Help Wanted: Audit Quality Considerations in Light of the Great Resignation

As a millennial, I was told that the 2008 global financial crisis was a “once-in-a-lifetime” economy. Many firms went on hiring freezes and some even had layoffs, rescinding offers previously extended to new college graduates. As a young 20-something-year-old, I was happy to know that the “exceptional” economy was early in my career and that the rest of my life would be smooth sailing. Or so I thought.


Then the pandemic of 2020 came around and yet again, the headlines proclaimed the unusual nature of the pandemic and the “once-in-a-lifetime” economic repercussions. Overnight it seemed, more than 10 million people lost their jobs and the world appeared to spiral out of control. Fast forward to August of 2022 and the economy has now fully recaptured the 10 million lost jobs. But surprisingly, there is suddenly a labor shortage. The Great Resignation. What? How is that possible?


Almost every industry is feeling it, whether the medical profession struggling with burnout from two-years of pandemic stress or the transportation industry struggling to find drivers to keep up with home deliveries. The audit industry is no exception; every client we work with is feeling it. We’re feeling it.


In a recent study published by McKinsey & Company, at the end of May 2022, there were 11.3 million job openings. And to make matters worse, “Despite significant changes in the economy since the onset of the Great Attrition (or what many call the Great Resignation), the share of workers planning to leave their jobs remains unchanged from 2021, at 40 percent. That’s two out of five employees in our global sample who said that they are thinking about leaving in the next three to six months.”


Talk with an economist and there are any number of reasons why there is a labor shortage in the current economy. But answers to “why” rarely provide practical solutions to “what do we do?”


For firms that are struggling with resources, we hear you. Within the audit and accounting profession, we know of many firms that have resorted to using part-time employees and independent contractors to help fill needs. Some firms have leveraged staff from various departments such as IT consulting or internal audit. While all these approaches fill the seats and provide resources to execute the audits, the question remains, what procedures are firms putting into place to ensure quality audits?


Firm QC Considerations


Acceptance and Continuance: Paramount to any audit, the firm process starts first and foremost with engagement acceptance and continuance. This process is already in place for firms, but how much thought is put into the careful completion of these checklists? The critical consideration here is capacity and competence. I know when I was an associate, I was charged with rolling forward the A&C forms from prior year; the senior then officially completed the form and the approval process started with the manager, then partner and up the chain depending on the type of client and the risk profile. In light of the current resource constraints, how are A&C forms capturing considerations around capacity and competence? And how do staff know whether the firm has the right resource capacity and competence? These are often higher-level discussions held at regional and national management levels, but how are those considerations being evaluated and documented? The reality is, if the firm doesn’t have the capacity or the right competence, it needs to either decline engagements or hire the right knowledge base/skill sets to execute a quality audit. 


Independence: Once an engagement has been accepted, the firm then needs to determine the proper staffing. While it may be easy to pull from internal resources, such as leveraging IT consultants to come perform IT controls testing, the Firm needs to be intentional in making sure all engagement team members understand the independence implications of working on the audit. For instance, consulting has very few independence limitations, so an IT consultant may not be aware of the strict nature of SEC independence rules for a public company audit. Similarly, the use of contractors external to the firm is another viable solution to resource constraints, but the question still stands, despite completing an independence checklist/confirmation, has the consultant been educated on the specific nature of independence requirements for the audit?


Technical Knowledge: Assuming the borrowed staff and/or consultants are independent, what is the firm’s process for evaluating competence of these resources? Sure, firms know to review the CV and certifications, but we all know there is a distinction between an accountant and an auditor and yet both often have the same degree and may even both be CPAs. Or take an IT consultant for example. The IT consultant likely has a strong understanding of information systems and could easily perform a walkthrough and execute tests of operating effectiveness over automated controls and/or information technology general controls (ITGCs). However, mere execution is not the same as truly understanding the audit risks and implications of findings. For instance, in performing a walkthrough, the IT consultant may obtain an understanding of the change management process and as with all processes, there are always exceptions to the rules. The question is, would an IT consultant understand the audit implications for various exceptions? Or if the IT consultant is testing an automated control, would they know to test more than the mere functionality as described in the walkthrough? Would they know to test all possible scenarios to demonstrate that the system can only process information as described in the automated control?


