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
Over the last few years, AI has gone from being a novelty to a mission-critical business strategy for many accountants. Innovative, forward-thinking firms are using these tools to streamline manual tasks, ensure compliance and provide the best possible service to their clients. According to the 2025 Intuit QuickBooks
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However, AI adoption is at varying levels across the industry. While nearly every firm has begun experimenting with basic AI tools, many remain in a sandbox phase, hesitant to move toward full-scale integration due to perceived complexity or costs.No matter where you may fall on the integration spectrum, the fact remains: AI is rapidly reshaping the accounting industry. If you’ve delayed AI adoption in your business, you’ll want to create a focused plan to catch up.
Time is of the essence, but don’t sacrifice strategy for speed
Firms that are ready to take the leap from casual use to deep integration may find themselves in need of accelerated adoption, but speed should not come at the cost of strategy. Identify tangible, practical ways that easy-to-use tools can impact your business through automation. Having a strong strategic focus allows firms to implement workflow changes to streamline manual tasks, ensure compliance and provide excellent service to your clients.
To begin your AI journey, here is a four-step plan that firms can use to transition from experimentation to execution, in a safe, practical manner:
Step 1: Kick off your first AI project
As is the case with many things, getting started is often the most challenging step. While enthusiasm is high, uncertainty with implementation risks can cause hesitation. The key is to lower risk by embracing AI and implementing an intentional, phased approach. Begin by weaving AI tools into high-impact, low-risk tasks, such as summarizing meeting notes, drafting client or firm-wide memos, or translating complex concepts into easy-to-understand ideas. Monitor results carefully and, if these initial attempts need adjustment, be prepared to pivot to the next use case until you can clearly demonstrate that AI systems are delivering a measurable impact on your operations. From there, you can learn from early experiences, adapt strategy, and scale appropriately to complete more complex projects.
Step 2: Dig into your AI toolkit
The marketplace is crowded with AI-powered tools that promise to do everything from enhancing your workflows to improving the customer experience. It can be hard to know which ones are worth investing your time and money. Find a trusted source like a respected peer, or leverage your professional network to help discuss the tools that may be the best fit for achieving your business goals. You can also look within the tools you’re already using to see if they offer AI-powered features, which can help ease into the transition. Additionally, look for free high-quality education to upskill your team. For example, Anthropic offers a Claude AI University that provides excellent foundational resources for moving beyond basic prompts.
Step 3: Review an AI security checklist
An important element in AI implementation is security. With AI tools needing access to firm and client data to function, it leads to questions of how the data will be protected. This makes the right AI and cybersecurity strategy critical. Firms must proactively ensure that client data remains protected from today’s increasingly sophisticated threats by embracing an established cybersecurity framework such as
Step 4: Openly discuss AI usage with your clients
Once you’ve established the best way to use AI tools that meet your firm’s needs, you’ll want to communicate all of the advantages afforded by these tools to your clients. Make sure you highlight the benefits and simultaneously ensure you are addressing any potential concerns. It’s also important to get explicit consent from all clients if you’re sharing their information with the third-party tools you may use. While this might seem like an extra step, it will go a long way toward fostering a greater level of transparency and deepen trust between you and your clients.
Don’t get left behind
Adopting AI does not have to be intimidating, expensive or overly complex. Think of it as a strategic business move that will not only keep you competitive, but will potentially free you up to focus on keeping clients happy and growing your practice. By strategically focusing on these best practices, identifying AI use cases in a phased approach, evaluating the right tools for your business, ensuring client information is secure and clearly communicating your AI strategy, you’ll be AI-ready in no time.
The Financial Accounting Standards Board met this week to discuss its projects on accounting for transfers of cryptocurrency assets and enhancing the disclosures around certain digital assets, such as stablecoins.
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During Wednesday’s meeting, FASB’s board made certain tentative decisions, according to a
At a future meeting, the board plans to consider clarifying the derecognition guidance for crypto transfer arrangements to assess whether the control of a crypto asset has been transferred.
FASB also began deliberations on the
The board decided to provide illustrative examples in Topic 230, Statement of Cash Flows, to clarify whether certain digital assets such as stablecoins can meet the definition of cash equivalents. It also decided to include the following concepts in the illustrative examples:
- Interpretive explanations that link to the current cash equivalents definition;
- The amount and composition of reserve assets; and,
- The nature of qualifying on-demand, contractual cash redemption rights directly with the issuer.
