San Antonio office MP

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Carr, Riggs & Ingram appoints CFO and chief legal officer; TSCPA hosts accounting bootcamp; and more news from across the profession.

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Accounting

Tech news: Certinia announces spring release

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Certinia announces spring release; Intuit acquires tech and experts from fintech Deserve; Paystand launches feature to navigate tariffs; and other accounting tech news and updates.

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