Regardless the area, whether IT, valuation, tax or some other specialty knowledge, understanding audit risks is critical. After all, risk is what drives an audit. So, what does management do to ensure that resources have the proper audit understanding? While a three-hour training on PCAOB audit standards may help provide some insight and may placate the PCAOB from a “checklist” mentality, let’s be frank, audit risk is learned over time. There is a reason managers and partners perform reviews, having years of audit experience, slowly learning the risks and implications of various scenarios that emerge in audits. A three-hour training cannot replace years of experiential learning. The question remains, what are firms doing to bridge this gap? This points to consideration of the staffing mix and the need for appropriate review and supervision, as discussed below.


Monitoring: Current QC standards require various monitoring programs at a firm level. These programs are often executed for all internal resources, but what about external resources or resources from different divisions? Take independence monitoring and/or training/CPE/licensure monitoring, are “fill-in” resources subject to these same processes? While performing an independence check for an occasional contractor may be easy enough, as firms embrace more part-time workers and engage more contractors, firm QC processes will need to be amended to ensure appropriate checks over this emerging resource pool.


Tone at the Top: It’s worth emphasizing the importance of creating a culture of curiosity over conviction. Employees and teams should feel encouraged to ask questions, to seek for better understanding, and to not hesitate to consult with national office / upper management. Considering a lot of cumulative audit knowledge and experience is being lost through the great resignation, promoting a culture of knowledge sharing is even more important to ensuring employees feel comfortable raising their hand when they don’t understand something and feel supported by all levels of management so they can perform quality audits.


Engagement Team Considerations


Team Assignments: At the engagement team level, it’s important that firms consider the staffing mix on audit teams. While firms may have no choice but to use contractors and borrow staff from other departments, audit teams should still have “core audit members” who can share the audit knowledge and keep audit risks front of mind. Maybe that means the firm will need to rotate clients for some of its core assurance staff so that every team has core assurance members. As well, as audit areas are assigned, managers and partners should be thinking through risks at the financial statement level and ensuring higher risk audit areas are completed by stronger, core assurance members.


What about areas like IT or taxes where the area is specialized and may present a pervasive or significant risk? Firms need to be conscientious of these areas and if their resources do not themselves have the requisite audit knowledge and/or experience, then perhaps firms should consider specific coaching programs or targeted in-flight review programs that can compliment the use of contractors and/or borrowed staff. For instance, perhaps the firm uses an IT partner with years of in-depth audit experience to coach less experienced IT contractors across multiple engagements. As the workforce and employment model is changing, so too will the structure and makeup of engagement teams. Be creative. 


Review and Supervision: In addition to the staffing mix, firms should consider review and supervision at the engagement team level. Though the standard around engagement team review and supervision has not changed, the expectations may be evolving. For areas performed by less experienced staff, whether new hires, borrowed staff, or independent contractors, managers and partners should be performing more in-depth reviews. For areas of higher risk, teams should consider whether additional levels of review are necessary. And for areas of specialized risk, as mentioned above, firms should consider whether there is a need for targeted in-flight reviews. Perhaps the most important factor for quality review and supervision is workload. What metrics is the firm using to monitor manager and partner workload? What are firms doing to relieve overworked managers and partners? This ties directly into the capacity discussions that management is having at the acceptance and continuance level.


Consultations: Finally, in conjunction with firm management setting the correct tone-at-the-top at the firm level, engagement teams should leverage firm-wide resources and not be afraid to consult when needed. Too often, teams only focus on required consultations, but nothing says that a team can’t consult when questions arise in other non-mandatory scenarios. Knowledge is power and firms have vast sums of cumulative audit knowledge and experience at the management levels, so don’t be afraid to reach out to national office with questions. Chances are, you aren’t the first to have that question.


