Cybersecurity: What Role Do Auditors Play?

This is an exert of the AI Accounting Playbook . Building Trust in AI Accounting As accounting firms adopt AI tools in audits, they face new questions about reliability, transparency, and compliance. Regulators like the PCAOB have made clear that if AI outputs can’t be explained or reproduced, they could violate existing standards. Yet formal guidance on AI use in audits remains limited, leaving firms unsure about how to move forward. Some firms have responded by limiting AI to non-public clients, but this caution also presents a chance to lead. Firms that build strong AI governance practices now can stay ahead of future regulation and establish trust in their use of AI. This chapter covers key compliance barriers, governance best practices, and steps to create a trusted control environment. Key Compliance Barriers Accountants face several key compliance barriers when using AI, particularly as regulators such as the PCAOB, AICPA, and SEC increase their scrutiny. Explainability One major challenge is explainability. Many AI models, especially machine learning and generative AI, don’t clearly show how they reach conclusions. This is a problem for auditors who need to support their findings. This lack of clarity makes it harder to meet audit evidence requirements, which must be sufficient, appropriate, and easy to understand, as outlined in PCAOB standard AS 1105. Poor Documentation Poor documentation is another major issue. This includes inadequate records of data inputs and outputs, training data, model logic, and controls over changes. Such deficiencies may violate documentation and risk assessment requirements, as seen when audit teams use AI for journal entry testing without documenting the rationale for flagged entries or threshold settings. Data Privacy Data privacy becomes a concern as firms use AI to handle large amounts of sensitive financial and personal information. This can lead to violations of laws like GDPR and CCPA, especially when client data is processed in cloud or third-party systems. Firms often struggle to maintain consistent policies for data classification, encryption, and access. Auditor independence may also be at risk if AI tools are built by a firm’s advisory armor are deeply integrated with a client’s systems. For instance, if both the firm and client use the same predictive AI tool for forecasting, it could lead to a self-review threat. AI Skills Gap A skills gap and overreliance on AI further complicate compliance. Many auditors lack the training needed to critically evaluate AI outputs or to recognize when human judgment should override algorithmic conclusions. This can lead to audit failures, such as misinterpreting a false negative from an AI-driven risk assessment as a clean result. Validation and Testing Testing and validating AI tools is another challenge, especially for tools that keep learning over time. Firms need to test tools when they’re first used and then on a regular basis, just like they do when relying on third-party service providers. But this is hard to do if the AI vendor doesn’t offer enough detail about how the tool works or the controls in place. Change Management Managing updates and changes to AI models is a concern. If a tool is updated or retrained without documentation, it can lead to inconsistent results. For example, a model may flag different transactions in different quarters without any clear reason why. Many firms also lack a formal AI governance plan tied to their quality management systems, which causes inconsistent control practices and unclear responsibilities. Lack of Guidance Regulators have been slow to issue formal guidance on how AI should be integrated into the audit process, leaving many firms in a state of uncertainty. The good news is that momentum is building. PCAOB Board Member Christina Ho has publicly emphasized the transformative potential of AI in auditing, particularly in automating routine tasks such as cross-referencing data, extracting key contract terms, and documenting interviews. She has advocated for the PCAOB to evolve its standards to promote responsible AI use, calling for transparency, bias mitigation, and auditability in AI tools. Similarly, the International Auditing and Assurance Standards Board (IAASB) has demonstrated its commitment to supporting firms by releasing its Technology Position, which is a strategic framework that outlines how the board will adapt auditing standards to align with emerging technologies, including AI. Until these guardrails are firmly in place, firms should proactively develop internal AI frameworks modeled on established control standards. COBIT can support firms in assessing and governing AI systems, including data and system integrity. COSO can be applied to evaluate AI governance, model risk, and internal control implications, particularly when AI impacts financial reporting or ICFR. NIST provides guidance to help firms build trustworthy AI systems and establish appropriate cyber security and governance protocols. Best Practices for Governance To use AI confidently and compliantly in accounting, especially in regulated environments like audit and assurance, firms should implement strong governance practices that align with both regulatory expectations and ethical standards. 