Accounting
PCAOB adopts far-reaching firm and engagement metrics and firm reporting standards
The Public Company Accounting Oversight Board voted Thursday to adopt new requirements for auditing firms to report on various metrics for both the firm and its engagements, as well as change the annual reports the firms submit to the PCAOB.
The changes involve two standards, on
Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer will be required to publicly report specified metrics relating to such audits and their audit practices. These metrics — which will further PCAOB oversight activities and which can be used by investors, audit committees, and other stakeholders — cover the following eight areas:
- Partner and manager involvement;
- Workload;
- Training hours for audit personnel;
- Experience of audit personnel;
- Industry experience;
- Retention of audit personnel (firm-level only);
- Allocation of audit hours; and,
- Restatement history (firm-level only).
“The goal of this project before us today is to provide additional information about audit firms and their audits in both a consistent and comparable manner to bolster confidence, strengthen oversight, and empower investors and audit committees to make better informed decisions and help drive audit quality forward,” said PCAOB chair Erica Williams in a statement at an open meeting Thursday. “Today, investors and other stakeholders lack information about audit firms’ practices and their engagements — some of which may be shared with company management or their audit committees. Through this project, investors, audit committees and other stakeholders will have access to the same valuable information on firms and their engagements to help them make knowledgeable decisions regarding audit firms and investment related choices.”
Reporting of firm-level metrics will be required annually on a new Form FM, for firms that serve as the lead auditor for at least one accelerated filer or large accelerated filer. Reporting of engagement-level metrics for audits of accelerated filers and large accelerated filers will be required via a revised Form AP, which will be renamed “Audit Participants and Metrics.” Finally, limited narrative disclosures will be allowed (but not required) on both Form FM and Form AP to provide context and explanation for the required metrics.
After issuing its proposal in April on firm and engagement metrics, the PCAOB received feedback from a wide array of commenters and made some changes to the amendments as originally proposed
- Reduced the metric areas to eight (from 11);
- Refined the metrics to simplify and clarify the calculations;
- Increased the ability to provide optional narrative disclosure (from 500 to 1,000 characters); and,
- Updated the effective date. (If approved by the SEC, the earliest effective date of the firm-level metrics will be Oct. 1, 2027, with the first reporting as of September 30, 2028, and engagement-level metrics for the audits of companies with fiscal years beginning on or after Oct. 1, 2027.)
For the new requirements, the PCAOB also established a phased-in implementation to provide smaller firms with more time. The requirements will take effect for firms that audit more than 100 issuers first, and for other firms, the requirements will take effect the following year.
However, PCAOB board member Christina Ho, believes the new requirements were drawn up too hastily. “Our votes today are unprecedented,” she said in a statement at the meeting Thursday. “Never in the history of the PCAOB has the Board rushed to adopt new standards and rules in the middle of a historic transition to new SEC leadership, let alone adopt standards and rules that are not ready. The Firm and Engagement Metrics was proposed on April 9, 2024, and we received 46 comment letters. If adopted today, it will set the record for this Board as the fastest adopted standard which only took 226 days (7.5 months). The average number of days from proposal to adoption for the five standards adopted by this Board to date was 448 days (15 months), with an average of 32 comment letters. Essentially, although the Firm and Engagement Metrics proposal has over 40% more comment letters than the average of 32, it took half as much time as the other standards adopted by this Board. Political expediency is not evidence-based policymaking. Haste naturally harms work product quality, which will not escape any keen eyes.”
Firm reporting standard
For the firm reporting standard, the amendments adopted by the PCAOB on Thursday will modernize its annual and special reporting requirements to facilitate the disclosure of more complete, standardized and timely information by registered public accounting firms. Much of the information will be disclosed publicly, such as enhanced fee, governance and network information, as it currently is. But other information that;s potentially proprietary, sensitive or developing will be available to the PCAOB only for oversight.