Use of Other Firms Considerations


So far, we’ve focused mainly on the use of independent contractors and borrowed staff, but there is also a movement to using other audit firms to also assist with audits. Sometimes the other firm will issue an opinion and sometimes the other firm only performs audit procedures on behalf of the principal auditor. Currently, China comes to mind; given various restrictions due to COVID and regulatory concerns, many US firms are leveraging other audit firms in China to assist in executing audits. In our recent article of use of other auditors, we provide factors to consider, but the general theme points to review and supervision. So what procedures are firms implementing to ensure appropriate review over the work performed by other auditors? A mere review of the reporting package is likely not sufficient given the new PCAOB standards/amendments.


Technology Considerations


Given the digital age, we would be remiss not to mention technology. In our joint webinar on ISQM 1, Dayshape CEO, Andrew Bone, said: “For those already struggling to fill their current vacancies, the obvious question is where will this extra capacity come from? Unable to simply recruit and reluctant to scale back fee earning work, firms are looking to technological resources for answers. What firms are finding is that technology can help in a number of different ways.” 


For instance, using technology for resource management will help firms easily identify available employees, what skills and experience various resources have, and potentially even reduce administrative burdens on resources, such as finding ways to automate administrative processes. “Technology can be used by firms to track and evidence that the right skills and competencies have been assigned to a project and that independence criteria have been met. When doing this at scale, technology can be extremely useful to help firms track skills firm-wide and demonstrate a robust and standardized process.” 


In addition, technology can automate various Firm QC processes or monitor QC metrics (i.e. partner or manager workloads, as mentioned above). Bone continued, “technology can be used to implement automated project controls to provide assurance that the right quality measures and checks are in place and that these are followed consistently. These can be set at a firm level to ensure that the right people review and approve work at the right stage. Or at the engagement level where engagements failing certain quality criteria can also be automatically escalated.” 


Finally, as we all know, big data can be incredibly powerful, and technology combined with data analytics could transform future audits. Already, technology is being used to help perform many non-subjective functions such as account reconciliations, cash proofs for revenue, various roll forwards for investments or equity or journal entries, etc. Technology requires an investment, but as we approach a more and more automated world, it will soon be inevitable, and thanks to software-as-a-service models, technology resources are becoming more and more accessible to the masses.


Key Takeaways


The Great Resignation is proving to be a challenging time for everyone. Whether flight cancellations or poor service in restaurants (if the restaurant stayed open), we’re all feeling the effects of staff shortages. For those who didn’t resign, it seems there is more to do with less (yet again). While use of contractors and borrowed staff is a temporary fix, firms should incorporate the following:


  • Acceptance and continuance decisions need to be thoughtfully considered, taking into account a firm’s capacity and competence.


  • Independence and ethics requirements should be clearly explained and understood by all staff working on audit engagements, regardless of whether they are internal or external.


  • Competence is more than just technical ability and should incorporate an element of understanding audit risk. This could be accomplished through trainings, but firms could also incorporate other elements such as engagement team coaching (either by team mangers and partners or through designated coaches), in-flight reviews, and consultations.


  • Engagement team staffing should be thoughtfully evaluated to ensure there is a mix of core assurance and other staff such as contractors or borrowed staff.


  • Review and supervision are becoming increasingly important, especially as the use of alternative resources increases. Ensure workloads allow for adequate time for coaching and review during an audit.


  • When using other audit firms, keep in mind the new PCAOB amendments and standards, largely pointing to increased responsibility around review and supervision for lead engagement teams.


  • There are tools, technology and services available to help. Firms must assess the gaps whether intellectual, human, or technological, and make investments now for the future.


