Accounting
PCAOB releases CAMs guidance for auditors of small firms
The Public Company Accounting Oversight Board is rolling out a new series of staff publications targeted at auditors of small public companies, starting with one on critical audit matters, as board members face the likelihood of a deregulatory emphasis under the incoming Trump administration and probable changes in board composition.
The PCAOB released the first of the new series of staff publications, “
The PCAOB staff is continuing to identify a great many deficiencies related to critical audit matters. CAMs are a relatively new requirement from the PCAOB. A CAM is defined as any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that relates to accounts or disclosures that are material to the financial statements; and involved especially challenging, subjective or complex auditor judgment.
This edition of Audit Focus highlights key reminders on determination, communication and documentation of CAMs, along with the PCAOB staff’s perspectives on some of the common deficiencies, such as not accurately describing how a CAM was addressed in the audit, plus good practices that the staff has observed related to CAMs, such as use of practice aids.
PCAOB board members George Botic and Christina Ho discussed the recent inspection findings during a panel discussion Wednesday during Financial Executives International’s Current Financial Reporting Insights conference.
“When you think about where our inspectors see repeated observations, deficiencies, if you will, particularly in Part I.A, which are for the firms not obtaining sufficient appropriate audit evidence, things like revenue recognition, inventory, allowance for credit losses in the financial sector, areas around business combinations, allowance for allocation of purchase price, things such as that, as well as long-lived assets, goodwill, intangibles, evaluation, those are some of the more frequent areas,” said Botic. “ICFR certainly is one as well in the internal control space. But those areas, those themes, really haven’t changed. Sometimes we’ll see more of one versus another.”
During its inspections last year, the PCAOB saw some improvements at the largest firms, even though audit deficiency rates still appear to be high, with 46% of the engagements reviewed in 2023 having at least one deficiency significant enough to be included in Part I.A of the inspection report, excluding broker-dealer audit inspections, according to a
“There appears to be some improvement in terms of the deficiency rate trend for the largest firms,” said Ho. “It’s probably too soon to tell whether that is going to be the ongoing trend. Also for triennial firms, the spotlight also highlighted the fact that the deficiency rates are not improving.”
She pointed out that financial restatements are another way to look at the situation. “Obviously, the deficiency rate is not the only measurement of audit quality,” said Ho. “We also look at restatements, which I think for many of the preparers and audit committees that I talk to, and even investors, they focus on that metric a lot. The multiple metrics paint a picture.”
Botic sees advantages in having several such metrics. “The audit process is one of the most complex processes, probably in business,” said Botic. “When you think about all the judgments that you all go through for your financial statements and preparing them, then the auditor makes his or her own risk assessment judgments, it’s an incredibly complex process. So I agree, not one metric necessarily is the only metric for sure. We’re inspecting the audit, so our inspectors are looking at what the auditor did or didn’t do, as the case may be, and as part of that, we may identify the accounting was wrong. That is one possibility, as Christina mentioned, the categorization of the reports. But in my view and from my prior life as well, and spending a lot of time in inspections, I actually think that the spread from the inspection deficiency rates for the filers that we looked at compared to the restatement number, I think that’s actually … reflective of the success of our inspection program.”
Ho recently
Accounting Today asked Ho during a press conference after the FEI CFRI session about the political pressure she faced, especially with President-elect Trump’s administration coming in and perhaps replacing PCAOB board members as happened during his first administration as well as the Biden administration.
“Like I said in my LinkedIn post, I’m not a political person,” Ho responded. “When I was at Treasury, I worked under two different administrations as a career person, and I always feel like accounting shouldn’t be political. But obviously, elections have consequences, and I’m not living in a cocoon that I’m not aware of what’s going on. I really do think that it’s in the best interest of the capital markets for political influence to be minimized to technical areas that require expertise, and that’s how I operate, whether I was in Treasury or even at the board here. I often feel like the areas we work in, auditing and accounting, are specialized and require expertise and I hope that the experts can always be allowed to voice their views and also do their job well.”
The PCAOB has been facing
“One of the really important things that regulators should do is to listen,” said Ho. “We should take comments very seriously and we should not rush into adopting standards or rules when we don’t have enough evidence to support the benefits and also the effectiveness of those proposals.”
She acknowledged that the increased risks and responsibilities of auditors, as well as the potential penalties, may be one factor that’s making it harder to attract young people to the accounting and auditing profession.
