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PCAOB proposes far-reaching requirements for audit firm reporting

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The Public Company Accounting Oversight Board voted to propose an extensive set of new reporting requirements to impose on auditing firms during a meeting Tuesday, even as the auditing overseer is facing pushback over some of its earlier proposed rules on noncompliance with laws and regulations.

The new requirements come in the form of two related proposals, one on firm and engagement metrics and the other on firm reporting. The Firm and Engagement Metrics proposal involves a standardized set of 11 metric areas for every firm that audits at least one public company classified as either an “accelerated filer” or a “large accelerated filer” to disclose every year.

They include information about firms’ overall audit practice, such as how partners’ quality performance ratings affect their compensation, and information about individual engagements, for example the time incurred by partners and managers on the engagement team related to areas of significant risks, critical accounting policies and practices, and critical accounting estimates.

PCAOB logo - office - NEW 2022

“Collectively, these metrics would help investors make more informed decisions about how they invest their money, and they would provide audit committees with consistent data to analyze and compare as they are selecting and monitoring audit firms, ” said the PCAOB chair, Erica Williams, in a statement during Tuesday’s open meeting. “Firms could use these standardized metrics about themselves and their peers to assist in designing, implementing, monitoring and remediating their systems of quality control.”

She acknowledged that the PCAOB could also benefit from having such information on hand in a consistent, comparable format for use in its inspections program and standard-setting initiatives.

The proposal, if adopted, would require PCAOB-registered firms that audit one or more accelerated filers or large accelerated filers to publicly report specified metrics relating to such audits and their audit practice.

The proposal envisions standardized firm- and engagement-level metrics to create a data set for investors and other stakeholders for analysis and comparison. The proposed metrics cover:

  • Partner and manager involvement;
  • Workload;
  • Audit resources;
  • Experience of audit personnel;
  • Industry experience of audit personnel;
  • Retention and tenure;
  • Audit hours and risk areas (engagement-level only);
  • Allocation of audit hours;
  • Quality performance ratings and compensation (firm-level only);
  • Audit firms’ internal monitoring; and,
  • Restatement history (firm-level only).

The proposal would require reporting of firm-level metrics 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 would be done on a revised Form AP, which would be renamed “Audit Participants and Metrics.” The proposal would allow, but not require, limited narrative disclosures on both Form FM and Form AP to provide context and explanation for the required metrics.

Firm reporting proposal

The other proposal, on firm reporting, covers five main areas, and would require an extensive amount of new reporting by firms. The first area is financial information. All PCAOB-registered firms would need to report actual dollar amounts of various fee categories, as opposed to the percentages that are currently required. The new requirements would also provide more disaggregated fee information that is more consistent and easier to compare across firms. 

“Fee reporting would help investors, audit committees and other stakeholders better understand how a firm’s audit practice fits into its overall business and the incentives that may influence resource allocation within the firms,” said Williams.

The largest registered firms would also need to confidentially submit their financial statements to the PCAOB.

“These firms play an essential role in our capital markets and overall economy,” said Williams. “Their financial stability impacts their ability to invest in resources necessary to ensure quality audits and to withstand various financial events.”

Another area of disclosure involves audit firm governance information. The proposal would require all PCAOB-registered firms to report more public information about their leadership, legal structure, ownership and other governance information, including information on the structures and policies that would govern a change in the form of the organization.

The PCAOB also wants to find out more information about firm networks, such as the Big Four. The proposal would require a more detailed public description of firms’ network arrangements, to provide more insight about the accountability and oversight structure the firm is subject to, in addition to the resources the firm has available to devote to its audit work.

In addition, the PCAOB wants a shorter timeline on special reporting of events such as whether a firm is the subject of a lawsuit or regulatory action. The proposal would shorten the timeframe for special reporting from 30 days to 14 days, or more promptly as warranted. Some of the information would need to be made available to investors, audit committees, and the PCAOB inspection and investigation staff in a timelier manner.

Firms would also need to provide more detailed information about any financial issues they are facing, as well as upcoming mergers, acquisitions and reorganizations.

“In addition to the existing special reporting requirements, the proposal would add a new confidential special reporting requirement for events material to a firm’s organization, operations, liquidity or financial resources, or provision of audit services,” said Williams. “These events have the potential to significantly impact audit quality and investor protection, yet they are not covered under the current standard. For example, the additional requirement might include a determination that there is substantial doubt about the firm’s ability to continue as a going concern, or a planned or anticipated acquisition of the firm, change in control, or restructuring.”

Cybersecurity issues would also need to be disclosed to the PCAOB.