FASB plans to clarify that an entity should consider compliance with relevant laws and regulations when it’s creating a policy concerning which assets that satisfy the Master Glossary definition of the term “cash equivalents“ will be treated as cash equivalents.
“I agree with the staff suggestion to look at examples,” said FASB vice chair Hillary Salo. “From my perspective, I think that is going to help level the playing field. People have been making reasonable judgments. I agree with that. And I think that this is really going to help show those goalposts or guardrails of what types of stablecoins would be in the scope of cash equivalents, and which ones would not be in the scope of cash equivalents. I certainly appreciate that approach, and I think it has the least potential impact of unintended consequences, because I do agree with my fellow board members that we shouldn’t be changing the definition of cash equivalents, and it’s a high bar to get into the cash equivalent definition.”
“I’m definitely supportive of not changing the definition of cash equivalents,” said FASB chair Richard Jones. “I believe that’s settled GAAP in a way, and we’re not really seeing a call to change it for broader issues. I am supportive of the example-based approach. The challenge with examples, though, is everybody’s going to want their exact pattern, but that’s not what we’re doing.”
The examples will explain the rationale for how digital assets such as stablecoins do or do not qualify as cash equivalents and give a roadmap for other types of digital assets with varying fact patterns to be able to apply.
“We really don’t want to be as a board facing a situation where something was a cash equivalent and then no longer is at a later date,” said Jones. “That’s not good for anyone, so keeping it as a high bar with certain rigid criteria, I think, is fine.”
Stablecoins are supposed to be pegged to fiat currencies such as U.S. dollars and thus provide more stability to investors. “In my view, while a stablecoin may meet the accounting definition established for cash equivalents, not every one of those stablecoins in the cash equivalent classification represents the same level of risk,” said FASB member Joyce Joseph.
She noted that the capital markets recognize the distinctions and have established a Stablecoin Stability Assessment Framework to evaluate a stablecoin’s ability to maintain its peg to a fiat currency. Such assessments look at the legal and regulatory framework associated with the stablecoin, and provide investors with information that could enable them to do forward-looking assessments about the stability of the stablecoin.
“However, for an investor to consider and utilize such information for a company analysis the financial statement disclosures would need to include information about the stablecoin itself,” Joseph added. “In outreach, the staff learned that investors supported classifying certain stablecoins as cash equivalents when transparent information is available about the entities at which the reserve assets are held. Therefore, in my view, taking all of this into consideration a relevant and informative company disclosure would include providing investors with the name of the stablecoin and the amount of the stablecoin that is classified as a cash equivalent, so investors can independently assess the liquidity risks more meaningfully and more comprehensively by utilizing broader information that is available in the capital markets and its emerging information.”
Such information could include the issuer, reserves, governance and management, she noted, so investors would get a more holistic look at the risks that holding the stablecoin would entail for a given company.
The board decided to require all entities to disclose the significant classes and related amounts of cash equivalents on an annual basis for each period that a statement of financial position is presented.
Entities should apply the amendments related to the classification of certain digital assets as cash equivalents on a modified prospective basis as of the beginning of the annual reporting period in the year of adoption.
FASB decided that entities should apply the amendments related to the disclosure of the significant classes and amounts of cash equivalents on a prospective basis as of the date of the most recent statement of financial position presented in the period of adoption.
The board will allow early adoption in both interim and annual reporting periods in which financial statements have not been issued or made available for issuance.
FASB also decided to permit entities to adopt the amendments to be illustrated in the examples related to the classification of certain digital assets as cash equivalents without the need to perform a preferability assessment as described in Topic 250, Accounting Changes and Error Corrections.
The board directed the staff to draft a proposed accounting standards update to be voted on by written ballot. The proposed update will have a 90-day comment period.
Senators introduced several pieces of tax-related legislation this week, including measures aimed at improving customer service at the Internal Revenue Service, cracking down on tax evasion and curbing the carried interest tax break, in addition to efforts in the House to repeal the Corporate Transparency Act.
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Senators Bill Cassidy, R-Louisiana, and Mark Warner, D-Virginia, teamed up on introducing a bipartisan bill, the
The bill would establish a dashboard to inform taxpayers of backlogs and wait times; expand electronic access to information and refunds; expand callback technology and online accounts; and inform individuals facing economic hardship about collection alternatives.
“Taxpayers deserve a simple, stress-free experience when dealing with the IRS,” Cassidy said in a statement Wednesday. “This bill makes the process quicker and easier for taxpayers to get the information they need.”