1. Test AI Internally Before Use In Engagements Before you bring AI into your audits, you’ll need to put it through its paces. The starting point is an internal review and certification process, ideally led by your firm’s risk or national office. They should evaluate the AI tool’s design, logic, and controls, and may require your vendor to share documentation, control reports, and allow independent testing. A great way to do this is by running the AI on historical data from past audits with known results. That helps confirm whether the AI delivers the same conclusions auditors already reached. Scenario analysis is another smart move. Challenge the AI with tricky edge cases like known fraud or anomalies. This can expose blind spots or bias in the model. Be sure to maintain a complete audit trail of how the tool was tested and what controls were in place. If any issues pop up during testing, document and resolve them. And before you roll it out firm-wide, get an independent review of the tool. Think of it like a second set of eyes, similar to a concurring partner review. Only once your firm is fully confident in the tool should it be used in your accounting processes. 2. Develop AI Governance Policies Strong policies lay the foundation for responsible AI use. These should outline your standards for data inputs, risk reviews, decision-making responsibilities, and transparency. Deloitte recommends a universal governance policy that applies to all AI technologies across the firm. This policy should define acceptable (and prohibited) use cases, require approval for new AI tools, and establish review intervals. Ethical usage also needs to be a priority. That means clear guidelines around privacy, bias, and legal compliance — with transparency as a core value. Internally and externally, stakeholders should understand when and how AI is being used in order to build trust in AI usage. To oversee this, consider forming a dedicated AI GRC (Governance, Risk, Compliance) team. Roles might include a Chief AI Risk Officer, Data Protection Manager, AI Project Manager, and an AI Governance Committee. Need help building your framework? Look to proven models like NIST AI RMF and ISO 42001. COSO’s recent guide Realize the Full Potential of AI shows how to extend COSO’s ERM framework to AI, and it’s a great place to start. 3. Implement Data Quality Controls AI tools are only as reliable as the data they process. The old adage “garbage in, garbage out” underscores the importance of data quality in AI-driven accounting. To minimize the risk of inaccurate or biased AI outputs, firms should implement data validation, cleansing, and standardization processes. High-quality data improves AI performance and supports more reliable audit conclusions. Protecting sensitive data is also crucial. Firms should limit access to confidential information using role-based access controls (RBAC) and multi-factor authentication (MFA). Audit logs tracking data access provide an added layer of oversight, helping firms monitor and secure critical information. Data lifecycle management is equally important. Retention and deletion policies should be in place to ensure outdated data does not become a liability. While GDPR is an EU regulation, it sets a high standard for data management and serves as a strong benchmark for firms looking to enhance their data governance practices

WASHINGTON, D.C.: Johnson Global is proud to announce our first charitable contribution in support of the daughters of the American Revolution (DAR) —a historic nonprofit organization founded in 1890 and dedicated to historic preservation, education, and patriotism. With over 130 years of tradition and more than one million members since its founding, the DAR continues to make a meaningful impact through local, national, and global initiatives. "We are honored to support an organization whose enduring mission aligns with our values and commitment to community" said Jackson Johnson, JGA President. "This partnership marks a significant milestone for Johnson Global Advisory as we expand our philanthropic efforts and invest in organizations creating lasting, positive change". "Thank you JGA for this impactful donation will allow our chapter to continue our mission" said Jill Mathieu, Regent of DAR. To explore more about the impact of DAR, visit: www.dar.org/discover About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.

Johnson Global Advisory ("JGA") is proud to announce that Joe Lynch, Shareholder and Managing Director, will be speaking on a panel at the 40th Midyear SEC Reporting & FASB Forum . Joe will deliver the PCAOB update on June 6, with attendance available both in person and virtually. This panel will summarize the activities of the PCAOB including: • Understand the current regulatory landscape and emerging issues under new SEC leadership • Summarize rulemaking from the FASB’s technical agenda, including segment reporting and disaggregation of income statement expenses • Anticipate accounting and reporting issues incurred with income taxes, including ASU 2023-09 “Improvements to Income Tax Disclosures” • Identify changes from the FASB on accounting for financial instruments • Prepare for disclosure requirements on ESG and climate change, including the EU’s Corporate Sustainability Reporting Directive (CSRD), the requirements of California’s ESG disclosures legislation and the status of the SEC final rule • Recall recent developments and the most frequent comment areas in the SEC review process Click here to register and learn more. About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.