The amendments enhance the required current reporting of information by registered firms on the PCAOB’s public Annual Report Form (“Form 2”), and the Special Reporting Form (“Form 3”) in several key areas:
Financial information – On Form 2, all registered firms will need to report additional fee information. The largest firms will also be required to confidentially submit financial statements to the PCAOB.
Governance information – On Form 2, all registered firms will be required to report additional information regarding their leadership, legal structure, ownership, and other governance information, including reporting on certain key quality control operational and oversight roles.
Network relationships – Registered firms will be required to report a more detailed description of any network arrangement to which a registered firm is subject. That includes describing the network’s structure, the registered entity’s access to resources such as audit methodologies and training, and whether the firm shares information with the network regarding its audits (including whether the firm is subject to inspection by the network).
Special reporting – For annually inspected firms, the amendments include a new confidential special reporting requirement for events material to a firm’s organization, operations, liquidity or financial resources, such that they affect the provision of audit services.
Cybersecurity – On Form 3, confidentially, registered firms will be required to promptly report significant cybersecurity events to the PCAOB. On Form 2, registered firms will also be required to periodically and publicly report a brief description of any policies and procedures to identify and manage cybersecurity risks.
Updated description of QC policies and procedures – A new form will require any firm that registered with the Board prior to the date that the PCAOB’s new quality control (QC) standard becomes effective (December 15, 2025) to submit an updated statement of the firm’s quality control policies and procedures pursuant to the QC standard.
After the original proposal in April on firm reporting, the PCAOB received input that caused it to modify the requirements to focus on specific disclosures that should be most useful to PCAOB staff, investors, audit committees and others. Among other changes made since these amendments were first proposed, the PCAOB:
- Streamlined fee disclosure requirements;
- Eliminated the proposed requirement that financial statements conform to an applicable financial reporting framework (such as U.S. generally accepted accounting principles) and instead prescribed certain minimum financial statement reporting requirements;
- Streamlined requirements related to firm governance and network arrangements;
- Maintained the Form 3 reporting timeframe of 30 days for existing special reporting items to ease potential burden – particularly for smaller firms – while still requiring more timely reporting of events of sufficient significance and urgency (such as cybersecurity); and,
- Modified the material event reporting requirement to better focus on information relevant to a firm’s audit practice – and limited the material event reporting requirement to firms that are annually inspected.
The amendments are subject to approval by the Securities and Exchange Commission. If they’re approved by the SEC, they will become effective in stages. The PCAOB is encouraging firms and others to carefully review the “effective date” sections in both adopting release documents to understand the various phases. The PCAOB intends to issue resources to assist firms with implementation of these requirements.
One suspect in the two New Year’s Day incidents being probed as terror attacks was a former U.S. Army sergeant from Texas who recently worked for Big Four firm Deloitte. The other was a U.S. Army special forces sergeant from Colorado on leave from active duty.
Law enforcement officials on Thursday said there appears to be no definitive link between the two deadly events: a truck attack in New Orleans that left at least 15 dead and the explosion of a Tesla Cybertruck outside of President-elect Donald Trump’s hotel in Las Vegas that killed the driver and injured seven.
But in addition to the military backgrounds of the suspects — they both served in Afghanistan in 2009 — on the day of the attacks they shared at least one other striking similarity: Both men used the same rental app to obtain electric vehicles.
The driver of the Cybertruck was identified as Matthew Alan Livelsberger of Colorado Springs. He rented the Cybertruck on Turo, the app also used by Shamsud-Din Jabbar, the suspect in the separate attack in New Orleans hours earlier. Turo said it was working with law enforcement officials on the investigation of both incidents.
There are “very strange similarities and so we’re not prepared to rule in or rule out anything at this point,” said Sheriff Kevin McMahill of the Las Vegas Metropolitan Police Department.
The gruesome assault on revelers celebrating New Year’s in New Orleans’ famed French Quarter and the explosion in Las Vegas thrust U.S. domestic security back into the spotlight just weeks before Donald Trump is sworn in as president.
