Accounting
IIA CEO looks ahead as internal audit expands globally
Anthony Pugliese, president and CEO of the Institute of Internal Auditors, is traveling the world as his organization expands globally, while laying the groundwork for priorities in the decade ahead.
The IIA released its
“There are a lot of misconceptions about what internal audit is,” he told Accounting Today. “The current perceptions do not align with what the profession actually does.”
The report points to the need for internal auditors to embrace advanced technology. “We can see our members all basically think technology is critical, but we’re not seeing the kind of uptake that would actually demonstrate that we’re going to be known for being technology savvy,” said Pugliese.
The report recommends internal auditors need to expand the entire scope of the work they’re doing. That aligns with a separate set of
Other priorities include connecting internal audit with the strategy of a company as well as growing the pipeline of internal auditors.
“When we position internal audit in front of a bunch of accounting students, the reaction is actually really positive,” said Pugliese. “They see it as a completely different path, and one that doesn’t carry the reputation negatively of public accounting, which I think they’re trying to get away from. Actually we’ve seen a lot of students get excited by the fact that they can become internal auditors and still work for a big firm. So the two can actually co-exist on their resume, on their CV, and that’s really attractive.”
Internal auditors have increasingly become fraud fighters. “We found out in our Vision project that more and more internal auditors are becoming responsible for functions other than internal audit,” said Pugliese. “What we’re seeing now is that they’re moving functions like compliance or fraud into internal audit’s bailiwick.”
Pugliese is seeing growing interest in climate change and sustainability risks.
“Last year, in 2023 our members around the world rated climate change sustainability reporting as the 14th most prevalent risk, and then this year, it moved to 13,” he said. “But in three years, our members predict it’ll be either four or five.”
The IIA released its updated
The IIA has been releasing tools to help internal auditors adjust to the updated standards. “Getting ready for the standards has been a big deal for us,” said Pugliese. “We’ve been releasing tool after tool after tool, some free, some we charge for, because the world that relies on internal audit is affected as well.”
The IIA is seeing more demand for such material as the organization expands globally. “You could pick up an internal auditor’s opinion on cyber and it would carry the same weight in Africa as it would in Latin America or North America, that there could be a level of reliance, and that’s because of all of our advocacy work, that we felt that was important,” said Pugliese. “We get out there and tell governments, you can rely on internal auditors to help you do some of this work. Having a standard around topics is not very unusual in the accounting world, but it is in the internal audit world.”
The IIA has been growing and has now crossed the 250,000-member mark. “We’ll end up this year probably at 255,000 with a lot of growth occurring in Asia and the Middle East, which is great,” said Pugliese. “We really didn’t have a strong market in the Middle East even five years ago, so we’re happy about that.”
He has been finding growing interest in Saudi Arabia, Oman and other Gulf countries, as well as parts of Asia like China and Japan. The Saudi Minister of Audit sits on the IIA’s global board.
“When they give out awards to say this is the best internal audit team of the year, or the most innovative team of the year, it’s a really big deal,” said Pugliese.
He noted that many countries around the world have what they call Supreme Audit Institutions, SAIs, and there’s an association for these Supreme Audit Institutions known as INTOSAI, the International Organization of Supreme Audit Institutions. The IIA has been getting more involved in such groups.
In the U.S., the IIA has also been working more closely with the Public Company Accounting Oversight Board after
The IIA started a letter-writing campaign and met with four of the PCAOB’s board members, including a former internal auditor, Christina Ho. Eventually the objectionable section was deleted in the final version of the standard, and the PCAOB even apologized in the disposition of comments.
“You couldn’t ask for a better outcome,” said Pugliese. “It was no disrespect, no harm intended. But, because of that, we started a relationship and now, when they call and they want to have a really solid task force on any given topic, they’ll reach out to us for an internal auditor, and that really is nice. So it was kind of lemonade out of lemons as a result of that, but it was not a fun process to go up against the PCAOB.”
The IIA started its own political action committee last year and plans to do more advocacy work in the U.S. and abroad. “We’re introducing some advanced advocacy strategies next year to start lobbying national governments outside of the United States,” said Pugliese. “They’re not quite used to the system that we have in place, where you hire people in Washington, and they target the right people setting laws that are relevant to you, and you go talk to them, and hopefully you get an output. This is very different. We’re doing it in Africa and we’re trying to make sure that their advocacy needs are met. We’ll probably have one in the Middle East, which is very unusual, but that’s more of an informing function for the countries that are more monarchy based. You don’t typically lobby a monarchy. In Latin America as well, we’re going to start lobbying those governments to more adequately recognize what internal audit does.”
