The field of environmental, social and governance reporting and assurance is a natural opportunity for accountants, and one that’s ripe for the taking. But they risk losing the opportunity if they don’t move more quickly.

Incoming and evolving regulation from the European Union and in some U.S. states means more companies will be looking for attestation that their climate and other initiatives are actually effective. Accounting firms are at varying stages with ESG, with the biggest firms having invested billions in this area and smaller firms just getting started. However, there’s still hesitancy among many firms.

There are three key areas of regulations to watch: the Corporate Sustainability Reporting Directive in the EU, the proposals from the Securities and Exchange Commission in the U.S., and American state regulation, specifically from California.

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With the new presidential administration, experts anticipate that the SEC will table or even rescind its proposed regulation. But EU regulations are expected to impact as many as 3,000 private and public U.S. companies, and proposed regulation in California will impact all companies that do business in the Golden State.

“What we always talked about previously was, ‘We have this alphabet soup of standards and frameworks and nobody knows what to do,'” KPMG US sustainability leader Maura Hodge said. “But what we’re actually finding is that it’s creating a patchwork of complexity, so while it’s more organized, it is still very complicated.”

“I think that there is a desire on the preparers’ part to continue to pump the brakes on this and say, ‘We don’t want to go all in because everything keeps changing and we aren’t sure if it’s going to be required or mandated or not,'” Hodge said. “But what we have been advising and the reality is that this needs to happen. Most of these companies have been reporting voluntarily historically anyway, and I think there’s a recognition and a realization that transparency and accountability in that reporting is what is desired.”

“At a minimum, shifting what you’ve done in the past to get to this regulatory baseline is a no-regrets move that you kind of keep working forward to,” she added.

Highly transferable skills

Accountants are well-suited to performing this service as ESG reporting and assurance moves away from the marketing and investor relations side of companies and becomes a financial function with regulation and standards.

Though accountants may need upskilling in specific sustainability topics, Ami Beers, senior director of the assurance and advisory innovation team at the American Institute of CPAs, says the foundational processes and skills are highly transferable, like understanding different standards and frameworks, gathering data from multiple sources, pulling together reports, and implementing processes and controls and governance.

“We have been collectors of data and auditing of that data for millennia now. We’ve been doing it with financial data. It only makes sense that we could do it with nonfinancial data. We already have frameworks set up that we adhere to for really high-quality work and high-integrity work, which ESG is in general,” said Jennifer Harrity, ESG and sustainability leader at Top 100 Firm Sensiba.

“Accounting firms are very good with the quantifiable data, but the qualitative data is scarier for them because that’s not normally where they live,” Harrity said. “But when you look at it, this is data that you look at opportunities and risks and that’s what accountants have been really good at for a very long time — looking at the numbers and having it tell a story, being able to tell that story to the clients in order to see what is opportunities and risks for an organizations. When paired with the financial data, it’s an extremely impactful forecast, and it’ll allow you to forecast for your clients with a much longer look into the future than just financial data alone.”

Where to start with ESG

With an ongoing talent shortage, firms may feel at a loss on how to start a whole new practice when they still have their traditional compliance work to complete. Starting with a materiality assessment using the Sustainability Accounting Standards Board’s framework is a good place to start, Harrity said.

“Don’t just jump into the practice. Figure out what you want to help your clients with in the ESG space and run through it yourself as a firm,” Harrity said. “One of the things that we did is we said we’re not going to offer any services or tools to our clients that we have not put ourselves through, and I think once you start doing that, you start to really see the value of ESG from an owner standpoint and from an organizational standpoint.”

Establishing good governance practices cannot be overlooked, either. Oftentimes, standard operating procedures aren’t written down — they live in an individual employee’s or a collective’s head.

“If the person who’s responsible for collecting this data were to wake up tomorrow and not be able to come to work, would somebody else be able to know what they were doing and be able to recreate that information?” Hodge said.

After ensuring there is solid governance, then firms can layer controls on top.

“What’s really important to remember — we talk about this all the time with controls on the financial reporting side — is that the company needs to be doing that before their assurance providers come in,” said KPMG’s Hodge. “Because while we perform some of the same procedures, you don’t want the assurance provider to find those mistakes. You want to have identified them and resolved them prior to the assurance provider coming in, or else it just makes the process longer.”

As the profession moves from a compliance to an advisory model, with developing technology like artificial intelligence taking over the compliance side, ESG is an opportunity for firms to add a revenue-generating service to their consulting and advisory arsenals. But this opportunity won’t be around for long.

“There are a lot of sustainability consulting firms, not accounting firms, that are chomping at the bit for this work. If accounting does not get their butts together, it’s ours to lose,” Harrity said. “This business and this niche could be a really powerful additive to our firms, but if we linger, those sustainability firms are going to swoop in and really dominate the space, and it’s going to be hard for us to come back in.”

The Public Company Accounting Oversight Board and the Securities and Exchange Commission ramped up enforcement against auditors in the first half of 2024, but activity was more muted in the second half of the year, due to a key Supreme Court decision and multiple lawsuits against the PCAOB, according to a new report.