No one knows how long the labor shortage will last. In the long term, the economy and the markets will adjust. My grandfather worked at one company his entire life. At the time, that was normal. Today, that’s exceptional. In the 90’s, companies complained about lack of loyalty when the younger generations began to change jobs more frequently, but sure enough, the workforce adjusted. Now with the Great Resignation, once again, companies are feeling the strain and in particular, the employees who didn’t resign. But, as has always been the case, the markets will adjust in time. Perhaps this is truly the emergence of the “gig economy” en masse. Perhaps this is creating the impetus needed for firms to more rapidly adopt technology, making audits more efficient. Whatever the outcome, in the short term, we can’t lose sight of audit quality. Filling seats isn’t the same as engaging the right resources with the appropriate firm QC protocols in place to enable teams made up of contractors, borrowed staff, and traditional assurance staff to perform high quality audits.


Dane Dowell is a Director at Johnson Global Accountancy who works with PCAOB-registered accounting firms to help them identify, develop, and implement opportunities to improve audit quality. With over 12 years of public accounting experience, he spent nearly half of his career at the PCAOB where he conducted inspections of audits and quality control. Dowell has extensive experience in audits of ICFR and has worked closely with attorneys in the PCAOB’s Division of Enforcement and Investigations. Prior to the PCAOB, he worked with asset management clients at PwC in Denver, Singapore, and Washington, DC.

JGA to Sponsor 2025 ALI-CLE Accountants' Liability Conference

March 21, 2025
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.

JGA Makes Third Annual Contribution to The Boys & Girls Club of Greater Kansas City

March 21, 2025
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.

Johnson Global Advisory Supports Sustainable Harvest International

March 21, 2025
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.

ISQM 1, SQMS 1: Influencing the Firm on the Benefits Beyond Compliance (Part II)

February 26, 2025
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.

PCAOB Withdraws Firm & Engagement Metrics Rule from SEC Approval Process

February 25, 2025
The Public Company Accounting Oversight Board (PCAOB) recently decided to withdraw proposed rules that would have required registered firms to report a significant new set of firms and engagement metrics. It was also set to mandate that large accounting firms submit financial statements to the U.S. Regulator, as part of a wider effort to enhance oversight. This decision came after criticisms from a variety of stakeholders from both the PCAOB and SEC comment process. For example, the American Institute of CPAs (AICPA) expressed concerns that these requirements could harm U.S. capital markets and negatively impact small and midsized audit firms, potentially driving them out of the public company auditing practice. The PCAOB's decision to withdraw the rules was seen as a positive move by the AICPA, which had urged the Securities and Exchange Commission (SEC) to refrain from approving the rules due to the significant challenges they posed.  JGA commented to the SEC on the proposal; you can read our position on the proposal here .

Johnson Global Advisory Releases Updated 2025 Guide to Help PCAOB-Registered Firms Navigate the Inspection Process

January 17, 2025
WASHINGTON, D.C.: Johnson Global Advisory (JGA) has published a new third edition guide examining the key considerations faced by public company auditors during their PCAOB inspections. Drawing experience as audit and audit regulation experts and advisors to firms worldwide on all aspects of audit quality improvement, the JGA team has authored NAVIGATING PCAOB INSPECTIONS: Understanding the Inspection Process from Start to Finish.