On May 13th, 2025, the PCAOB held a QC 1000 workshop in Washington, DC, providing critical insights into the upcoming quality control standard. With the effective date of December 15th, 2025 , firms must proactively identify and manage quality risks by setting quality objectives, assessing risks, and implementing responses. Examples and case studies with breakout groups played a crucial role to help firms understand and apply each stage of the implementation process, from risk assessment to monitoring and remediation. Many attendees are still early in their understanding of the standard, highlighting the need for clear guidance and support. In a live poll, a significant portion of the workshop attendees indicated they have not yet started implementation. The inspection approach of QC 1000 has not been finalized. As such, they did not take any questions regarding how this would be inspected in its formative years. However, we did read between the lines from a different question around audit documentation, that it’s possible they may select components on a test basis during an inspection. Background of the Standard The QC 1000 standard emphasizes the integration of eight components: the risk assessment process, governance and leadership, ethics and independence, acceptance and continuance of engagements, engagement performance, resources, information & communication, and monitoring and remediation process. For more background information on QC 1000, please see these JGA resources: Applying the QC 1000 and Other Standards to Your Firm Understanding the Broader Benefits of ISQM 1 and SQMS 1 Applying the Benefits of ISQM 1 & SQMS 1 Across the Firm Key Topics from the Workshop Key terms such as applicable professional and legal requirements (APLR), firm personnel, other participants, and third-party providers were defined to clarify roles and responsibilities within the firm's QC system. The workshop included a walkthrough of Appendix A2 of the standard. The firm’s system must consider the APLRs that are applicable to the firm, which is unique to each firm. APLR is defined in the standard as: Professional standards, as defined in PCAOB Rule 1001(p)(vi); Rules of the PCAOB that are not professional standards; and To the extent related to the obligations and responsibilities of accountants or auditors in the conduct of engagements or in relation to the QC system, rules of the SEC, other provisions of U.S. federal securities law, ethics laws and regulations, and other applicable statutory, regulatory, and other legal requirements. It is important to be able to clearly identify the type of resource in your QC 1000 implementation journey. Paragraph .05 also discusses the terms firm personnel, other participants and third-party providers. These are defined in Appendix A.5 (firm personnel), A.7 (other participants) and A.13 (third -party providers). 1. Firm personnel include: EQR (inside the firm), Staff at shared service centers, secondees and leased staff, specialists employed by the firm. 2. Other participants include other auditors, EQR (outside the firm), internal auditors of the client that provide direct assistance to the auditors, specialists engaged by the firm, Networks, and external QC function. 3. Third-party providers include audit software providers, system security vendor, audit methodology provider, confirmation intermediary, pricing services, and broker-dealer monitoring systems. There are four distinct roles and responsibilities as described in paragraphs .11 -.17 of the QC standard. The first two roles are the certifiers of the Firm’s QC results: 1. The principal executive officer and 2. Individual responsible for the operational responsibility and accountability for the QC system as a whole. The principal executive officer (PEO) is ultimately responsible for the design, implementation, operation, and evaluation of the firm’s QC system. Only firm personnel are permitted to fill the roles required by QC 1000 . JGA Insights: 1. Not all “participants” of a firm’s structure must be included in a firm's quality control policies and procedures, which is especially important for shared service centers and outsourced staffing arrangements. These roles must be clearly defined and applied as the different levels of participants within an organization are considered differently by the standard. 2. PCAOB-registered firms of all sizes – regardless of whether the firm currently audits issuers – must adhere to these components, ensuring consistency with international quality control frameworks. 3. While it was expressed in the session by PCAOB Staff that firms are not expected to reengineer their process (e.g. more than 1 set of QC documentation), firms may need to align or “top-up” their processes with multiple standards to ensure comprehensive compliance. Keep in mind here that the top-up may not just be for QC 1000. In fact, a system in compliance with QC 1000 may need top-up considerations for SQMS 1 and/or ISQM 1. Risk Assessment Principles There were several examples and case studies to go through among table groups during the session. These activities helped illustrate the importance of getting risk assessment right, since this drives what the firm focuses on for an effective system. When it comes to implementing QC 1000, there are some key takeaways from the risk assessment process that can really guide firms in the right direction. JGA Insights: Here are a few important points to keep in mind as you work through identifying and assessing quality risks 1. The QC 1000 standard does not prescribe a specific method for identifying and assessing quality risks. This gives firms flexibility but also places responsibility on each firm individually based on their circumstances. It’s more work upfront from a “cookie-cutter” approach but ensures the design of a process that fits a firm’s unique context. 2. Quality risks should not be viewed as the opposite of quality objectives . Instead, they are factors that could potentially hinder the achievement of those objectives. 