Texas roots
As authorities combed through the macabre scene on Wednesday in New Orleans’ historic French Quarter, they said they discovered an ISIS flag with the Ford F-150 electric pickup truck that barreled through the crowd. Two improvised explosive devices were found in the area, according to the FBI.
Jabbar had claimed to join ISIS during the summer and pledged allegiance to the group in videos posted on social media prior to the attack, according to the FBI. An official said there’s no evidence that ISIS coordinated the attack.
Officials said the 42-year-old Jabbar, who lived in the Houston area, exchanged fire with police and was killed at the scene.
Jabbar has said online that he spent “all his life” in the Texas city, with the exception of 10 years working in human resources and information technology in the military, according to a video promoting his real estate business.
After serving as an active-duty soldier from 2006 to 2015 and as a reservist for about five years, Jabbar began a career in technology services, the Wall Street Journal reported. He worked for Accenture, Ernst & Young and Deloitte.
Jabbar was divorced twice, most recently from Shaneen McDaniel, according to Fort Bend County marriage records. The couple, who married in 2017, had one son, and separated in 2020. The divorce was finalized in 2022.
“The marriage has become insupportable due to discord or conflict of personalities that destroys the legitimate ends of the marital relationship and prevents any reasonable expectation of reconciliation,” the petition stated.
McDaniel kept the couple’s four-bedroom home southwest of Houston. She declined to comment when contacted at her house in suburban Houston.
Fort Bragg
Jabbar moved to another residence in Houston, which the FBI and local law enforcement spent all night searching before declaring the neighborhood of mobile homes and single-story houses safe for residents. Agents cleared the scene shortly before 8 a.m. local time without additional comment.
Jabbar’s mobile home is fronted by an 8-foot corrugated steel fence that was partially torn apart to provide search teams access. Weightlifting equipment and a bow hunting target were scattered across the broken concrete walkway. Chickens, Muscovy ducks and guinea fowl roamed the property.
Behind the home, a yellow 2018 Jeep Rubicon sat with its doors left wide open and a hardcover book written in Arabic sitting atop the dashboard. The license plate expired in May 2023.
The other suspect, Livelsberger, was a member of the Army’s elite Green Berets, according to the Associated Press, which cited unidentified Army officials. He had served in the Army since 2006, rising through the ranks, and was on approved leave when he died in the blast.
Livelsberger, 37, spent time at the base formerly known as Fort Bragg, a massive Army base in North Carolina that’s home to Army special forces command. Jabbar also spent time at Fort Bragg, though his service apparently didn’t overlap with Livelsberger’s.
Las Vegas Sheriff McMahill said they found his military identification, a passport, a semiautomatic, fireworks, an iPhone, smartwatch and credit cards in his name, but are still uncertain it’s Livelsberger and are waiting on DNA records.
“His body is burnt beyond recognition and I do still not have confirmation 100% that that is the individual that was inside our vehicle,” he said.
The individual in the car suffered a gunshot wound to his head prior to the detonation of the vehicle.
The Financial Accounting Standards Board today asked stakeholders for feedback on its future standard-setting agenda.
The FASB published an
Stakeholders should review and submit feedback by June 30.
Patrick Dorsman/Financial Accounting Foundation
“As a result of the significant progress on the 2021 agenda consultation priorities, the FASB staff is once again seeking stakeholder input on the Board’s future agenda and initiatives,” FASB technical director Jackson Day said in a statement. “We encourage stakeholders to take this opportunity to review the ITC and share their views on financial accounting and reporting priorities they think the Board should address going forward.”
The FASB began the current agenda consultation in 2024, doing outreach to over 200 stakeholders, including investors, practitioners, preparers and academics. The discussion in this ITC is based on input received from those stakeholders and does not contain FASB views. Most of those stakeholders said “there is not a case to make major changes to generally accepted accounting principles at this time,” according to the announcement, so many of the topics that were suggested focus on targeted improvements to GAAP.