Firm and Engagement Metrics: Getting a Head Start

December 20, 2024
Firm and Engagement Metrics: Getting a Head Start  *** Please see the updated information on the PCAOB Firm & Engagement metrics Rule change. Click here . Introduction As regulatory requirements in the accounting profession continue to evolve, accounting firms are facing new challenges in ensuring compliance with quality management standards. One of the most significant changes comes with the adoption of the PCAOB’s QC 1000 and the associated Firm and Engagement Metrics requirements , which aim to increase transparency and accountability within the auditing process. These new requirements are set to provide critical data on a firm’s operations and other factors that can inform audit quality, including partner involvement, workload distribution, and other factors. In this article, we’ll explore the challenges and opportunities firms face as they begin collecting the information necessary for firm and engagement metrics. We’ll also provide actionable steps that, in concert with implementation of QC 1000 / ISQM 1 / SQMS 1, firms can take to ensure they’re ready for compliance, with a focus on the key areas highlighted in recent industry discussions. 1. Quality Management Implementation: Bridging Internal and External Requirements Key Insights: A major challenge shared by our clients was the distinction between internal quality management (QM) processes and external regulatory requirements. Firms are finding it difficult to ensure that the information they provide to regulators will be complete and accurate. The requirement to report accurate and non-misleading information to external parties under QC 1000 , such as firm and engagement level metrics necessitates a shift in how firms view and manage data internally. Action Items for Firms: Ensure Data Accuracy : Firms must evaluate their quality management system to ensure they are designed to meet the requirements for accurate and non-misleading information. This is crucial as QC 1000 requires firms to communicate data to external parties that is accurate and complete. Implement Data Tracking Systems : Develop systems to track and report data, ensuring that the information provided to external parties, including regulators aligns with quality management objectives. This may require new systems or modifications to existing systems. Evaluate Communication Processes : Firms should focus on improving or implementing communication processes to ensure that all external communications, especially those with regulators, meet the high standards of accuracy and clarity mandated by QC 1000. 2. Comparability of Metrics Among Accounting Firms Key Insights: The introduction of standardized firm and engagement metrics is designed to increase comparability and accountability across accounting firms. This allows regulators, investors, and stakeholders to evaluate firms based on consistent data. However, there are concerns about how these metrics might influence firm selection by audit committees and whether these metrics alone tell the full picture to accurately represent audit quality. Action Items for Firms: Adopt Standardized Metrics : Firms should ensure that their reported metrics align with the prescriptive guidelines outlined in the adopted Firm and Engagement Metrics Rule. This includes applying the defined roles in a consistent manner (such as engagement partners and managers) and calculating metrics consistently across all engagements. Prepare for External Scrutiny : Be aware that these metrics may not only be scrutinized by regulators but also by audit committees and investors. Firms should ensure that they are accurately capturing and reporting their metrics to avoid misrepresentations. Monitor AI Usage in Audits : Consider how AI tools may impact workload calculations and the measurement of audit hours. As AI becomes more prevalent in auditing , firms may need to report on the extent of its use, which could influence workload metrics. 