“Cybersecurity threats are among the greatest risks to many businesses in today’s world, and audit firms are particularly attractive targets,” said Williams. “The proposal would require public reporting of a brief description of the firm’s policies and procedures, if any, to identify and manage cybersecurity risks, and confidential reporting of significant cybersecurity events to the PCAOB within five business days.”

The firm reporting proposal would, if adopted, amend the board’s annual and special reporting requirements to facilitate the disclosure of more complete, standardized and timely information by registered firms. Much of the information would be disclosed publicly, but some would be available only to the PCAOB for oversight purposes.

The board is proposing to enhance the required reporting of information by registered firms on its public Annual Report Form, also known as Form 2, and the Special Reporting Form, also known as Form 3, in several key areas.

  1. Financial information: Under the proposal, all registered firms would report additional fee information on the public annual report form. The largest registered firms would also be required to confidentially submit financial statements annually to the PCAOB.
  2. Audit firm governance information: The proposal would require all registered firms to report on the public annual report form additional information regarding their leadership, legal structure, ownership and other governance information, including information that would govern a change in the form of the organization.
  3. Network information: The proposal would require on the public annual firm report a more detailed description of any network arrangement to which a registered firm is subject, including describing the legal and ownership structure of the network, network-related financial obligations, information-sharing arrangements between the network and registered firm, and network governing boards or individuals to which the registered firm is accountable.
  4. Special reporting: The proposal would shorten the timeframe for all reporting on the special reporting form from 30 days to 14 days (or more promptly as warranted) and implement a new confidential special reporting requirement for events material to a firm’s organization, operations, liquidity or financial resource, or provision of audit services.
  5. Cybersecurity: The proposal would require confidential reporting on the special reporting form of significant cybersecurity events within five business days and periodic public reporting of a brief description of the firm’s policies and procedures, if any, to identify and manage cybersecurity risks.

Separately, the proposal includes amendments to facilitate a provision under the QC 1000 proposal that would require firms to report their revised quality control policies and procedures if QC 1000 were to be adopted.
The board’s thoughts

PCAOB board member Christina Ho voted in support of the firm and engagement metrics proposal but against the firm reporting proposal. While she voiced cautious support of the firm and engagement metrics proposal, she also had some questions about it.

“The proposal does not articulate clearly what the PCAOB is going to do with all this information,” said Ho. “We are proposing to mandate that firms submit this information by the respective due dates, but what are the PCAOB’s due dates to publish? Will we analyze the information we collect and share our analysis with the public?”

She was more critical of the firm reporting proposal.

“I am profoundly worried that the board’s apparent zeal to impose, in each new proposed standard or rule, new burdens on firms, without sufficient tailoring and without quantifying the estimated burdens, may end up breaking the public company auditing profession’s back, particularly for small firms,” said Ho. “If we ‘break’ the profession in the name of investor protection, are we really protecting investors?”

Another board member, George Botic, supported the firm and engagement metrics proposal.

“My consideration of this proposal has led me to believe that the ultimate value of many of the proposed metrics would likely be realized over a longer time horizon,” he said. “Trends across and within both firms and engagements may emerge. Such trends could provide not only information for the acquirors of audit services and the users of financial statements, but also direction to the academic community about potential research areas, which in turn could provide further insights into the overall audit market and also assist our work.”

He also voted in support of the firm reporting proposal.

“As part of our ongoing oversight activities, we have received important information about firms’ operations on a voluntary ad-hoc basis in which firms may call and ‘alert’ various PCAOB staff of pending matters or firm actions,” said Botic. “Having been the recipient of many of these voluntary calls, I can confirm how helpful this information was. It allowed the staff to be more informed and able to respond and ask further probing questions and perform other oversight procedures, as warranted. This proposal takes the insights gained from those interactions and standardizes them to allow for comparable and timely collection that facilitates access and efficient sharing with offices and staff across the PCAOB.”

The PCAOB is asking for comments on both proposals by June 7 and noted that the basic framework for its annual and special reporting requirements has not been substantively reevaluated since its adoption in 2008. 

Separately on Tuesday, the PCAOB announced a settled disciplinary order against a Singapore-based firm, Pan-China Singapore PAC, for quality control violations and imposed a $75,000 penalty.

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Accounting

BPM to merge in WBM Partners in Canada

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BPM LLP, a Top 50 Firm based in San Francisco, is expanding further in Canada by adding WBM Partners LLP, a firm with offices in the greater Toronto area and Calgary, with the deal expected to be completed by June 1.