The report, from the Brattle Group, found that the PCAOB and SEC together brought 58 enforcement actions against auditors in 2024, in line with 2023 (60) and 2022 (59) levels, but more than 50% higher than the average number of initiated actions during the regulators’ prior administrations (2018–2021) until Erica Williams took over as chair of the PCAOB and Gary Gensler became chair of the SEC. However, Gensler stepped down on Inauguration Day after Donald Trump announced he would be naming former SEC commissioner Paul Atkins as the next SEC chair. Last June, after the Supreme Court issued its ruling in the case of SEC v. Jarkesy restricting the use of administrative law judges, the SEC dropped most of its pending cases against auditors. While aggregate enforcement activity remained elevated in 2024, the SEC only initiated seven actions against auditors in 2024, down 50% from 2023. In the Jarkesy case, the Supreme Court ruled that the SEC’s use of administrative proceedings to seek financial civil penalties in a securities fraud suit was unconstitutional.

Together, the PCAOB and SEC imposed $52.2 million in monetary sanctions against auditors in 2024, an increase of 66% from 2023 and 2.5 times higher than the 2018–2021 average, when Jay Clayton was leading the SEC and William Duhnke was chairing the PCAOB.

2024 enforcement was driven mainly by the PCAOB, which brought 88% of total actions and imposed 68% of total penalties.

The Supreme Court ruling appears to have affected the PCAOB, as well as three similar but anonymous lawsuits filed under the pseudonym John Doe from two individual auditors facing disciplinary action from the PCAOB and one auditing firm under investigation. While the PCAOB imposed record-breaking penalties for the third year in a row, enforcement statistics saw an unprecedented decline in the second half of the year. An uncharacteristically low 33% of the 51 actions initiated by the PCAOB in 2024 were brought in the second half of 2024, a departure from the 76–86% in the second half of each of the previous four years. Only 2% of the penalties imposed by the PCAOB in 2024 were imposed in the second half of the year, in stark contrast with 2023, when 83% of total penalties were imposed in the second half of the year. PCAOB activity in the second half of the year was at its lowest levels of any point in recent years.

“Though PCAOB and SEC enforcement against auditors remained high in 2024, aggregate statistics don’t tell the full story,” said Alison Forman, co-leader of Brattle’s Accounting Practice, in a statement Thursday. “In fact, activity appears to have been substantially impacted by the Supreme Court’s SEC vs. Jarkesy ruling, which found that the regulator’s use of administrative proceedings to seek financial civil penalties for securities fraud was unconstitutional. We expect fallout from Jarkesy and similar constitutional challenges facing the PCAOB — as well as the new presidential administration — to dramatically shift the enforcement landscape moving forward.”

The findings on the PCAOB mostly align with a report released last week by Cornerstone Research, which found the PCAOB increased its enforcement activity in 2024 to its highest level since 2017, and monetary penalties levied by the PCAOB reached their highest for the third consecutive year. The Cornerstone report found the PCAOB publicly disclosed 51 total enforcement actions, including 40 actions involving the performance of an audit. Most of these actions came in the first half of the year, with only 10 auditing actions finalized after the Supreme Court ruled against the use of administrative law judges in SEC v. Jarkesy. At $35.7 million, the number of total monetary penalties in 2024 marked a 78% increase over 2023 and represented nearly 40% of all monetary penalties imposed since the PCAOB’s inception.

The release of the two reports come amid speculation that under the Trump administration, enforcement and penalties at both the PCAOB and the SEC may decline further, and the PCAOB may even be absorbed into the SEC, despite the Sarbanes-Oxley Act of 2002 that created the PCAOB. A change in the composition of the board members is also likely, as the PCAOB underwent sharp changes in both the first Trump administration and the Biden administration.

Ukraine, Iraq, Haiti and Bangladesh have been added to countries for tax year 2024 for which some requirements have been waived concerning foreign earned income exclusions.

Generally, U.S. citizens or resident aliens living and working abroad whose tax home is in a foreign country, and who meet either a bona fide residence test or a physical presence test, can choose to exclude from their income up to $126,500 for 2024 of their foreign earned income. Both the bona fide residence test and the physical presence test contain minimum time requirements.

The Internal Revenue Code defines the term “qualified individual” in regard to these taxpayers as either:

• An individual whose tax home is in a foreign country and who is a U.S. citizen and establishes that they have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year; or,
• A citizen or resident of the U.S. who during any 12 consecutive months is in a foreign country or countries during at least 330 full days. 

Rev. Proc. 2025-17 provides a waiver for the time requirements for individuals electing to exclude their foreign earned income who must leave a foreign country because of war, civil unrest or similar adverse conditions in that country.

The Secretary of the Treasury and the Secretary of State have determined that such conditions precluded the normal conduct of business and affected taxpayers who left the Ukraine on or after Jan. 13, 2024; Iraq on or after Jan. 18, 2024; Haiti on or after Jan. 23, 2024; and Bangladesh on or after Aug. 5, 2024.

For example, an individual who left Ukraine on or after Jan. 13, 2024, will be treated as a qualified individual with respect to the period during which that individual was a bona fide resident of, or was present in, Ukraine if the individual establishes a reasonable expectation that he or she would have met the requirements of Section 911(d) but for those conditions.

The revenue procedure is scheduled for publication in the Internal Revenue Bulletin on March 24.