3. Potential Implications of Reporting Metrics Key Insights: While firm and engagement-level metrics can provide valuable insights, there are potential risks to firms that are likely to emerge. These include the possibility that the metrics may inadvertently point to root causes of issues in the inspection process, particularly regarding workload and capacity challenges. Additionally, these metrics – coupled with inspection report findings - may influence how audit committees select firms, potentially providing a skewed representation of audit quality. Action Items for Firms: Use Metrics Internally for Root Cause Analysis : Firms should utilize firm and engagement level metrics as reported, when performing internal root cause analysis , identifying potential problems in workload distribution or staffing levels before they escalate. Evaluate the Impact on Firm Selection : Be mindful of how these metrics might affect firm selection. Firms should aim to demonstrate the full context behind their metrics to avoid misinterpretations that could impact their reputation. Balance Metrics with Qualitative Insights : Firms should complement quantitative metrics with qualitative insights, ensuring a comprehensive picture of their audit quality is presented to external stakeholders. 4. Engaging Stakeholders in the Use of Metrics Key Insights: One concern we have heard was the uncertain use of metrics by investors and other stakeholders. While the objective of the PCAOB in the rule-setting process was for investors and audit committees to analyze these metrics, it’s unclear how much weight they will place on the data in making decisions about firms’ audit quality. In the planning process, firms can take charge and shape stakeholder use and effectiveness of the use of firm and engagement metrics shared publicly. Action Items for Firms: Engage with the Investor Community : To better understand how investors will use the metrics, firms should engage more actively with the investor community. This could include attending shareholder meetings and investor calls to gain insights into what data investors prioritize when evaluating audit quality. Increase Transparency in Reporting : Firms should be transparent in explaining the context and methodology behind their metrics, helping the clients, audit committees and other stakeholders understand the full context to make informed decisions. Ensure Data Relevance : Firms should ask their clients whether the data currently being reported is sufficient, and whether additional data points might be necessary to better assess audit quality and reliability. 5. Getting Started with QC 1000 and Firm Metrics Key Insights: As firms begin implementing QC 1000 and collecting firm and engagement level metrics , they face the challenge of ensuring their existing systems are capable of tracking and reporting the required data. Many firms may need to redesign or enhance their internal controls to capture the necessary information accurately. Action Items for Firms: Align QC 1000 with Firm and Engagement Level Metrics Reporting : Firms should carefully review QC 1000’s requirements and align them with the firm and engagement level reporting requirements. Focus on the information and communication component, ensuring that data is collected and reported accurately and consistently. Evaluate Current Systems : Firms should assess whether their current systems are capable of tracking metrics such as workload and audit hours. If systems are lacking, firms should plan to either redesign or implement new controls to capture this data accurately. Implement Real-Time Monitoring : Firms should adopt real-time monitoring tools that allow them to proactively manage workload issues and other potential risks. This ensures that data is captured and analyzed continuously, improving overall quality management. Be Agile and Proactive : QC 1000 requires firms to monitor metrics and adapt to emerging issues. Firms should adopt an agile approach to quality management, ensuring that metrics are not just reported at the end of the period but are actively managed throughout the year. Conclusion: Preparing for the Future of Quality Management and Firm Metrics The new QC 1000 and firm and engagement level metrics requirements can represent a significant shift in how accounting firms track, report, and manage audit quality. By adopting these standards, firms can improve transparency, enhance accountability, and demonstrate their commitment to high-quality audits. However, the implementation of these new requirements will require careful planning and investment in both systems and processes. Firms that act now to align their systems with QC 1000, engage with stakeholders, and monitor their metrics in real-time will be better positioned to meet regulatory expectations and enhance their market reputation. As the industry moves towards more data-driven decision-making, firms that prioritize accuracy, transparency, and continuous improvement will be the leaders in delivering quality audits. For more information, please contact your JGA audit quality expert .

