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AICPA wants SEC to reject PCAOB standard on firm and engagement metrics

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The American Institute of CPAs is asking the Securities and Exchange Commission to reject the Public Company Accounting Oversight Board’s recently adopted standard on firm and engagement metrics, arguing they would drive smaller firms out of the auditing business and affect companies large and small.

The PCAOB voted to adopt the standard last month, along with a related standard on firm reporting, but the new rules still need to be approved by the SEC before they become official and take effect. Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer would be required to publicly report specified metrics relating to such audits and their audit practices. The PCAOB made some changes from the originally proposed rules to accommodate some of the objections from the audit industry and public companies, but they remain far reaching in scope. The AICPA argues that the rules would affect more than just accelerated filers and large accelerated filers and could harm smaller companies and their auditors as well. Under SEC rules, accelerated filers are companies that have a public float of between $75 million and $700 million,  annual revenues of $100 million or more, and have filed periodic reports and an annual report within the past year. Larger accelerated filers have a public float of $700 million or more. The AICPA expressed caution soon after the PCAOB voted to approve the new standards, but said it was still studying it. Now it is coming out firmly against the new rules and urging the SEC to reject them.

“Alternative approaches that better balance transparency, cost, and the needs of audit committees, while continuing to support the quality of audit services and choice of audit providers available to perform public company audits and serve the public interest should be pursued, rather than introducing potentially detrimental unproven regulations,” the AICPA said in a comment letter to the SEC.

The AICPA argues the new rules would hurt U.S. capital markets as well as the investing public, in addition to auditing firms of all sizes. 

“We believe these rules will have unintended negative consequences, including driving small and medium-sized firms out of the public company auditing practice,” said AICPA comment letter. “This would result in fewer firms performing audits which are critically important for smaller and medium size companies seeking to access the U.S. capital markets. Consequently, companies will face greater challenges and higher costs in meeting necessary audit requirements to access to the U.S. capital markets. The PCAOB acknowledges that mid-sized and smaller accounting firms serving small to mid-sized public companies will incur substantial, if not prohibitive, costs in complying with the proposed amendments. The final rules reaffirm the PCAOB’s belief that the rules will disproportionately affect smaller firms.”

The AICPA contends it’s overly simplistic to believe the impact of the rules would mostly fall within the market for large accelerated filers. “Smaller audit firms often serve clients of varying sizes, and their departure from the broader public company audit market could result in a substantial loss of audit firm options, particularly for smaller, less complex accelerated filers,” said the AICPA. “The loss of competition and the reduction in available audit firms could lead to higher costs and less favorable engagement terms for these smaller issuers. A landscape in which smaller issuers have fewer options contradicts the PCAOB’s goal of promoting fair competition.”

The AICPA disputes the claim by proponents of the new rules that competition may increase in the non-accelerated filer audit market as firms exit the accelerated filer and large accelerated filer markets. “This fails to account for the fact that non-accelerated filers often rely on firms with specific expertise and resources,” said the AICPA comment letter. “Further, the firms exiting the accelerated filer space may not be able to effectively redeploy their capacity to the non-accelerated filer market. In fact, their exit could lead to a loss of specialized services and a further concentration of resources in the larger end of audit firms, making it harder for non-accelerated filers to secure high-quality, affordable audits.”

The AICPA disagrees with predictions that profitable firms in the larger audit markets could expand their market share against the Big Four. “The resources required to absorb and integrate such capacity are substantial, and many firms may not have the operational flexibility to do so without significant strain on their existing clients and resources,” said the AICPA comment letter. “This further risks driving up audit costs for smaller and mid-sized issuers, which are often less agile and unable to absorb such change without significant disruption.”

The Institute is also concerned about the use of performance metrics within the PCAOB’s inspection and enforcement program, and how they might drive up the risk of enforcement for minor, unintentional reporting errors. It said the PCAOB rejected calls for a threshold based on the severity of reporting errors. The PCAOB declined a request for comment.

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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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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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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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