The board encourages stakeholders to continue to submit
The traditionally static field of auditing is on the edge of an industry-changing transformation, thanks to AI.
As pattern-learning AI machines quickly incorporate themselves into industry after industry, auditing is next in line. Industry giants like
As more firms and companies adopt AI in their accounting processes, it signals a significant step toward a new era in which intelligence technology can take over tasks that are too time-consuming and repetitive, allowing for more complex tasks from human counterparts.
Rather than resisting, the industry should welcome this evolution. AI is not a replacement but a partner, enhancing the value auditors bring by handling routine tasks with precision, allowing professionals to focus on areas where human judgment and creativity are irreplaceable.
Where AI fits into the current state of auditing
The average auditor typically spends their days conducting data analysis, monitoring for fraud, reviewing accounts, gauging risks and financially planning accounts. However, firms are struggling to keep their employment up, snowballing into less accurate data reporting.
According to
Even as roles in finance continue to rank among the top earners in the job market, less and less qualified professionals are interested in taking on all of the tasks this career entails. This leaves high-level and top-paid professionals juggling repetitive tasks, day in and day out, eating up time that could be utilized in better ways. It’s no surprise that the main conversation around careers in finance is centered upon work-life balance or the lack thereof. As workplace demands continue to rise, so do simple data-error mistakes.
When incorporating AI into the auditing process, we’re able to better predict security anomalies and solve the answers to repetitive, time-sensitive data needs. For example, instead of waiting until the end of each month for irregularities, AI systems can provide real-time updates.
New workplace dynamics
Auditors are no longer confined to static reports; they now have the power to leverage AI for real-time analyses, instant anomaly detection and precise financial risk forecasting — capabilities that are revolutionizing the field today. By automating routine tasks, AI empowers auditors to dedicate their expertise to high-value areas like complex financial planning and strategic advisory, where human insight remains indispensable.
Moreover, advances in technology are reshaping how auditors interact with financial data. Instead of relying on accountants as intermediaries, auditors can now engage directly with a company’s data through intuitive, AI-powered interfaces similar to chat support. These systems enable auditors to ask questions and receive immediate, precise answers, streamlining workflows and enhancing their ability to deliver timely, actionable insights.
By automating repetitive processes, firms can allocate more resources to addressing complex challenges that demand advanced analysis and strategic thinking. This shift enhances the depth and accuracy of client engagements, enabling faster, more insightful feedback and stronger client relationships. Additionally, these innovations drive higher standards of service delivery, positioning firms as forward-thinking leaders in the field.
The skills needed to keep up
While AI’s ability to automate routine tasks allows professionals to concentrate on more strategic, high-level responsibilities, it also introduces new challenges that must be addressed. As technology continues to evolve, navigating these obstacles will be key to ensuring long-term success and innovation in the industry.
Organizations urgently need to prioritize upskilling their workforce, with
Additionally, the finance industry must focus on strengthening data security measures and upholding ethical standards in the use of AI systems. If these areas are ignored, the industry risks eroding trust, facing heightened vulnerabilities and compromising long-term innovation.
Despite these hurdles, the move toward AI-driven workflows signals the dawn of a new era, where collaboration between advanced technology and human expertise drives innovation and redefines the value of financial professionals in a rapidly changing landscape.
Embracing the impact
AI could be coming for the audit industry, not as a threat, but as the greatest asset of this new era. The value of adding AI to the audit process goes beyond efficiency, but solves a bigger industry problem as a whole.
If institutions want to stay ahead, the answer to their problems is right in front of our faces, and slowly being incorporated into the workflows of industries across the landscape every day. We shouldn’t run from this innovation, but instead embrace it and prepare our workforce for the skills needed to thrive in this new world.
As we embrace innovation and AI, our employers and customers will thank us.
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