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PCAOB supplements guidance on remediation process

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The Public Company Accounting Oversight Board released a supplement Wednesday to its staff guidance on the remediation process for auditing firms that have deficiencies in quality control that need to be fixed.

The supplement gives firms more advice, including making the most of the remediation period, the potential influence of nontechnical factors on persistent quality control criticisms, and more. 

Under the Sarbanes-Oxley Act of 2002 and PCAOB rules, the board can’t disclose its criticisms of an audit firm’s quality control systems for at least 12 months after the PCAOB’s initial publication of its inspection report of the firm. During that year-long period, the audit firm is expected to remediate the quality control criticisms identified by PCAOB inspectors. If the firm fails to address any identified quality control criticisms to the PCAOB’s satisfaction, the board will then disclose those criticisms to the public. The revelations can prove to be embarrassing, especially for large firms, and remediating the problems helps firms claim they’re addressing the findings.

“Making sure audit firms remedy defects in their quality control systems is an important way for the PCAOB to drive improvement in audit quality and protect investors,” said PCAOB chair Erica Williams in a statement Thursday. “The PCAOB encourages audit firms to apply this supplement to the staff guidance when addressing quality control criticisms.”

PCAOB chair Erica Williams speaking at the 2024 International Institute on Audit Regulation, in Washington, D.C.

PCAOB chair Erica Williams speaking at the 2024 International Institute on Audit Regulation, in Washington, D.C.

The original staff guidance was published over a decade ago, in 2013, and needed updating, especially amid the tougher stance that the PCAOB has taken in recent years under Williams and a new set of board members. The document offers information for audit firms receiving a final inspection report from the PCAOB that includes any criticism of the firm’s system of quality control. It discusses considerations that the PCAOB’s inspections staff has identified as relevant to its recommendations to the board concerning the sufficiency of firms’ remediation efforts.  

While the update doesn’t change or supersede the 2013 staff guidance, the new supplement draws from the PCAOB staff’s experience since the 2013 staff guidance was issued.  

This isn’t the PCAOB’s first effort to update the guidance. In February 2023, the PCAOB issued a Spotlight document, “Additional Insights on the Remediation Process,” outlining the factors that the staff considers, especially regarding design, implementation and effectiveness of a firm’s actions to remediate quality control deficiencies. Leveraging insights gleaned from the PCAOB’s years of evaluating remediation efforts, the Spotlight pointed out that PCAOB Inspections staff was reviewing the staff guidance to determine if any changes might be needed. 

Following up on the 2023 Spotlight, the new staff guidance supplement recommends that audit firms, when addressing quality control criticisms, can benefit by considering the following:  

  • Beginning the remediation process sooner to take advantage of the full remediation period; 
  • Planning ahead in order to gain the benefit of inspections staff feedback;  
  • Implementing actions early enough to be able to monitor their operation and include them in the submission evidence that they are effective;  
  • Considering whether certain quality control criticisms persist due to the influence of nontechnical factors, such as a firm’s culture; and,  
  • Understanding the limits of acceptable supplemental submissions after the submission deadline. 

The PCAOB’s Remediation page includes the latest staff guidance, the 2023 Spotlight providing extra insights into the remediation process, and other materials regarding remediation. 

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Accounting

IAASB tweaks standards on working with outside experts

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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.  

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

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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.

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At Schellman, AI reshapes a firm’s staffing needs

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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.”

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