Accounting
Audit firms urge SEC to reject PCAOB firm and engagement metrics and reporting standards
Auditing firms are asking the Securities and Exchange Commission to reject the Public Company Accounting Oversight Board’s recently adopted standards on
The PCAOB
“The rule introduces a new public oversight model to issuer audits that, in our opinion, has not been adequately studied and is based on metrics susceptible to misinterpretation and misuse that will be costly to produce,” said a
“We continue to believe that the PCAOB has not sufficiently demonstrated how the metrics within the Release directly relate to or enhance audit quality, which should be the primary objective of any PCAOB rule or standard,” said a
The firm and engagement metrics standard would require firms to disclose more information about partner and manager involvement in audits; workload; training hours; audit and industry experience; retention of audit personnel; allocation of audit hours; and restatement history. The PCAOB made some changes to the original proposal, reducing the number of metric areas to eight from 11; refining the metrics to simplify and clarify the calculations; increasing the ability to provide optional narrative disclosure (from 500 to 1,000 characters); and changing the effective date.
“We appreciate the revisions the Board made in its final rules in response to comments received,” said a
Some firms objected to the hurried process behind the new standards. “The speed with which the final rule was approved suggests that sufficient due process was not undertaken, and we believe certain concerns raised by commenters, including tangible operational challenges, were not adequately addressed by the Board in the final rule,” said a
The firm reporting standard also underwent modifications from the original proposal in response to comments, reducing the fee disclosure requirements, as well as streamlining disclosures about firm governance and network arrangements. But again the modifications did not go far enough for slime firms.
“While certain noteworthy improvements have been made to the final rules, concerns persist that elements of the reporting procedures will undermine the confidentiality framework in SOX,” said a
Another Big Four firm, Deloitte, pointed out that the burden on smaller firms would be especially acute, particularly in tandem with other recently approved PCAOB standards.
“These challenges will be compounded by the need for all PCAOB registered firms to simultaneously focus on numerous other new or revised PCAOB requirements currently being considered, or that were recently adopted,” said Deloitte in a
The American Institute of CPAs has also
The Center for Audit Quality pointed out that any last-minute standards approved by the SEC at the close of the Biden administration could be overturned by the incoming Trump administration or by Congress under the Congressional Review Act. “Notably, any final order approving the rule would be subject to review by a new session of Congress and a new President,” wrote CAQ CEO Julie Bell Lindsay in a
The U.S. Chamber of Commerce has also come out against the rules, as it did last year in conjunction with the
“The Proposed Rules mandating disclosure of audit firm and engagement metrics represent rushed and problematic due process at the PCAOB,”
With SEC chair
The standards did win support from some investor and consumer groups. “There needs to be transparency throughout the process that results in the appointment and oversight of the audit firms and the audit process to ensure there is accountability to investors by the PCAOB (the regulator) and the audit committee which is charged with protecting investors interests,” said a
“CII, therefore, supports the Commission approving the Proposed Rules because we believe the final metrics represent an important, albeit long overdue, step forward in responding to investors’ information needs relating to the audit,” said a
The Consumer Federation of America expressed its support. “Current PCAOB rules and standards do not require registered audit firms to publicly disclose firm or engagement-level information,” said a
“We applaud the PCAOB’s efforts to modernize its annual and special reporting requirements for audit firms,” said a
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
- 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
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.
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
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
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
The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.
Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist
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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