He also mentioned the bill during a
“I’m happy to meet with the team … and do all I can to make it as good as you want it to be,” said Bisignano.
“My bill would equip the IRS with the legislative mandate to create an online dashboard so that taxpayers can monitor average call wait time and budget time accordingly,” said Cassidy. He noted that the bill would allow a callback for taxpayers that might need to wait longer than five minutes to speak to a representative, and establish a program to identify and support taxpayers struggling to make ends meet by providing information about alternative payment methods, such as installments, partial payments and offers in compromise.
“I know people are kind of desperate and don’t know where to turn for cash, so I think this could really ease anxiety,” he added. “This legislation is bipartisan and is likely to pass this Congress.”
Cassidy and Warner
“Taxpayers shouldn’t have to jump through hoops to get basic answers from the IRS — and in the last year, those challenges have only gotten worse,” Warner said in a statement. “I am glad to reintroduce this bipartisan legislation on Tax Day to ease some of this frustration by increasing clear communication and making IRS resources more readily available.”
Stop CHEATERS Act
Also on Tax Day, a group of Senate Democrats and an independent who usually caucuses with Democrats teamed up to introduce the Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly (Stop CHEATERS) Act.
Senate Finance Committee ranking member Ron Wyden, D-Oregon, joined with Senators Angus King, I-Maine, Elizabeth Warren, D-Massachusetts, Tim Kaine, D-Virginia, and Sheldon Whitehouse, D-Rhode Island. The bill would provide additional funding for the IRS to strengthen and expand tax collection services and systems and crack down on tax cheating by the wealthy.
“Wealthy tax cheats and scofflaw corporations are stealing billions and billions from the American people by refusing to pay what they legally owe, and far too many of them are getting a free pass because Republicans gutted the enforcement capacity of the IRS,” Wyden said in a statement. “A rich tax cheat who shelters mountains of cash among a web of shell companies and passthroughs is likelier to be struck by lightning than face an IRS audit, and Republicans want to keep it that way. This bill is about making sure the IRS has the resources it needs to go after wealthy tax cheats while improving customer service for the vast majority of American taxpayers who follow the law every year.”
Earlier this week. Wyden also
The Stop CHEATERS Act would provide the IRS with additional funding for tax enforcement focused upon high-income tax evasion, technology operations support, systems modernization, and taxpayer services like free tax-payer assistance.
“As Congress seeks ways to fund much-needed policy priorities and address our growing national debt, there is one common sense solution that should have unanimous bipartisan support: let’s enforce the tax laws already on the books,” said King in a statement. “Our legislation will make sure the IRS has the resources it needs to confront the gap between taxes owed and taxes paid – while ensuring that our tax enforcement professionals are focused on the high-income earners who account for the most tax evasion. This is a serious problem with an easy solution; let’s pass this legislation and make sure every American pays what they owe in taxes.”
Carried interest
Wyden, King and Whitehouse also teamed up on another bill Thursday to close the carried interest tax break for hedge fund managers that
Carried interest is a form of compensation received by a fund manager in exchange for investment management services, according to a
Under the bill, the
“Our tax code is rigged to favor ultra-wealthy investors who know how to game the system to dodge paying a fair share, and there is no better example of how it works in practice than the carried interest loophole,” Wyden said in a statement. “For several decades now we’ve had a tax system that rewards the accumulation of wealth by the rich while punishing middle-class wage earners, and the effect of that system has been the strangulation of prosperity and opportunity for everybody but the ultra-wealthy. There are a lot of problems to fix to restore fairness and common sense to our tax code, and closing the carried interest loophole is a great place to start.”
Repealing Corporate Transparency Act
The House Financial Services Committee is also planning to markup a bill next Tuesday that would fully repeal the Corporate Transparency Act, which has already been significantly
If enacted, the repeal would eliminate beneficial ownership reporting requirements, removing a transparency measure designed to help law enforcement and national security officials identify who is behind U.S. companies.
“This repeal would turn the United States back into one of the easiest places in the world to set up anonymous shell companies, something Congress worked for years to fix,” said Erica Hanichak, deputy director of the FACT Coalition, in a statement. “These entities are routinely used to facilitate corruption, financial crime, and abuse. Rolling back the CTA doesn’t just weaken transparency, it signals to bad actors around the world that the U.S. is once again open for illicit business.”
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