“I have certainly heard many anecdotal comments about the regulatory environment making the profession less attractive,” said Ho. “I’ve heard from people who talk about how they don’t want to do public company audits because of the inspections, and also our posture on enforcement. If you are not allowed to get indemnified, you know, as an individual, if something happened and there’s in your sanction, certainly people consider that as an increased risk for what they do. I think these things have an impact on the attractiveness of the profession and certainly impact talent. That is some of the anecdotal information I’ve heard. I’ve also heard from smaller firms that they are trying to stay under the 100 number because that will move them into annually, inspected so that they can stay under 100 so they don’t have to be inspected every year. Those kind of comments certainly concern me, because I don’t think this audit marketplace can afford less competition and also less talent. These are things that I think about and I’m concerned about.”
The PCAOB typically inspects each firm either annually or triennially (i.e., once every three years). If a firm provides audit opinions for more than 100 issuers, the PCAOB inspects them annually. If a firm provides audit opinions for 100 or fewer issuers, the PCAOB, in general, inspects them at least every three years.
Ho was also asked about the
“I have a good relationship with the IIA organization, and I actually have been an internal auditor before,” said Ho. “I understand what they do and their values and why it’s important. I certainly think that they play a key role in fostering the trust of the capital markets, because they are in the company. Different data that have been published that the external auditor, they come in and focus on the financial statements and the internal control over financial reporting. Their scope is limited to that, whereas the internal auditors are covering the entire company and the operations and and they have access to much more information and people than external auditors, so they play a key role in facilitating the trust. It looks like they are also focusing a lot on modernizing their standards. They have done that, and then they have been really focusing on AI as well. So I think that it’s important to make sure that all the key players in the financial report ecosystem are working together so that we can collectively ensure the quality of the financial reporting and the audit.”
Accounting Today also asked about the role of artificial intelligence and data analytics programs in auditing and if they could be degrading audit quality without the human element being present.
Ho pointed out that the PCAOB has published a
Sotheby’s Inc. agreed to pay $6.25 million to settle a New York state lawsuit that accused it of advising wealthy clients they could avoid sales taxes by falsely claiming they were buying art for resale purposes.
New York Attorney General Letitia James announced the deal in a statement Thursday. She said Sotheby’s employees from 2010 to 2020 encouraged clients to make the false claims even though they knew the purchases were actually for private collections or intended as gifts.
“Sotheby’s intentionally broke the law to help its clients dodge millions of dollars in taxes, and now they are going to pay for it,” James said. “Every person and company in New York knows they are required to pay taxes, and when people break the rules, we all lose out.”
Robert Caplin/Bloomberg
James sued Sotheby’s in 2020, accusing the auction house of helping a shipping executive use a false resale certificate to dodge taxes. The state later expanded the case by including allegations involving seven additional collectors and numerous Sotheby’s employees from across the organization, including its tax department.
In a statement, Sotheby’s said that it admitted no wrongdoing in connection with the settlement and was committed to full compliance with the law.
“These allegations relate to activity from many years ago — in some cases over a decade — and Sotheby’s provided much of the evidence which the AG used to obtain a settlement with the taxpayer referenced in the complaint six years ago,” the auction house said in its statement.
Discover Financial Services said it will miss a deadline to file its quarterly report with regulators, citing disagreements with the Securities and Exchange Commission over its accounting treatment of a credit-card misclassification blunder.
The company said in a filing Wednesday that it was unable to file the 10-Q form for the three months through Sept. 30 by the required date after SEC staff disagreed with “certain aspects of the company’s accounting approach for the card product misclassification matter.”
Discover disclosed
Angus Mordant/Bloomberg
Discover expects that when it files its 10-Q form, it will likely reflect re-allocations to prior periods of about $600 million of the charge to other expenses recorded in its quarterly report for the period ended March 31, it said. The firm said that because the reallocations would reverse a charge to other expenses recorded for the first quarter, “this would result in an increase in pre-tax income by the same amount in the three months ended March 31, 2024 and the nine months ended September 30.”
Capital One Financial Corp. is expected to buy Discover in one of the biggest mergers announced this year. The SEC was reviewing Discover’s financial statements in connection with the pending merger, according to the filing.
A representative for Discover declined to comment beyond the filing. A representative for Capital One didn’t immediately respond to a request for comment.
A late financial statement can be considered a financial reporting red flag and large companies go to great lengths to avoid missing SEC deadlines. In the filing Wednesday, Riverwoods, Illinois-based Discover said it likely won’t file under the allotted extension period of five calendar days because it needs more time to address the issues. The company also hasn’t determined if it will have to redo, or restate, its prior financial statements to address any potential accounting errors, it said.
To his followers, Roger Ver is known as Bitcoin Jesus, a charismatic advocate of the cryptocurrency that is once again captivating investors with record-breaking gains. But to the Internal Revenue Service, Ver symbolizes a new target in the digital age: a crypto holder suspected of failing to pay taxes after selling tokens.
