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Audit committees boost cyber, ESG expertise

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Audit committees are bringing on more directors with experience in cybersecurity and sustainability, according to a new survey.

The annual survey, released Friday by the Center for Audit Quality and ideagen Analytics, found a year-over-year increase in audit committee disclosure of cybersecurity oversight responsibility (64% of S&P 500, compared 59% in 2023) and expertise (60% of S&P 500 boards in 2024, compared with 51% in 2023). According to the CAQ’s most recent Audit Partner survey, this could be because of the changing regulatory landscape.

The survey also found an increase in environmental, social and governance, or sustainability, expertise on the boards of S&P 500 companies (59% in 2024, compared to 54% in 2023). 

For the first time, the CAQ tracked disclosures of boards’ skills matrix. The majority of S&P 500 companies (85%) and S&P midcap companies (75%) disclosed the board of directors’ skills matrix.

However, the CAQ also saw disclosures level off in some areas instead of increasing. These included considerations in appointing or reappointing the external auditor, considerations of the length of tenure, and considerations around how the audit committee evaluates audit fees in relation to audit quality, which are all areas where investors are asking for more information.

“We continue to hear from investors that they want more transparency,” said CAQ CEO Julie Bell Lindsay in a statement. “They don’t just want boilerplate disclosures but detailed information that will help them understand the audit committees’ responsibilities and processes. While we are pleased to see that boards are increasingly disclosing information about new oversight areas and their expertise, we hope they will consider enhancing disclosures in some of the areas that have plateaued.” 

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Courtesy of the Center for Audit Quality

This year the CAQ observed that 50% of the S&P 500 included discussion of the audit committee considerations in appointing or reappointing the external auditor, which was up slightly from last year (49% of the S&P 500 in 2023). “While progress has been made in the last 11 years, this is an area where disclosures can continue to be enhanced,” said the report.

Audit firm tenure continues to be frequently disclosed by audit committees (73% of the S&P 500 in 2024), but fewer audit committees disclose how the length of tenure has been considered when reappointing the external auditor (13% of the S&P 500 in 2024). 

“Solely stating the tenure of the audit firm is not enough; detailed disclosures demonstrate how the audit committee has carefully evaluated the positive and negative impacts of audit firm tenure on audit quality,” said the report.

In 2024, only 6% of the S&P 500 included disclosure related to a discussion of audit fees and its connection to audit quality. 

“Audit fees that are too low may be indicative of poor audit quality, but audit fees that are too high could be the result of inefficiencies,” said the report. “Clear disclosures about how the audit committee evaluates audit fees in relation to audit quality highlight the audit committee’s commitment to promoting audit quality. This is also an opportunity for the audit committee to discuss how it drives efficiencies in the audit and is focused on not only the cost of the audit, but also the quality.”

“The Transparency Barometer continues to provide insights into the deliberations of audit committees and how they exercise their expanding responsibilities,” said Michael Nohrden vice president of strategy for Ideagen, in a statement. “It serves as an important tool for boards and the public to track and compare audit committee disclosures in the S&P 1500.”

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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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