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Accountants can help companies track intellectual capital

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Many accountants and financial professionals estimate corporate value using criteria related to property, plan and equipment; yet, in today’s quickly changing market, these visible assets may represent just a part of a corporate underlying engine for growth. Intellectual capital, representing a corporation’s knowledge, skills and creativity, is one of the largest and most elusive sources of value.

Intellectual capital includes not just human capital but also internal and external capital that shape a corporate unique competitive advantage. While certain types of intangible assets, such as patents or trademarks, are recognized under existing accounting rules, they frequently fail to represent the dynamic knowledge flows that constitute a modern corporation.

Public accounting practitioners and corporate finance management increasingly account for nontraditional assets influencing performance and strategic outcomes. Intellectual capital can influence a corporate resistance to market shocks, form innovation pipelines, and determine whether it remains competitive. However, traditional financial statements typically ignore the full extent of what this represents. GAAP provides a framework for some acquired intangibles, but institutional knowledge that emerges organically within a corporation is often hidden from view. This gap in disclosure poses a challenge for both preparers and users of financial statements.

The potential risk here is obvious: if a key group of employees leaves or a critical research process is lost, a corporation’s true value can vanish virtually instantly. Traditional tangible asset valuations would stay unaltered, giving investors and other stakeholders an imperfect picture of the corporation’s true risk exposure. Accountants, auditors and financial advisors can help bridge this gap by advising on measuring, conveying and preserving intellectual capital within the framework of established accounting guidelines.

It is one thing to assign a fair value to a newly acquired trademark but another to measure institutional memory or collaborative synergy among teams in a multinational corporation. Much intellectual capital cannot be properly capitalized, but its absence from the balance sheet presents a gap for corporations looking to manage their long-term viability. Accountants can assist corporations with internal methods for tracking and nurturing intellectual capital. Although the results may not always be reflected in reported asset totals, these initiatives can help to influence management decisions and identify potential areas for future growth.

The accounting profession has the opportunity to advance by emphasizing intellectual capital in engagements. Voluntary disclosures, management discussion sections and investor presentations may include human, internal, and external capital references. Such expanded reporting could prevent misaligned market valuations and allow for more detailed discussions about how a company intends to sustain its competitive advantage. Rather than seeing intellectual capital as a nebulous idea, accountants can employ analytical tools and key performance indicators to ground talks in acceptable measures, even if those figures do not appear directly on the property, plant, equipment, or goodwill line items.

Corporations that neglect this intellectual capital risk underinvesting in what drives them ahead. Corporations that document and promote intellectual capital, on the other hand, can acquire a better understanding of where resources should be allocated for research, product development and important personnel retention. If accountants assist clients in formalizing these efforts, they will be able to detect early warning indications of talent migration or failures in essential processes, allowing them to reduce risks before the consequences are obvious on the bottom line. By incorporating these insights into financial reporting and strategic direction, corporations can stay on track with stakeholder expectations and lessen the likelihood of unexpected surprises.

Intellectual capital is not a buzzword or a passing trend. It represents the hard-earned expertise, routines and collaborative structures that keep a corporation at the forefront of its field. For accountants, it is critical to consider how to capture this intellectual capital best. Whether through improved internal controls, voluntary disclosures or integrated advisory services, showcasing intellectual capital can assist corporations and stakeholders in better grasping their genuine potential and weaknesses. By adapting our expertise to these domains, we reaffirm accounting’s role as the bedrock of informed business decisions and sustainable performance.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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