WBM provides accounting, auditing, and business advisory services to individuals and organizations across industries such as real estate and land development, hospitality, transportation, and professional services. In addition, WBM’s family office offers a variety of services including tax planning, estate planning, tax services and family governance. 

Financial terms of the deal were not disclosed. BPM (formerly known as Burr Pilger and Mayer) ranked No. 33 on Accounting Today’s 2025 list of the Top 100 Firms, with $260 million in annual revenue, 79 partners and 1,462 employees. BPM will add 37 professionals, bringing the firm’s total Canadian locations to three and total colleagues to 125.

“WBM’s dedication to excellence, integrity, and value-added service aligns perfectly with BPM’s mission and values,” said BPM CEO Jim Wallace in a statement Monday. “We are thrilled to welcome WBM to the BPM community. Together, we’re well-positioned to help clients achieve their goals and bring a full suite of services to the Canadian market.”

The deal comes at a fraught time for U.S.-Canada relations as tariff threats accelerate across both sides of the border. At least in the accounting profession, deals can still be made.

“Joining forces with BPM marks an exciting chapter for our clients, partners, and employees,” said WBM managing partner Al Karim Moloo in a statement. “BPM’s emphasis on professional development and innovation provides unparalleled opportunities for our team and ensures we can deliver even greater value to our clients. We are excited about the possibilities this combination brings.”

Last month, BPM announced it would be creating a global network dubbed BPM Global Ltd., with its first network member firm, Enspira Financial, with offices in Sydney and Melbourne, Australia. In 2023, BPM added two Las Vegas-based firms, Fair, Anderson & Langerman and RiMo Consulting, as well as O&S CPAs and Business Advisors in Long Beach, California. 

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Accounting

AICPA proposes independence rule changes for PE funding

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The American Institute of CPAs has issued a set of recommendations from a special task force on changing some of the independence rules related to alternative practice structures at accounting firms, given the large number of deals involving private equity investments.

The recommendations come from an Alternative Practice Structures Task Force that was set up two years ago by the AICPA’s Professional Ethics Executive Committee. They’re in a discussion memo and the AICPA is asking for comments on the preliminary conclusions and two possible interpretation options. Feedback should be emailed to [email protected] by June 15. The AICPA said last month it planned to revise the rules.

One of the revision options includes a specific private equity-related example, while the other is more general. Under both options, the draft interpretations would provide a three-step process:

  1. Determine which entities associated with the alternative practice structure are network firms (a term which is defined in the ethics code). Network firms are subject to independence requirements for financial statement audit and review clients.
  2. Determine which individuals associated with the alternative practice structure are covered members subject to independence requirements.
  3. Determine which additional relationships and circumstances associated with the alternative practice structure create threats to independence, and then identify relationships and circumstances where independence would be impaired, and apply the “Conceptual Framework for Independence” (ET sec.1.210.010) to any other relationships and circumstances that the member knows or has reason to believe may exist.

When evaluating the first step, the non-attest entity would be considered a network firm of the attest firm. Alternatively, a private equity investor, its funds and other portfolio companies would generally not be considered network firms, so portfolio companies could conceivably provide non-attest services to any attest clients. However, there may be circumstances where a portfolio company could be defined as a network firm for other reasons that will be spelled out in the task force’s discussion memorandum.

After the comment period closes, the committee intends to use the feedback to supplement its research and develop a formal exposure draft.

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Financial empathy for CPAs isn’t an oxymoron

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Deep in the heart of busy season, probably the last thing on your mind is feeling empathy for your clients when they’ve been procrastinating and are so disorganized. But in an increasingly competitive business climate, if you’re not able to make a true connection with your clients, they could easily move to a more empathetic firm, even one lacking your experience and technical acumen.

The word “empathy” gets thrown around a lot these days, but quite simply empathy is the ability to see the world through someone else’s eyes, to walk in their shoes and to understand their emotions and connect with them on a deeper level — without judgement. When you do that, clients will feel like they are the most important person in your life. Don’t underestimate the power of empathy.

Taking it a step further, “financial empathy” is about understanding and recognizing the emotional impact that money issues have on someone’s life. It’s about understanding the story beneath the numbers. It’s about acknowledging that money problems can be incredibly stressful and anxiety-provoking for clients, which affects their overall sense of wellbeing. 

While financial empathy isn’t covered in most accounting curricula or CPE courses, high-performing CPAs are increasingly incorporating into their practices. Dr. Michael Thomas, a former auditor with a degree in accounting, now an author, TEDx speaker, and financial planning educator at the University of Georgia, told me on my podcast thatFinancial empathy incorporates the three elements of empathy: 1. Cognitive empathy;2. Affective empathy (i.e., emotional empathy); and,

3. Compassionate empathy. The goal, he said, is to move through understanding and emotional connection to reach a compassionate response.