The Financial Accounting Standards Board issued an
FASB is defining a financial KPI as a financial measure that is calculated or derived from the financial statements and/or underlying accounting records that is not presented in the GAAP financial statements. That includes measures that come from amounts presented in the financial statements, measures derived from adjusting amounts presented in the financial statements, and measures derived from or calculations based on other information included in the financial statements or other financial records.
Some examples of financial KPIs include earnings before interest, taxes, depreciation and amortization (EBITDA); free cash flow (FCF); organic sales growth; and adjusted net income.
Patrick Dorsman/Financial Accounting Foundation
Accounting Today asked FASB chair Richard Jones
“Whether they’re concerned about them and which ones they are and aren’t, I’ll leave to them,” said Jones. “We have heard from some stakeholders that we should be considering whether there are certain financial KPIs that should be brought into the financial statements. Now, what does that mean? For some that might mean, are there some financial KPIs that could benefit with a standardized definition, say a single definition of EBITDA, and what goes into that? For others, it may simply mean, what industries does it make sense to provide a KPI in the financial statements? Alternatively, some look at it and say, ‘Well, maybe there are KPIs that the company’s already using. Is there a way under a management type approach to bring them into the financial statements, or should potentially, they not be included in the financials?’ So it’s really us getting input on all those issues. Depending on what we hear from that ITC, we’ll bring that back to our board, and our board will be able to make decisions on [whether] there’s a need for standard-setting in this area.”.
FASB is issuing the invitation to comment as part of a research project on financial key performance indicators for business entities. An ITC is a staff document prepared at the direction of the FASB chair in which the board does not express any preliminary views. Responses to the questions in the ITC will help inform FASB as it considers whether to add a project on financial KPIs to its technical agenda and, if it’s added, to determine the objective and scope of the project.
During previous outreach, including a 2021 agenda consultation, FASB heard feedback from constituents that a project on financial KPIs should be considered. But they expressed different views about the nature and extent of the perceived issues, whether the board should add a project to its technical agenda, and, if a project is actually added, what the objective of the project should be.
FASB staff issued the ITC to hear more feedback on potential standard setting for financial KPIs, including whether financial KPIs should be standardized and, if so, which ones? Another question is :Should financial KPIs be required or permitted to be disclosed in an entity’s GAAP financial statements and, if so, when and for what types of entities?
FASB is asking for comments on the
Everything must go; have con, will travel; gold rush; and other highlights of recent tax cases.
Deltona, Florida: Business owner David Albert Fletcher has pleaded guilty to evading payment of more than $1.7 million he owed for tax years 2004 through 2014.
Fletcher owned and operated several furniture liquidation businesses and for 2004 through 2013 did not timely file his federal income tax returns or pay taxes. After an audit, the IRS assessed $1.7 million in taxes, interest and penalties.
To evade collection, Fletcher concealed his income and assets from the IRS, including by using nominees to hide his purchases of luxury vehicles. He also filed returns that understated his income, and when interviewed by an IRS special agent lied about how much he earned.
Fletcher faces up to five years in prison.
Chatham, New Jersey: John Goggins, former senior vice president and general counsel for a large public corporation, has been sentenced to eight months in prison for willfully failing to file federal income tax returns.
Goggins, who previously pleaded guilty to a four-count information charging him with willfully failing to file federal income tax returns for 2018 through 2021, earned total gross income in those years of $54 million from wages, restricted stock awards, the exercise of annual nonqualified stock options, interest, dividends and gains from stock sales.
Goggins was also sentenced to a year of supervised release and was ordered to pay $3.11 million in restitution to the IRS (which has already been paid) and was fined $40,000.
Indianapolis: A U.S. district court has permanently enjoined tax preparer Juan Santiago and his company from preparing federal returns for others and from owning or operating tax prep businesses in the future.
Santiago failed to respond to the civil complaint filed against him, so the court entered the permanent injunction by default.
