Connect with us

Accounting

PCAOB board member complains of persecution by senators

Published

on

Christina Ho, a member of the Public Company Accounting Oversight Board, complained publicly on LinkedIn that a pair of influential senators are singling her out for audit failures at firms.

In a LinkedIn post on Oct. 17, Ho referenced a letter a week earlier from Sen. Elizabeth Warren, D-Massachusetts, and Sheldon Whitehouse, D-Rhode Island, calling on the PCAOB to establish stricter accountability for firms with unacceptable deficiency rates. They noted that last year, the PCAOB’s review of over 200 accounting firms’ audits found that 46% had errors so significant that the auditor “had not obtained sufficient appropriate audit evidence to support its opinion” about a public company’s financial statements and financial reporting. 

In the letter, they pointed to a statement from a speech in September by Ho at an Institute of Internal Auditors event. “Last month, Board Member Christina Ho denied that the inspection results were a problem, instead claiming that ‘there is another side to the story,’ and that ‘PCAOB has become overzealous in its enforcement program,” falsely claiming that the inspection results “lump all deficiencies together without a qualitative assessment of their severity.’

pcaob-board-members-2022.jpg

Center for Audit Quality CEO Julie Bell Lindsay (left) moderates a 2022 panel discussion with (left to right) Public Company Accounting Oversight Board chair Erica Williams and board members Duane DesParte, Christina Ho, Kara Stein and Anthony Thompson at the AICPA & CIMA Conference on Current SEC and PCAOB Developments in Washington, D.C.

Ho complained that the Senators’ letter accused her of appearing to be “focused on downplaying and misdirecting attention from these atrocious findings,” and of making false statements in her speech. “The letter also contains a thinly veiled threat to me (and others) by noting how Senator Warren had successfully urged the Securities and Exchange Commission (SEC) in 2021 ‘to remove and replace all members of the PCAOB.,” she added.

“The fact that the Senators decided to single me out is troubling because I believe they are trying to stifle me from expressing views inconsistent with their false narrative,” said Ho. “I am writing to: (1) protect investors, by providing context as to why the Senators’ alarmism is unwarranted; and (2) defend myself and my views which are based on over 30 years of professional experience.”

Ho explained why the 46% deficiency rate should not be as alarming as the senators said.

“To be clear, I am not saying that a 46% deficiency rate or a 5% incorrect audit opinion rate is acceptable, it’s not,” said Ho. “What I am saying is that when you put the 46% figure cited by PCAOB and the Senators into context, the sky is not falling, and for the Senators to state that investors ‘face a coin flip when it comes to whether they should believe and trust the results of public companies’ audits,’ is unfair and unwarranted.” Since my work at the U.S. Department of the Treasury (Treasury) leading the governmentwide implementation of the first federal open data law sponsored by Senator Mark Warner (D-VA), I have dedicated my career to promoting data-driven government and evidence-based policymaking, because that is how we build trust in government. The best way to protect investors is to drive audit quality, especially through innovation. However, regulating through enforcement will not be effective. Fear might extract compliance, but it will not achieve audit quality. There is a significant opportunity to promote audit quality through innovation.”

Ho said she had worked with 10 experts in the past two years to develop recommendations to the PCAOB regarding ways to promote audit quality through emerging technologies like artificial intelligence. 

She took umbrage at the accusations from the senators. “As an immigrant and a naturalized U.S. citizen, one of my most treasured values of American democracy is freedom of speech,” said Ho. “Like many women of color, it has taken me a long time to be able to use my voice to express my views. As a public servant who contributed significantly to the advancement of federal financial transparency and accountability, I have earned the trust of many people in governments, industries, academia, and civil societies. As a PCAOB Board Member, I have applied my expertise in auditing, financial reporting, technology, and public policy to advance the PCAOB’s mission of investor protection. That is why the Senators’ letter was so stunning to me.”

She felt threatened by the senators’ letter. “U.S. Senators have tremendous influence,” said Ho. “Senators Warren and Whitehouse made it clear in their letter to the PCAOB that Senator Warren got the former PCAOB Board fired. Is this a threat for simply using my voice to speak the truth in the name of investor protection? If Congress did not want dissenting voices on the PCAOB Board, why did it pass a law that required a five-member board to govern the PCAOB? Yes, those in charge have the power to fire me without cause; the power to put my daughter’s healthcare, education, and future in jeopardy as I am a single parent; the power to deprive investors of the whole truth; and the power to sow distrust about the public company auditing profession and with it our capital markets.”

Ho pointed to her right to speak out as an American. “But why?” she wrote. “Is there anything more undemocratic than trying to silence the voice of a fellow American? Is there anything more abusive than U.S. Senators’ thinly veiled threat to take away the jobs of public servants just because they have different perspectives? Is there anything more hypocritical than Senators who claim to serve underprivileged and underrepresented populations, but do not think twice about threatening a woman of color for simply doing what she believes is right?”

She pointed out that the PCAOB is not a federal agency even though it is a federal regulator.

“I am not a political person,” she added. “I was a career executive at Treasury and served under three Treasury Secretaries during two Administrations. I took an oath to serve the American people and support the Constitution, which I take seriously every day. I agree that the PCAOB should be held accountable. Like all financial regulators, PCAOB has enormous power. However, unlike other financial regulators, we are not a federal agency. In my opinion, all regulators should be subject to congressional oversight because unchecked power is dangerous and harmful to our people and democracy. I welcome any opportunities to be held accountable for doing my job honestly and serving investors as well as the American people at large.”

Ho suggested in her IIA speech that financial restatements were a better measure of audit quality than the audit deficiency rate. “To me, the best and most direct metric that measures reporting, and audit quality is the number of public company financial restatements, and this particular metric suggests a more positive and hopeful reality,” she said. 

The senators’ letter also criticized a statement by PCAOB chair Erica Williams in response to the report.

“In a statement upon the release of the report, Chair Williams commented that: ‘These inspection results point to some small signs of movement in the right direction.'”

“This is the wrong conclusion to draw from an embarrassing and intolerable set of findings,” wrote Sen. Warren and Whitehouse. “Even more troubling is the PCAOB’s attribution of these systemically high failure rates—which appears to affect virtually all auditors—to ‘more isolated incidents’ and outliers.”

Williams in turn seemed to counter Ho’s claim that restatements are a more accurate reflection of audit quality than deficiencies during a speech last week. 

“These Part I.A deficiencies are relevant when assessing the quality of work done by an audit firm,” she said. “But audit quality is complex, and it escapes simplistic proxies or measures. For instance, some have suggested that audit quality can be best measured by the number of issuer restatements. Specifically, some argue that a relatively low number of restatements translates to high audit quality. I believe that view is too simplistic. A properly performed audit should identify errors before the need for restatements. At the same time, a poorly performed audit does not always mean that the financial statements are erroneous.”

Continue Reading

Accounting

IAASB tweaks standards on working with outside experts

Published

on

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 proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • 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 IAASB website by July 24, 2025.

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.  

Continue Reading

Accounting

Tariffs will hit low-income Americans harder than richest, report says

Published

on

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 analysis from the Institute on Taxation and Economic Policy.

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 imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

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 estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

Continue Reading

Accounting

At Schellman, AI reshapes a firm’s staffing needs

Published

on

Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

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.”

Continue Reading

Trending