Key Takeaways from the 2024 AICPA SEC/PCAOB Conference: What It Means for Your Firm

December 18, 2024
Key Takeaways from the 2024 AICPA SEC/PCAOB Conference: What It Means for Your Firm In December 2024, the AICPA SEC/PCAOB Conference in Washington D.C. brought together leaders from the SEC, FASB, and PCAOB to discuss critical developments in the accounting profession. The conference focused on fostering audit quality, improving the resilience of capital markets, and addressing ethical challenges. Below are the key takeaways from the conference speeches most relevant to you, including insights from Paul Munter, SEC Chief Accountant, Erica Williams, PCAOB Chair, Christina Ho, PCAOB Board Member, and Mark Uyeda, SEC Commissioner, and what these developments mean for the accounting firm clients we serve. 1. Munter’s Remarks on Upholding Independence Key Points: In his speech, Paul Munter, SEC Chief Accountant, emphasized the importance of maintaining auditor independence to preserve market integrity. Munter stressed that independence should be seen as a core professional standard, not just a compliance requirement, and urged auditors to foster a culture of skepticism and integrity. He called on auditors to ensure they challenge management when necessary to detect fraud and ensure accurate financial reporting. What This Means for Firms: The points are reminders to keep independence and objectivity at the forefront of engagement teams, despite the new technical complexities (e.g. PE deals), and general lowering our guard around these obligations: ways to continue to demonstrate this important across the firm system of QC are: 1. Reinforcing independence policies and ensure continuous training and monitoring; 2. Encouraging a skeptical mindset within audit teams to prevent ethical lapses; 3. Ensuring firm-wide commitment to independence, especially in long-term client relationships or where conflicts may arise. 2. PCAOB Chair Williams on Improvements in Deficiency Rates, and new standards Key Points: PCAOB Chair Erica Williams shared significant positive news, highlighting improvements in the aggregate deficiency rate at the largest audit firms. She attributed this progress to the firms’ increased efforts to enhance audit quality, including better risk assessment procedures and heightened transparency in reporting. Williams emphasized the importance of maintaining this momentum in order to build trust and credibility in the profession and the capital markets. Williams also discussed the newly adopted QC 1000 , the quality control standard that mandates firms to have comprehensive quality control systems to ensure that they meet PCAOB and SEC standards. She noted that this standard is designed to provide reasonable assurance that audit firms have the necessary controls in place to perform high-quality audits consistently. Additionally, she emphasized the critical role of the SEC in passing firm engagement metrics , which will help ensure that audit firms are held accountable for the quality of their engagements and provide investors with more detailed insight into firms’ performance. What This Means for Firms: Implement QC 1000 : Firms should begin preparing for the adoption of QC 1000 by reviewing and strengthening their own quality control systems. Ensure that these systems are robust enough to guarantee compliance with PCAOB and SEC standards and can provide reasonable assurance of consistent audit quality. Focus on Firm Engagement Metrics : If the SEC passes firm engagement metrics, firms will need to ensure they have clear, accurate data on their engagements, performance, and quality measures. Preparing now for these metrics will help firms stay ahead of the regulatory curve and demonstrate their commitment to transparency and high-quality audits. Enhance Risk Management and Quality Control : Firms should continue refining their risk-based audit approaches, focusing on stronger internal controls, and implementing transparent reporting practices. Continuous improvement will ensure the firm stays in line with both regulatory expectations and industry best practices. 3. PCAOB Board Member Christina Ho on Collaboration to Advance Audit Quality and Market Resiliency Key Points: In her speech, Christina Ho, Board Member of the PCAOB, stressed the need for genuine collaboration among regulators, auditors, and firms to advance audit quality and improve the resiliency of capital markets. This collaboration is essential to address emerging challenges, such as increasing regulatory expectations and the complexities of global markets. Ho highlighted that this collective effort is crucial to maintaining strong, transparent financial reporting and ensuring that audits remain effective and reliable, particularly as financial markets evolve. What This Means for Firms: Engage with regulators : Actively participate in consultations and industry forums to stay ahead of regulatory trends. Foster collaboration : Encourage open communication between audit teams, clients, and audit committees to ensure alignment on regulatory expectations. Adapt to global market changes : Firms must remain agile and ready to respond to the shifting dynamics of both domestic and international markets, ensuring that their audit processes remain resilient and effective. 4. SEC Commissioner Mark Uyeda on Crypto, and PCAOB’s Future Key Points: In his keynote, SEC Commissioner Mark Uyeda discussed the SEC's evolving role in the accounting and auditing of cryptocurrencies, noting that crypto is currently being accounted for and audited through enforcement activities. He stressed the need for greater clarity in crypto accounting and auditing standards. Uyeda also discussed the future of the PCAOB, stating that "all options are on the table." What This Means for firms: Crypto Accounting and Auditing : Firms need to stay abreast of emerging standards and enforcement actions in crypto accounting. As regulations evolve, firms must be prepared to adapt their auditing and reporting practices accordingly. Take a look at positions from other regulators or standard setters (e.g. CPAB), to inform what sufficient procedures looks like. PCAOB’s Future : The potential restructuring of the PCAOB may affect how audits are overseen in the future. Firms should monitor developments closely and assess the impact on their operations and regulatory compliance, and firm strategy. 5. Ethical Considerations and Audit Quality Throughout the conference, both SEC and PCAOB leaders emphasized the need for ethical leadership in the accounting profession. Lapses in ethics, whether intentional or inadvertent, can severely undermine trust in auditors and in financial markets. The speeches underscored the responsibility of firm leaders to uphold high ethical standards and ensure that these values are embedded in their teams’ daily practices. What This Means for Firms: Promote ethical leadership across all levels of the firm, ensuring that ethical considerations are integrated into every stage of the audit process. Invest in ongoing ethics training to reinforce the importance of upholding integrity and objectivity. Implement early detection mechanisms for identifying potential ethical lapses, ensuring timely corrective action. Conclusion: Positioning Your Firm for Success The 2024 AICPA SEC/PCAOB Conference provided crucial insights into the current and future landscape of the accounting profession. By focusing on audit quality, independence, collaboration, and ethical leadership, firms can not only meet regulatory requirements but also strengthen their reputations as trusted professionals in the marketplace. For JGA’s clients, the key takeaway is that maintaining robust quality control systems, engaging in ongoing dialogue with regulators, and staying ahead of emerging trends such as crypto accounting are critical strategies for ensuring continued success in a dynamic regulatory environment. For more information, reach out to your JGA audit quality expert.