U.S. prosecutors
Ver, 45, is awaiting a Spanish judge’s
Anthony Kwan/Photographer: Anthony Kwan/Bloom
“They don’t like me, and they don’t like my political views, and they just came at me every which way,” Ver told Bloomberg News in an exclusive interview in late October.
Ver, a U.S. expatriate, awaits a Spanish judge’s decision over whether he will be extradited to America to face tax fraud charges.
Ver said the Justice Department has ignored evidence that helps his defense and refutes a central premise by prosecutors — that he intended to cheat the IRS. Rather, he said, he relied on professionals who advised him when IRS policy on taxing crypto sales was unsettled.
“I instructed all my tax attorneys and preparers, ‘We need to do everything perfectly because I don’t want any problem with the IRS at all,”‘ Ver said. “That was their instructions the whole time.”
A Justice Department representative declined to comment.
The seeds of Ver’s legal peril lay in his success as an early crypto investor — long before the latest Bitcoin rally fueled by Donald Trump’s U.S. presidential win. They center on his representations to the IRS and the agency’s reconstruction of his holdings.
Ver grew up in Silicon Valley, founding a computer company called MemoryDealers at the precocious age of 19. He also engaged in tax protests and ran for California’s legislature at 21 as a libertarian.
In 2001, he
Spreading the gospel
When crypto began, he embraced its promise for transferring wealth without government interference. He started buying Bitcoin in 2011 for less than $1, touting it at barbecues, parties and everywhere else. Intense and fast talking, he spread the vision of using crypto to buy a sandwich or even a car. When Bitcoin hit it big, Ver touted its potential from conference stages.
He co-founded Blockchain.com, a crypto company once valued at $14 billion, and was an early investor in payment processor BitPay and digital-asset firm Ripple. When the Bitcoin network underwent a software upgrade he opposed in 2017, Ver broke with the community, switching to a split-off called Bitcoin Cash. He said his current holdings include Bitcoin, Bitcoin Cash, Ether and Zeno.
Despite his notoriety, Ver decided in 2014 to renounce his U.S. citizenship, later becoming a citizen of St. Kitts and Nevis. U.S. citizens who
As he planned to expatriate, prosecutors allege, Ver hid the number and value of Bitcoin he owned and controlled personally and through MemoryDealers and Agilestar, his California-based companies.
The IRS used blockchain analysis to determine that by early 2014, Ver and his companies owned about 131,000 Bitcoin trading between $782 and $960, according to the indictment — more than he reported in tax filings. He’s accused of tax evasion, wire fraud, and filing a false tax return.
Ver worked with a law firm and appraisers on the exit tax, but gave them false or misleading information about his Bitcoin holdings, and an exit tax return filed in 2016 failed to report the Bitcoin he owned personally and underreported the value of his companies, prosecutors charge.
The indictment also alleges Ver “fraudulently misrepresented and concealed” from the IRS the crypto that his companies sold in 2017 for about $240 million.
Ver disputes this characterization, but declined to discuss the indictment further or elaborate on his crypto holdings with Bloomberg.
A website,
In 2022, the U.S. Supreme Court took up a case that didn’t name the parties but matched Ver’s circumstances. The court dropped that case in 2023 without issuing a ruling.
If he’s extradited, Ver’s case would be the first to go to trial on crypto-only tax charges. In February, a Texas man, Frank Ahlgren, was accused of underreporting capital gains from selling $3.7 million in Bitcoin. Ahlgren
Ver, who has more than 700,000 followers on X, spent years under IRS investigation as he traveled the world. In 2021, he posted a satirical
Ver was indicted Feb. 15 under court seal but didn’t learn about it until weeks later, when he was at the Privacy Guardians conference in Barcelona. His
“The bottom kind of fell out of my stomach and I was like, ‘Oh, my God, the U.S. is going to do this to me again,”‘ Ver said.
Back to jail
With his arrest, Ver returned to prison, this time to a two-man cell in Spain. Some inmates incorrectly assumed he was an American spy or undercover cop, he said.
“I didn’t tell anybody in there who I was because I didn’t want to get extorted or have any sort of problems with anybody,” Ver said.
Spain has been a close ally of the U.S. in extradition cases. This year, Spain sent
Ver said he’s spending his days in Mallorca talking to his lawyers on Zoom, practicing Brazilian jiujitsu and entertaining friends visiting from overseas. He’s attended Bitcoin meetups, where he said he was well received.
Ver appeared in an HBO
“I said, ‘Please, if you don’t mind, don’t mention that to anybody else.’ He said, ‘Sure, no problem.’ But he had kind of a sly grin when he said that to me.”
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