The Public Company Accounting Oversight Board today sanctioned Heaton & Co. and one of its partners, Kristofer Heaton, for failing to properly document five audits.

The firm violated AS 1215, Audit Documentation, by failing to assemble the proper documentation for five issuer audits. Two of those audits resulted in the firm making significant modifications and additions to the workpapers just before a PCAOB inspection. Although the firms generally disclosed in the workpapers that they had created and modified them after the respective completion dates, those additions and modifications were not adequately documented. 

For the other three issuer audits, one contained numerous incomplete workpapers, another contained workpapers related to a different client, and for the third, the firm created over 90% of the workpapers after the completion date upon PCOAB enforcement staff requesting them. 

“Failing, not once, but multiple times to properly document audit work, calls the integrity of the entire audit into question, and the PCAOB will take action to protect investors,” PCAOB Chair Erica Williams said in a statement.

Heaton, the engagement quality review partner on the five audits, violated AS 1220, Engagement Quality Review, by failing to evaluate whether the documentation reviewed indicated the engagement team responded appropriately to risks and supported the reached conclusions. At the time Heaton provided his concurring approval for the issuance of each audit, certain documentation either did not exist or was insufficient to indicate the engagement team had responded appropriately.

“The respondents failed to comply with multiple PCAOB rules and standards,” Robert Rice, director of the PCAOB’s division of enforcement and investigations, said in a statement. “We will continue to bring enforcement actions to address these violations and ensure that accountability is upheld at every level of the profession.”

The firm also violated PCOAB quality control standards by failing to establish, implement and monitor policies and procedures to provide reasonable assurance that firm personnel would comply with professional standards and the firm’s standards of quality. During that period, Heaton substantially contributed to those violations, in violation of PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations. 

Without admitting or denying the findings, the firm and Heaton consented to the PCAOB’s order, which:

• Censures each respondent;
• Revokes the firm’s registration with the right to apply to re-register after two years, if the firm undertakes remedial measures;
• Bars Heaton from being an associated person of a registered firm with the right to petition the Board to associate with a firm after two years, given he has completed 40 hours of continuing professional education, in addition to CPE requirements related to any professional license he holds; and,
• Imposes civil money penalties of $35,000 on the firm and $25,000 on Heaton.

The accounting profession is more complex than ever before. Small and medium-sized accounting firms face increasing competition, shifting client expectations and rapid technological innovation. While many firms seek to adapt through trial and error, our recent study provides evidence-based insights into what truly drives perceptions of success in this challenging landscape.

Through a survey of 192 firms collected by the Center for Accounting Transformation, we found that the most significant factor consistently associated with success is technological leadership. Firms that consistently stay ahead of their peers with advanced technologies outperform their peers. Beyond technology, other contributors to success include exceeding client expectations and fostering a culture of continuous learning and improvement. 

For practitioners, these findings offer actionable guidance. Success in today’s accounting world is not about doing everything, but about prioritizing the right strategies. Below, we outline the suggestions that can help small and medium-sized firms thrive based on our empirical results.

Key factors driving firm success

Leadership in technology adoption: The clear standout factor in our research is technological leadership. Firms that position themselves ahead of their peers in adopting advanced tools—such as AI, automation and cloud platforms—are consistently perceived as more successful.

• Why it matters: Technology enhances efficiency, allowing firms to automate parts of routine tasks like tax preparation and reviewing workpapers. It also enables firms to remain resilient during periods of rapid change, adapt to shifting client needs, and compete effectively with larger firms. By leveraging technology, firms can streamline operations, reduce costs, and free up resources to focus on higher-value services.
• Survey insight: Respondents noted that tools like AI not only streamline operations but also solve staffing challenges. For instance, respondents to our study noted, “AI allows me to produce more today by myself than when I had a staff of 20.” Additionally, remote work technologies were highlighted as game-changers: “The ability to work anywhere with our paperless environment is a tremendous advantage.”

Exceeding client expectations: Technology is not the only factor that incrementally enhances perceptions of success; firms must also focus on delivering exceptional client experiences. Firms that go beyond meeting expectations to actively contribute to client success see stronger client loyalty and reputational benefits.

• Why it matters: Clients increasingly demand tailored, strategic solutions, not just compliance work. Exceeding expectations strengthens trust and fosters long-term relationships.
• How to implement: Use client feedback to identify service gaps and opportunities for improvement. Train staff to adopt a client service approach, focusing on clients’ broader business goals.

A culture of continuous learning and improvement: Organizational culture is another important driver of success. Firms that emphasize learning, innovation, and improvement outperform those focused solely on team dynamics or routine processes.

• Why it matters: A forward-thinking culture helps firms adapt to industry changes, attract top talent, and retain staff in a competitive labor market.
• How to implement: Implement professional development programs that prioritize tech skills and leadership training. Regularly evaluate firm processes and encourage team input for improvements.

Surprising findings, what didn’t matter as much: Our empirical research also debunks some common assumptions. For example:

• Service specialization: While many practitioners emphasize the need for industry or service specialization, our findings show these factors have limited incremental impact on success.
• Advisory work vs. compliance work: Contrary to popular belief, the balance between advisory and compliance work does not significantly drive success. Instead, success stems from how services are delivered, not the type of services offered.

Practical steps for practitioners

To capitalize on these findings, firms should focus on:

• Investing strategically in technology
  • Assess your firm’s current tech stack and tech abilities and compare it to industry leaders.
  • Prioritize investing in the technology skills of your people and in investments in AI, automation and cloud-based solutions that directly enhance client service and operational efficiency.
• Reframing client relationships
  • Position your firm as a strategic partner, not just a service provider.
  • Create metrics to measure and track client satisfaction and loyalty.
• Fostering a culture of innovation
  • Encourage staff to explore new technologies and processes.
  • Recognize and reward innovative ideas that enhance client or firm outcomes.