Santiago resides in Lakeland, Florida, but travels to Indianapolis for tax season to operate Madison Solutions LLC. The complaint alleges that he and Madison Solutions used a variety of schemes to improperly reduce clients’ tax liabilities or to obtain undeserved refunds, including by repeatedly placing false or incorrect items, deductions, exemptions or statuses on clients’ returns without their knowledge.
For example, the complaint alleges that Santiago routinely elected head of household status and Child Tax Credits for clients when they were otherwise not qualified for such status or credits. The complaint also alleges that Santiago reported fictitious businesses on returns and fabricated business expenses and income to fraudulently reduce taxable income.
Wilmington, Delaware: Business owner Robert Higgins, of West Chester, Pennsylvania, has been convicted on charges of mail, wire and tax fraud.
He owned and operated First State Depository, a precious metals depository that held more than $100 million in customer assets, primarily in the form of gold and silver bars and coins. Higgins diverted customer assets to pay debts and finance his personal life, including two timeshares in Hawaii and luxury vacations. First State’s records indicated that at least $58 million worth of customer assets had been misappropriated; industry sources generally agree that this is the largest theft from a precious metals depository in U.S. history.
Higgins faces up to 20 years on the wire and mail fraud charges and five years on each tax fraud charge.
Ft. Worth, Texas: John Anthony Castro, 40, owner of the virtual tax prep business Castro & Co. who falsely inflated dozens of client returns, has been sentenced to more than 15 years (188 months) in prison for tax fraud.
Castro — who had graduated law school but repeatedly failed the bar exam — held himself out as an “international tax expert” and “federal practitioner” and falsely claimed to be a graduate of West Point.
He successfully marketed to clients around the world, claiming to be an expert on certain tax issues related to Australian expats, among other things. Between 2017 and 2019, he filed more than 1,900 returns on behalf of individuals worldwide. Castro promised his clients a significantly higher refund than they would receive from other preparers, claiming he knew how to identify and claim deductions that others did not. He added that there was no risk, as he split the additional refund amount with clients for his fee.
He did not share the return with clients before filing but instead informed them of the amount of the anticipated refund. On many occasions, Castro filed returns on behalf of clients without their permission or knowledge.
In other instances, he claimed deductions that had no basis in fact. Castro claimed deductions based on extreme and unsupported legal theories, including saying that deductions for any expense related to preventing an illness qualified as an “impairment related work expense;” expenses related to commuting to and from work; and the full value of one’s mortgage and utilities as long as the taxpayer had some Schedule C business to claim, among others.
When the victim-taxpayers learned what Castro had done, many demanded copies of their returns. Castro refused to engage in conversation and even delayed providing returns for months; he often acted in a highly vindictive manner when questioned or challenged by clients or others, berating individuals in emails, threatening legal actions or by filing amended returns, without clients’ permission or knowledge, that removed all deductions. Many of the victims have since been audited or filed amended returns.
Castro was also ordered to pay $277,243 in restitution.
Thornton, Colorado: Tax preparer Lance McCuistion, 56, has been sentenced to 52 months in prison after pleading guilty to preparing false returns for clients.
In July 2014, McCuistion pleaded guilty to preparing false returns in a prior investigation and was sentenced to probation. As a result of that offense, McCuistion was unable to obtain a PTIN. From around April 2018 through April 2022, McCuistion used PTINs in the names of three associates to prepare returns for clients.
These returns claimed items for which McCuistion knew the taxpayers were not eligible, with the aim of increasing refunds or reducing taxes.
Independence, Missouri: Business owner Richard Dean Schiele Jr., 51, has pleaded guilty to filing a false claim as part of a scheme to fraudulently receive nearly $1.4 million in federal COVID-19 relief money.
Schiele admitted he filed nine employer’s quarterly returns with the IRS on April 22, 2023, for a company he formed the same month called Schiele Family Own Distribution. The returns made a total of $1,392,716 in claims for pandemic-era credits against the company’s ostensible employment taxes. Schiele later admitted that the company had no employees in 2020 through 2022.
The IRS issued checks totaling $478,890 to Schiele; the Treasury recovered $348,764.91 from Schiele’s bank account.
He must pay $130,125 in restitution to the IRS.
The Public Company Accounting Oversight Board adopted a
It would apply when firms fail to file annual reports on PCAOB Form 2 and pay annual fees for at least two consecutive reporting years. Via Form 2, registered auditing firms give the PCAOB important information such as each audit client for which that firm issued any audit reports during a reporting period.