3. The threshold of “reasonable possibility of occurring” applies to all risks, including risks of intentional misconduct by firm personnel and other participants. This means that firms must consider the likelihood of risks occurring and their potential impact on the quality objectives. The PCAOB staff shared during the workshop that the concept of reasonably possible follows the same definition as used in FASB ASC Topic 450 on Contingencies. Ethics and Independence Considerations The QC 1000 standard does not alter existing ethics and independence requirements under PCAOB or SEC standards. Firms must continue to comply with those as currently written. Compared to other standards like ISQM 1 and SQMS 1, QC 1000 is more stringent in certain areas. For example, it requires: 1. Creating and maintaining a restricted entity list; 2. Periodic review of the list to ensure accuracy; 3. Appropriate certifications related to independence; and 4. Audit committee approvals where applicable. Register for the next workshop and get going on implementation To gain a deeper understanding of the QC 1000 standard and its implementation, we strongly encourage you to attend the PCAOB Smaller Firm Workshop on June 17, 2025, in Irving, Texas. This in-person-only session will provide valuable insights and practical guidance for firms navigating the new quality control standard. Register now to secure your spot. As always, reach out to your JGA Expert with any questions. About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.

WASHINGTON, D.C.: Johnson Global is pleased to announce that Joe Lynch, JGA Managing Director will speak at the AICPA® & CIMA® ENGAGE+ 25 on May 15, 2025, and will be attending the full conference on June 9–12, 2025, at the ARIA Resort & Casino in Las Vegas, NV and live online. This CPE-eligible event is the premier annual event for accounting and finance professionals, bringing together thousands of peers, experts, and industry leaders for top-tier learning, networking, and career growth opportunities. Register by May 1, 2025, to take advantage of Early Bird rates— $1,995 for members ( regularly $2,095 ) and $2,445 for nonmembers ( regularly $2,545 ). *PCPS, Tax and PFP section members and CITP®, PFS™, CGMA® credential holders save an additional $150 . Discount reflected in section member/credential pricing during checkout. Register Today ! About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporates solutions which navigates those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.

WASHINGTON, D.C.: Johnson Global Advisory (JGA) is proud to sponsor the Accountants' Liability Conference hosted by ALI-CLE. This two-day event will take place in Washington, D.C. and virtually on June 2nd and 3rd. This is an excellent opportunity to gain valuable insights into a wide range of critical issues. The 2025 conference will focus on audits and oversight, providing essential guidance to help you navigate the evolving landscape of regulatory compliance and better protect your firm and clients. “We are pleased to sponsor this conference for the last several years. This event brings together top law firms, internal counsel, and risk experts for dynamic discussions on trending topics such as accounting liability and other important issues affecting the profession,” said Jackson Johnson, JGA President. “I look forward to personally engaging with participants, presenters, and stakeholders at this conference.” This year’s program is still being finalized but planned topics include: Recent Trends in Accounting Litigation Living in a post- Jarkesy world The future of enforcement PCAOB inspection program update SEC perspectives on gatekeeper liability AI and emerging technologies in the accounting industry Accounting firms entering the legal space International firm considerations Alternative practice structures and AICPA independence rules Register by April 25 to attend in-person and use the code “ JGA ” to save $250 off . OR, for webcast attendance, use the code " JOHNSON " to save $125 off the tuition. Click here to register. About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff, JGA professionals are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.

WASHINGTON, D.C.: Johnson Global Advisory (JGA) makes third annual contribution to the Boys & Girls Club of Greater Kansas City. The 29th Annual Kids Night Out is scheduled for Saturday, April 26, 2025, and promises to be an unforgettable evening, bringing together over 1,500 guests to support the children served by Boys & Girls Clubs of Greater Kansas City. “We’re thrilled to continue our support for the Boys & Girls Club of Greater Kansas City. This marks our third year backing this chapter, and I know that many of our JGA employees have personally benefited from the programs the Boys & Girls Clubs offer nationwide,” said Jackson Johnson, JGA President. “Kids Night Out is Boys & Girls Clubs of Greater Kansas City’s biggest fundraiser each year– and all dollars raised stay right here in Kansas City”, said Andy Burczyk, Board Member and Chair of Kids Night Out. “This organization is doing extraordinary things, and it is because we as a community invest in their impact.” For over 100 years, Boys & Girls Clubs of Greater Kansas City has provided a safe, supportive environment for youth. Serving over 8,000 kids and teens annually across 11 locations, the organization helps young people achieve their full potential through programs that promote academic success, healthy lifestyles, and character development. Through mentoring and leadership training, they equip members with the skills needed for success now and in the To learn more information on the Boys & Girls Club of Greater Kansas City and their work with the youth, please visit www.bgc-gkc.org . About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff, as well as JGA professionals, are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.

