Accounting
Enforcement vs. progress: Audit reform amid heavy regulation
High-profile enforcement activity is beginning to undermine the trust that the audit profession has earned over more than a century of diligent work. However, the historically large fines are not indicators of a degradation in audit quality. Instead, key audit quality indicators point to significant improvements in audit quality.
Recent enforcement actions by the Public Company Accounting Oversight Board appear to prioritize administrative burdens and punitive measures over substantive improvements in audit quality. As these multimillion-dollar fines make their way into headlines of mainstream news, the public perception of auditors and audit quality erodes.
Our profession supports the need to root out bad actors and poor quality, while ensuring the integrity of audits. However, the PCAOB’s current enforcement-first, overly prescriptive guidance leads to excessive administrative costs and enforcement measures that do little to enhance audit quality. Instead, this approach contributes to an atmosphere of hostility that forces staff and prospective auditors to think twice about their engagements and leadership roles in audit firms. This shift harms our profession — which is already struggling to attract and retain talent, even at the partner level — and also the broader capital markets.
Audit quality indicators already showed significant improvement before the PCAOB’s recent push for greater enforcement. For example, the Big Four audit firms have maintained relatively low deficiency rates, and the number of financial restatements has decreased dramatically in recent years. The percentage of material restatements, “Big R” restatements, fell from 28% to 18% from 2013 to 2022, reflecting better adaptation to new reporting standards and internal controls by public companies and their auditors, according to the
Despite these gains, the PCAOB’s aggressive enforcement agenda overshadows the profession’s achievements. In the first half of 2024 alone, the PCAOB levied nearly $35 million in penalties — more than the combined total of penalties imposed in the previous four years. Just 10 years ago, the PCAOB levied fines totaling $85,000. In the span of a decade, that makes for an astonishing increase of over 40,000%. Prior to current PCAOB Chair Erica Williams, the average yearly fines from the board were approximately $2.6 million. From 2022 to the first half of 2024, the average annual total of fines sits at roughly $22 million.
This spike in fines reflects an ‘enforcement-first’ mentality that focuses on punishment rather than collaboration and guidance to improve quality.
Growing enforcement activity and eroded trust, despite improving audit quality
If we look more closely, many of these fines are imposed for technicalities, such as lapses in documentation, communication, or not filing a Form AP 60 in a timely fashion. Accounting firms should avoid these errors, yes, but the current regime punishes them with disproportionate severity.
Rather than providing firms an opportunity to remediate without financial penalties, the PCAOB’s aggressive actions discourage professionals from continuing in the auditing field, undermining the goal of promoting high audit quality. The effectiveness of the board’s regulatory oversight should be measured by improvements in audit quality, not the dollar figure it tallies in fines.
High-profile enforcement actions often overshadow the diligent, day-to-day work that most auditors perform, and these incidents do not reflect the overall health of the profession. Yet still, enforcement activity remains elevated.
Doing more with less: Guidance, technology and people
Since COVID, audit professionals are being asked to do more with less. More work, greater scrutiny, and harsher penalties exacerbate the profession’s talent pipeline challenges. Recent PCAOB proposals suggest a drastic expansion of audit scope — including the proposal on noncompliance with laws and regulations, for example, that would require auditors to provide greater assurance across areas typically outside the scope of a financial statement audit, which would result in significant increases in time and effort, and significantly increased audit fees.
While these regulations aim to increase trust and accountability, they can often create challenges for firms trying to comply. This is particularly true for smaller firms, which may struggle to meet new demands due to limited resources. Larger firms, while more equipped to adapt, must still weigh the balance of compliance against delivery of high-quality audits, and even some of the largest auditors have backed out due to the risk of over-zealous PCAOB enforcement.
Many firms see emerging technologies like artificial intelligence and automated analytics tools as a way to streamline processes and alleviate some aspects of increasing scrutiny and workloads. These innovations have the potential to revolutionize audits by automating data-heavy tasks and allowing auditors to focus on deeper, more complex analysis.
While the technology exists, many firms face challenges in integrating it at the speed and scale needed, in part due to a regulatory environment that pushes for enforcement instead of innovation. I believe that with a proper refocusing on progressive policy and support in regards to audit technology, we can create a framework that leads to fast adoption of technology to not only support auditors, but substantially improve audit quality.
A balanced approach to reform
Voices within the profession already call for a more sensible approach to reform. Christina Ho, a PCAOB board member, advocates for practical standards that enhance audit quality without imposing undue burdens on firms. These perspectives, echoed by the Pennsylvania Institute of CPAs, stress the importance of balancing improved processes with realistic operational expectations.
Moving forward, the audit profession must navigate the fine line between regulation, enforcement and innovation. If current regulatory pressures continue unchecked, they could drive professional talent away, threatening the diversity and competitiveness of the field. By supporting policies that prioritize both innovation and practicality, the audit profession can continue to thrive in a rapidly changing environment.
A federal court in Texas has issued another preliminary injunction and stay halting enforcement of the Corporate Transparency Act and its beneficial ownership information reporting requirement, which were already on hold following a
The U.S. District Court for the Eastern District of Texas, Tyler Division, issued the preliminary injunction and nationwide stay yesterday. The same district court’s Sherman Division, had
The decision on Tuesday involved a case with a pair of plaintiffs, Samantha Smith and Robert Means, suing the U.S. Treasury Department. They had formed LLCs under Texas law to hold real property in the state. In an
“The Corporate Transparency Act is unprecedented in its breadth and expands federal power beyond constitutional limits,” he wrote. “It mandates the disclosure of personal information from millions of private entities while intruding on an area of traditional state concern.”
He noted that the LLCs do not buy, sell or trade goods or services in interstate commerce or own any interstate or foreign assets.