“Firm registration is a cornerstone of the PCAOB’s operations,” said PCAOB chair Erica Williams in a statement at the PCAOB’s meeting Thursday. “Firms are required by the Sarbanes-Oxley Act to register with the PCAOB in order to perform audits of publicly traded companies and SEC-registered broker-dealers or to play a substantial role in those audits. In addition to registering, filing an annual report through what’s called Form 2, allows the PCAOB to keep track of the firms who are eligible to perform those audits and to understand which audits, if any, they are performing. In turn, the PCAOB then uses that information for many purposes, including planning its inspections program, which inspects over 800 issuer audits in more than 30 jurisdictions around the world each year.”
The PCAOB noted that as of Aug. 31, 2024, 80 registered firms have not filed annual reports and have not paid annual fees for both the 2022 and 2023 reporting years.
“These firms include, for example, sole proprietorships that remain registered even though the sole proprietor has died; firms that registered with the board years ago but now appear to be defunct; and small firms, often in foreign countries, that cannot be reached through the primary contact person designated by the firm,” said Williams.
Those delinquencies obstruct the PCAOB’s ability to maintain an accurate list of registered firms that wish to maintain their registrations; ensure that Form 2 information is being reported to the public; collect mandatory annual fees; and use PCAOB staff time and resources efficiently.
“The amendment adopted today will not only make registration information more useful for investors, audit committees and other stakeholders, it will also improve the efficiency and effectiveness of our organization,” Williams stated.
The rule amendment would treat a PCAOB-registered firm’s failures both to file annual reports with the PCAOB and to pay annual fees to the PCAOB for at least two consecutive reporting years as a constructive request for leave to withdraw from PCAOB registration; and deem the firm’s registration withdrawn.
After the PCAOB issued the proposal in February of this year that included the amendment, the board received feedback from various commenters. While those commenters were generally supportive of the proposed amendment, the PCAOB also made changes to address stakeholder feedback. For example, the February proposal originally included a 30-day period for firms to send an email to the PCAOB’s Registration staff to stop the withdrawal process. In response to stakeholder input, the 30-day period was extended to 60 days. The February proposal also included a proposed new Rule 2400 regarding false or misleading statements concerning PCAOB registration and oversight. The PCAOB said it’s continuing to consider next steps regarding proposed Rule 2400.
PCAOB board member Christina Ho said during the meeting she had originally supported the proposal, but now has reservations about the timing.
‘Notwithstanding my support today for this ‘good housekeeping’ rule, I am deeply concerned about the possibility of the PCAOB adopting in the weeks ahead a series of ‘midnight regulations’ that could overwhelm the institutional review process, both here and at the Securities and Exchange Commission, that helps ensure that regulations have been carefully considered, are based on sound evidence, and can justify their costs,” she stated. “Moreover, correspondence from at least one member of a relevant committee of Congress has called on the federal financial regulatory agencies to suspend the proposal or promulgation of any regulations before the end of the current Administration. Modernizing our standards and rules is important, but if we rush to get things done before any changes in the composition of the Commission, we could end up wasting taxpayer dollars by adopting ill-considered rules and running our professional staff ragged while at the same time undermining the democratic process.”
Another PCAOB board member, George Botic, expressed his support for the rule amendment. “One area of focus for me over the past year has been the need for increased transparency,” he stated. “I believe that improved transparency and accessibility of PCAOB oversight activities on our website, in particular registration and inspection information, will help to better inform and equip investors, audit committee members, academics, and other stakeholders to not only understand our work but also to make better informed decisions. While I am hopeful for more efforts in this regard, I have been pleased with our work to date. Hand in hand with promoting transparency comes the responsibility to do our best to ensure that the information on the PCAOB’s website is not only accurate, but also useful and informative to a wide variety of stakeholders.”
The amendment is subject to approval by the Securities and Exchange Commission. If it’s approved by the SEC, the amended rule will take effect initially for annual reports and annual fees that are due in 2025, so a registered firm that doesn’t file an annual report and doesn’t pay an annual fee for both the 2025 and 2026 reporting years could be deemed withdrawn from registration under Rule 2107(h) starting in the fall of 2026.
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