WASHINGTON, D.C.: Johnson Global Advisory (JGA) is proud to provide a financial contribution to Sustainable Harvest International (“SHI”). SHI is a nonprofit helping Central American farmers adopt sustainable farming practices for over 27 years. Their mission is to address the destruction of tropical forests caused by slash-and-burn farming and logging. SHI’s mission benefits both current and future generations by equipping farmers with the knowledge to farm sustainably. “We’re proud to partner with Sustainable Harvest International in their important work,” said Jackson Johnson, JGA President. “This collaboration helps drive lasting, positive changes and by backing such vital organizations, we stay true to our mission of giving back and making a real difference. JGA’s philanthropic efforts focus on supporting organizations that are important to our people. I appreciate Vernon sharing his experience as a board member and we are grateful to work with him to amplify this organization.” Vernon Johnson, JGA Director, is a Board Member and Treasurer for SHI. He is actively involved in this organization. "My nonprofit work has helped me maintain perspective in both life and at work,” said Vernon. “It’s taught me to stay calm during challenges and focus on the bigger picture. This experience has improved my relationships and made me more resilient in stressful situations. My advice to busy professionals is to step back, appreciate the simple things, and not sweat the small stuff—being thankful and present can make a big difference." To learn more about SHI, visit www.sustainableharvest.org/donate . About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff and JGA professionals are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.

The implementation of the System of Quality Management (SQM) is not just a compliance requirement but an opportunity to drive significant business value. By aligning firm-wide goals, improving internal processes, and optimizing controls, firms can streamline their operations, reduce inefficiencies, and improve overall performance. The process also provides an opportunity for firms to gain valuable insights through key metrics, enabling data-driven decisions which provide strategic business insights, enhances audit quality, and promotes employee retention. In addition, early adopters who focus on the business value from the outset see improvements that reach across different practices within the firm, making the SQM implementation a strategic investment that benefits the whole firm long-term. We have seen that our work in this area results in meaningful improvements to the way the business of audit and assurance is conducted, and many of these improvements will have benefits that reach across other practices of the firm. This is part II of a series on the benefits of SQM implementation. This article builds on our insights from 2022 in Part I of this series . Compliance as a Driver Compliance is the main driver of the new System of Quality Management (for all standard-setters, referred to as “SQM”) standards issued by the IAASB, AICPA, and the PCAOB. There is no disputing that. However, for the early adopters, what we are finding is immense business value that come out of this process; more so if you start the process with business value in mind. Our ability to anticipate the benefits of executing ISQM 1 years ago is a key strength. Some firms have already implemented ISQM 1 at some level (partial adoption for group audits, for example). For SQMS 1 and QC 1000, since firms are all in various stages preparing for the December 15, 2025, go-live date, now is the time to lay out the strategic value drivers from this compliance exercise. Related: See a breakdown of the various implementation dates here . SQM implementation requires firms to take a closer look at their internal process; every process that touches the value chain of getting an audit done. To demonstrate how this requirement goes beyond the confines of the “audit practice”, consider these examples: Employee onboarding, training, and retention; Software tools and technology used to monitor internal aspects like independence; Tools used by engagement teams, for example, to test 100 percent of smart contracts or select journal entries to examine for fraud; Archiving of binders on time, and in compliance with audit documentation requirements; or Monitoring programs that identify and fix deficiencies in both audit performance and the underlying functions supporting the audit. Getting Buy-In, Aligning Goals, and Engaging Personnel We have seen firm quality leaders struggling to get the buy-in needed from stakeholders across the business (IT, HR, Tax, Advisory) for effective SQM implementation. And we have heard leadership from firms around the world ask: “What’s in it for us?” “All this investment just for a compliance exercise?” “Why do I need to be involved in something the audit group has to do?” But the best question we’ve heard is: “How can the system of quality management implementation improve our business?” When everyone is working toward the same objectives and goals, implementation becomes a cohesive and streamlined process. It’s important to have goals that are aligned throughout the organization, with them tailored to the component and roles within those areas. This includes: Getting the invested support from the partnership board down to