Looking to the future

The accounting profession is evolving at a breakneck pace, with new technologies like generative AI, predictive analytics and remote work technology reshaping the landscape. For small and medium-sized firms, success depends on being proactive: adopting transformative technologies, exceeding client expectations, and fostering a forward-thinking culture. By prioritizing these strategies, your firm can navigate the challenges ahead and emerge as a leader in the industry.

For more detailed insights or guidance on implementing these strategies, feel free to reach out to the authors.

The accounting profession is facing a perfect storm of staffing challenges. There aren’t enough accountants to handle the rising workloads, the workforce is getting older, and the number of new CPAs coming in has been slowing to a trickle over the past ten years. Companies are desperate for ways to keep their quality of service high, even though they have smaller teams. Artificial intelligence (AI) is one possible answer. 

Accounting’s Talent Shortage By the Numbers

About three-quarters of the CPAs who work now are either at or close to retirement age and will be leaving the workforce in the next ten years. This “silver tsunami” means that many experienced professionals will soon leave the field.

Also, fewer people are taking the CPA exam, which means there are fewer new graduates entering the profession. Because of things like the 150-hour CPA requirement, lower starting salaries, and not understanding the profession well, fewer students are choosing accounting.

In addition to retirements, a lot of accountants in the middle of their careers have left the profession in the last few years. Over 300,000 U.S. accountants and auditors left their jobs between 2019 and 2022, a 17% decline in the workforce. This is a lot higher than the average quit rate in the economy, which shows that people in the field are facing burnout and dissatisfaction. 

Ironically, there continues to be strong demand for accounting services. Companies need to find ways to do more with less because there is more work and fewer people. This is where technology, particularly AI, comes into play.

What Accounting Firms Can Automate Today

Recent advances in AI offer a timely opportunity to boost efficiency and alleviate overburdened staff. Modern AI tools can handle many routine, time-consuming accounting tasks, allowing human professionals to focus on higher-value work. 

Here are some examples of how automation powered by AI can be used across different accounting tasks:

Bookkeeping and data entry: AI-powered software can classify revenue and expenses and reconcile accounts, automating bookkeeping and data entry. Algorithms scanning invoices or receipts can automatically extract all relevant fields, saving time and reducing data entry errors. AI matching ledger transactions to bank statement lines accelerates bank reconciliations from hours to minutes by detecting exceptions for human inspection.

Document review and audits: AI systems can quickly read and extract data from documents for audits and document review. AI lets audit teams evaluate entire contracts, agreements, and financial records for issues. Deloitte used cognitive artificial intelligence to examine all contracts and detect auditor-relevant phrases and irregularities. 

Tax preparation and research: AI is simplifying tax preparation and research, from data collection to filing. Tax prep and research machine learning models can automatically extract and prepare W-2s, 1099s, and other tax documents for returns. This makes hand-entering taxes much easier. AI can optimize a client’s tax situation by finding qualified credits or deductions by verifying transactions against tax legislation. 

Analytics and forecasting: AI can find trends and generate concepts that humans cannot. Accounting and advising firms use AI-driven analytics for risk assessment, fraud detection, and predictive forecasting. An AI model can analyze client financial data and identify unusual transactions or trends, alerting accountants to potential issues. 

What AI Does Not Replace: The Human Judgment Factor

Despite AI’s amazing potential, there are crucial areas of accounting that technology should not (and cannot) replace. Accounting is, at its core, a profession of judgment, ethics, and trust – all elements that require a human touch. 

Professional judgment and expertise: AI doesn’t have the background, skepticism, or experience that accountants do. Experienced accountants can comprehend unclear legislation, apply accounting standards to new scenarios, and make difficult transaction decisions. AI can propose or offer facts, but ultimate judgments like audit opinions or tax positions require human skill and accountability. 

Ethics and skepticism: Accountants must follow strong ethical guidelines and take care. AI lacks ethics and skepticism. Fraud detection requires questioning and verifying facts with a healthy doubt, not merely noticing irregularities. A human auditor must determine if an unusual pattern is fraudulent or not. Human monitoring is needed to check AI outputs since algorithms can make mistakes or “hallucinate”. 

Client relationships and communication: Accounting often involves talking to and working directly with clients. In uncertain times, clients rely on their trusted advisors to look at the numbers, explain options, and put their minds at ease. AI cannot replace the trust and understanding CPAs build with clients. When a business has to make a tough financial decision, they want a human advisor who can listen to its concerns and tailor advice to the specific situation.

Strategic thinking and creativity: AI can evaluate data effectively but not innovate or think strategically. Accounting firms must develop strategies, solve difficult financial problems, and solve client problems creatively. AI might show that a client’s costs are going up, but accountants need to be creative and think outside the box to find the best pathway forward. AI works with people to quickly analyze data and give them information that helps them make those decisions. Then, people use their judgment and creativity to choose the best course of action.

So how does my firm get started?

In general, AI should handle tasks, not responsibilities. By automating routine tasks, AI lets accountants use their most valuable human skills, such as judgment, ethical reasoning, communication, and strategic insight.

The bottom line is that AI can be a powerful ally in solving the accounting labor shortage, but success requires choosing the right tools and using them wisely. Start by addressing your firm’s pain points with proven AI solutions – whether that’s automating a tedious workflow or augmenting your team’s analysis – and ensure you maintain robust human oversight. With a thoughtful strategy, accounting firm leaders can harness AI to not only fill the labor gap but also to transform their firms for the better: boosting efficiency, enhancing services, and making the profession more attractive for the next generation of talent.