Real-world example

David, a newly divorced business owner, was filing taxes alone for the first time as a single. His ex-wife had always handled their finances, leaving him overwhelmed by investment losses, business deductions, and estimated tax payments.

David’s conversation with his CPA began with: “I messed up, I should have known.” Using cognitive empathy, his accountant reassured him that many business owners face similar challenges, and he explained David’s tax situation in simple terms. With affective empathy (i.e., feeling the same emotion that another person is feeling), his CPA created a safe space for questions, validating David’s concerns without judgment. Through compassionate empathy, the CPA helped David create a tax plan that he fully understood. It was the first step in a holistic financial plan, giving the client peace of mind and a path toward financial stability.

By replacing shame with understanding, the CPA empowered David to take control of both his personal and business finances.

Benefits of being an empathetic CPA

  • It helps you move clients away from financial shame toward vulnerability and openness.
  • It enables clients to share complete information needed for effective financial planning.
  • It builds lasting trust and long-term relationships.
  • It creates mutual growth for both advisor and client.
  • It allows money to serve as a conduit to a client’s authentic goals and joy.

Implementing financial empathy in your practice

  • Financial empathy involves active listening beyond just hearing words —- understanding the interaction of communication and emotion.
  • Financial empathy requires advisors, including CPAs, to self-regulate their own emotional responses while engaging with clients.
  • Financial empathy slows down the process so you can hear clients’ needs more effectively.

“As advisors, we get so excited when we use our technical skills to solve a client’s problem, but clients don’t always see it that way” if it’s just numbers, formulas and regulations, Dr. Thomas noted. “Financial empathy is going through the process of understanding the emotional experience, so the client feels seen and feels heard,” he added. 

Thomas said that’s when the NURSE algorithm can be very impactful for accountants and other financial advisors: Name the thing. Understand it. Respect the experience. Support the individual. Explore solutions collaboratively with your client.

Let’s look at how the NURSE framework can help a business owner like David whom we met above:

  • Name the thing. Acknowledge his feelings of overwhelm, uncertainty and difficulties of divorce. “David, it sounds like you are feeling overwhelmed and uncertain about your finances.”
  • Understand it. Take the time to listen to your client’s concerns, their fear of making mistakes, confusion over investment losses, and anxiety about taxes, before offering solutions: “David, many people in your position feel the same way. Walk us through the situation and let us know what’s on your mind.”
  • Respect the experience. Rather than focusing solely on technical fixes, recognize the emotional weight David feels about managing finances post-divorce. Often this is where advisors go immediately into problem-solving mode. Instead, take time to acknowledge your client’s feelings, before getting into the facts. “You’ve had a lot on your plate, David. Handling this alone for the first time is a big adjustment.”
  • Support the individual. Create a safe, judgment-free space where your client feels comfortable asking questions, ensuring they fully understand their new tax obligations and how those obligations fit into their business operations: “David, you don’t need to have it all figured out today. That’s what we’re here for. We can break it down one step at a time.”
  • Explore solutions collaboratively. Instead of simply prescribing a planning strategy, work with your client to develop a tax plan collaboratively — a plan they understand and feel confident implementing: “David, we’ve made great progress today, and now you have clear next steps for both your business and personal finances. This should give you a path toward greater peace of mind and financial confidence.”

By integrating financial empathy with structured guidance, David’s CPA helped him replace stress with confidence, ensuring he felt both clarity and control over his personal and business finances.

Still not convinced? Well, according to Dr. Thomas, there are four main risks for accountants and financial advisors who don’t develop their empathy skills and overall soft skills:

  1. “Pseudo-empathetic response.” This is when advisors default to technical expertise when emotionally challenged.
  2. Reverting to sympathy (“feeling bad that you feel bad”) rather than true empathy.
  3. Forgetting that while you may be comfortable with numbers, clients may have an aversion to numbers and advanced math.
  4. Rushing to solutions without understanding emotional context. That’s the evil Advice Monster at work.

As Dr. Thomas explained, all humans understand basic emotions like fear, even if contexts differ. Clients won’t share vulnerability unless they feel seen and heard. The empathy process can change you as much as the client. Technical solutions should not be delivered with emotional awareness.

Financial empathy isn’t about being overly emotional or sacrificing technical expertise; it’s about creating a framework for more effective client relationships. That’s why I originated the Advis-ROR methodology (Return on Relationships).  After all, isn’t that why you are your clients’ most trusted advisor?

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