process owners; Having goals that are specific and measurable (e.g. documenting the current process and eventually operating controls consistently and timely); Aligning the firm’s tone-at-the-top helps get everyone in sync; and Reinforcing management’s responsibility to establish a culture of quality and its importance in all the services performed by the firm. Management should: Lay out the long-term benefits of improved business performance, reduced risks, more timely and accurate data created which leads to insightful decisions; Emphasize the benefits of overall reduced costs related to non-compliance with network, firm, peer review, and regulators requirements; and Evaluate the potential for lower costs of insurance upon implementation and overtime. Understanding Current Processes Conducting interviews, gathering data, and documenting the processes within the firm’s system of quality management allows visibility of how these processes currently work (or don’t work). When SQM implementation project leaders invite personnel involved in a process together into one room and facilitates an open discussion, a clear picture of how each process really works materializes, and this strengthens cross-functional teaming. For instance, these meetings often result in the realization that two (or more) people are doing the same tasks (inefficiency) or discovering that no one is performing an important review check (gap). Formalizing and Optimizing Processes Once the current process is understood (“As-Is”) and with the right people in the room, the identification of areas where procedures can be more uniform, streamlined or simplified emerges. We often find that processes can be improved without adding more controls. This optimization effort incorporates standardization and normalization across the firm’s services and business functions providing benefit beyond the compliance exercise of the audit practice. Gaining Business Insights A sound system of quality management will bring new business insights and transparency to make confident decisions with reliable data. The optimization process will identify the key information used in the system of quality management (a similar concept to the work auditors performs with their companies as described here). This information provides new insights to help process owners and firm leaders make decisions. A firm can develop key quality metrics that are used to measure and improve the operation of the firm and audit quality which results in a modernized competitive firm. When a firm establishes a system to monitor the SQM environment, these insights allow for timely monitoring which enables leaders to quickly make decisions that address anomalies or negative trends as they arise. Getting Started Early Getting started early begins with: Firm leadership embracing the need for a consistent and well-monitored SQM to improve the business; Aligning objectives and goals for all firm personnel based on their role within the SQM; Disseminating to all firm personnel the importance of how their role contributes to the SQM; and Incentivizing all firm personnel to commit to their SQM objectives and goals which contributes to the benefits of these modern practices that lead to competitiveness. While compliance may be the hand forcing you forward, the upside to this “exercise” is that undoubtedly you will be a stronger, more efficient firm when executed correctly. We see firms that begin with such a mindset have more success internally and in the marketplace. Conclusion The journey of implementing a quality management system is transformative. Beyond compliance, it reveals deep insights and benefits, positioning firms at an advantage in our profession. For more information, reach out to your JGA audit quality expert. Jackson Johnson , JGA President and Founder, is a seasoned expert in audit quality and technical accounting matters. With nearly six years of experience at the PCAOB, he has worked with small and medium-sized accounting firms globally, focusing on firm quality control and ICFR audits. Jackson advises firms in PCAOB and SEC investigations related to cryptocurrency audits and has served on the Enforcement Advisory Committee of the California Board of Accountancy. Before his tenure at the PCAOB, he worked with public and private clients at Grant Thornton LLP in Boston, Los Angeles, and Hong Kong. Jackson is also a frequent speaker on quality control and enforcement issues in the accounting industry. Joe Lynch , JGA Managing Director and Shareholder, and a member of the AICPA Quality Management Implementation Task Force. Joe works with mid-market public accounting firms worldwide to implement quality management programs that integrate technology and process to improve the delivery of audits. Joe spent more than six years as an Inspection Leader at the PCAOB, he conducted inspections of quality control and global issuer audits at large firms in the US as well as foreign affiliate firms, focusing on examining quality control and the design and implementation of audit work. Joe also has experience supporting financial service industry audit teams at a Big Four firm. In addition, his experience includes active-duty service in the US Air Force and supporting companies with IT strategic initiatives such as designing the IT framework for technology departments as well as leading implementations of ERPs and systems.