The CTA passed as part of the National Defense Authorization Act in 2021 and requires businesses to disclose their true owners as a way to deter shell companies from carrying out illicit activities such as money laundering, terrorist financing, human trafficking and tax fraud. Businesses are required to file beneficiai ownership information reports with the Treasury Department’s Financial Crimes Enforcement Network. FinCEN has since
The Texas Public Policy Foundation is representing the two property owners challenging the CTA, arguing that the law violates federal Commerce Clause powers under the Constitution and undermines the principles of limited government and individual liberty.
“The court’s decision affirms the principle that federal government power is not unlimited,” said TPPF general counsel Robert Henneke in a statement Wednesday. “This ruling is a powerful reminder that our Constitution limits federal power to protect individual rights and economic freedom.”
“The government’s theory of power in this case was effectively unlimited,” said Chance Weldon, director of the Center for the American Future at TPPF, in a statement. “The district court’s opinion is not only a win for our clients, but ordinary Americans everywhere.”
The Financial Accounting Foundation today formally opened the search for several leadership roles.
The FAF Board of Trustees’ Appointments Committee is seeking nominations for these positions, which include chair and members of the Board of Trustees, the FAF’s executive director, Financial Accounting Standards Board member, and chair of the Financial Accounting Standards Advisory Council.
FAF executive director
Current FAF executive director John Auchincloss announced in December 2024 that he will
The executive director leads a team of 45 who provide support services to the FASB and the Governmental Accounting Standards Board, including communications and public affairs, legal, IT, human resources, publishing, financial management and administration. The role supports the FAF Trustees, who ultimately oversee the FASB and GASB Boards and their advisory councils. The executive director, in collaboration with the FAF chair, also sets the organization’s U.S. and international outreach strategies.
A full description of the FAF executive director role can be found
FAF Board of Trustees chair
The chair of the FAF Trustees is involved in all major Trustee decisions related to strategy, appointments, oversight and governance, and in representing the organization with high-level stakeholders and regulators.
The new chair will be appointed for a three-year term beginning Jan. 1, 2026, through Dec. 31, 2028, and can stand for reappointment to a second three-year term beginning in 2029.
A full description of the FAF Board chair role can be found
FAF Board of Trustees at-large member
The FAF Board of Trustees oversees and supports the FASB and the GASB, and exercises general oversight of the organization except regarding technical decisions related to standard setting.
The FAF is recruiting several “at-large” trustees — individuals with business, investment, capital markets, accounting, and business academia, financial, government, regulatory, investor advocate, or other experience.
A full description of the FAF trustee role can be found
FASB member
FASB members develop financial reporting standards that result in useful information for investors and other financial-statement users. The FASB member roles are full time and based in Norwalk, Connecticut.
“These are senior and prestigious appointments, demanding not only a high degree of technical accounting expertise but also a high level of understanding of the global financial reporting environment,” the FAF announcement reads.
The official start date for the position would be July 1, 2026, but the newly appointment member would be expected to start some time earlier than year to ensure a successful transition. The five-year term extends through June 30, 2031, at which time the member would be eligible to be considered for reappointment.
A full description of the FASB member role can be found
FASAC chair
The chair is the principal officer of the FASAC and advises the FASB on projects on the FASB’s agenda, possible new agenda items and priorities, procedural matters that may require the attention of the FASB, and other matters. The chair is responsible for guiding discussion at FASAC meetings and for implementing and directing the broad operating processes of the FASAC.
The chair may be appointed for up to a four-year term, or a shorter period of time as agreed upon, and may be eligible for reappointment.
A full description of the FASAC chair role can be found
Courtesy of the FAF, FASB and GASB
Top 10 Firm Grant Thornton announced that its CEO, Seth Siegel, is stepping down from his position after 30 years with the firm, though will still remain involved as a senior advisor.
“I have called Grant Thornton home for almost three decades and am proud to have been part of this amazing team and organization, which has solidified its standing as the destination of choice for clients and talent alike,” said Siegel in the firm’s
The new CEO will be Jim Peko, current chief operating officer of Grant Thornton Advisors LLC.
“I thank Seth for all he has done to help transform Grant Thornton so adeptly for the future. He has been a colleague, mentor and friend to so many of us, and a tireless advocate for the firm’s best interests. As CEO, my priorities will focus on accelerating our current business strategy and solidifying our standing in the marketplace as a unique global platform, driven by quality, culture and differentiated capabilities. We will continue to be the employer of choice for the industry and always capitalize on compelling opportunities before us as we drive meaningful growth,” said Peko.
Siegel expressed his confidence in Peko, saying he has worked closely with him for many years.
“Jim and I have worked closely together for many years, and he is the right leader for this new chapter — one who knows Grant Thornton well and has been integral to our many recent accomplishments and our quality-focused delivery,” he said.
Siegel became a partner in 2006, became managing partner of South Florida in 2020, and
The announcement comes shortly after the
Grant Thornton
Texas court halts Corporate Transparency Act in another lawsuit
FAF seeks nominations for leadership, advisory roles
New Social Security increases may prompt higher tax bills, Medicare premiums
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoHomelessness rises to a record level in America
-
Personal Finance1 week agoAs ETF assets top $10 trillion for first time, here are trends to watch
-
Personal Finance1 week agoHere’s how to decide on the right student loan repayment plan for you
-
Personal Finance6 days agoHow to rebalance your portfolio after lofty stock returns in 2024
-
Finance6 days agoKen Griffin’s flagship hedge fund at Citadel climbs 15.1% in 2024
-
Personal Finance1 week agoHere are steps you can take to avoid overspending next holiday season
-
Economics7 days agoJimmy Carter reshaped his home town
-
Accounting4 days agoDepreciation of Assets and Key Strategies for Accurate Valuation