Johnson Global Advisory Establishes Strategic Leadership Council and Appoints Three Council Members

November 26, 2024
WASHINGTON, D.C., November 26, 2024 - Johnson Global Advisory (JGA) is announcing the formation of its Strategic Leadership Council (SLC) , an initiative aimed at bolstering the firm's strategic direction and reinforcing its commitment to industry-leading advisory services. The Council, composed of executives from diverse sectors within the audit quality stakeholder ecosystem, will provide insights into the JGA leadership on industry trends, strategic decision-making, and growth opportunities. Kathleen M. Hamm, Greg Jonas, and Dave Sullivan are the first appointees to the SLC. Kathleen M. Hamm has an extensive background in financial regulation, control infrastructures, and risk management, particularly relating to fintech and cybersecurity. Her previous role as a Board Member of the Public Company Accounting Oversight Board (PCAOB) highlights her leadership in regulatory transformation and strategic policy development. "Joining JGA’s Strategic Leadership Council allows me to leverage my experience to further the Firm's mission in these transformative times," remarked Hamm. Greg Jonas is an independent consultant on auditing and business reporting matters. He served as Director of the Division of Research and Analysis at the PCAOB from 2012-2016. In addition to roles as a financial analyst at Morgan Stanley and Moody’s Investors Service, Greg spent 23 years at Arthur Andersen, serving in various roles supporting its global audit practice. “JGA serves a vital role in improving audit quality for the benefit of auditing firms and investors. I look forward to contributing to the firm’s success.” Dave Sullivan, a seasoned executive known for his strategic insight in audit quality and risk management, has over 35 years of experience from Deloitte. His leadership in global audit quality initiatives make him a pivotal addition to the council. "I look forward to collaborating with my fellow council members to propel JGA to new heights," stated Sullivan. The SLC will meet quarterly, advising JGA’s leadership team on critical business opportunities and challenges, ensuring the Firm remains at the forefront of industry innovation and strategic excellence. The first meeting of the SLC was held on Friday November 1, 2024, at JGA's Washington D.C. office. “I am proud to welcome Kathleen, Greg, and Dave to our new Strategic Leadership Council,” said Jackson Johnson, JGA President and Founding Shareholder. “Their collective expertise will be instrumental in guiding our strategic initiatives and ensuring that JGA continues to set high standards our clients expect in this sector.” About Johnson Global Advisory JGA partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB staff, JGA professionals are enthusiastic and practical in their support to firms in their audit quality journey. We accelerate 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 navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide.

Joe Lynch to speak at 40th Annual SEC Reporting & FASB Forum

November 21, 2024
Johnson Global Advisory (“JGA”) is pleased to announce Joe Lynch, Shareholder and Managing Director, will speak on a panel at the 40th Annual SEC Reporting & FASB Forum. This panel will summarize the activities of the PCAOB including: Gain insight on the amendment to PCAOB Rule 3502 Governing Contributory Liability Understand the amendments addressing aspects of audit procedures that involve technology-assisted analysis of information in electronic form Recite new requirements for lead auditor’s use of other auditors Enumerate the new requirements of QC 1000, “A Firm’s System of Quality Control” Recall the guidance of the new auditing standard “General Responsibilities of the Auditor in Conducting an Audit” Anticipate the New Standard, “The Auditor’s Use of Confirmation” Learn about the proposal to replace existing auditing standard related to an auditor’s use of substantive analytical procedures Understand the PCAOB’s proposals on public reporting of standardized firm and engagement metrics and the PCAOB framework for collecting information from audit firms Anticipate the Proposed New Standard on Amendments to PCAOB Auditing Standards related to a Company’s Noncompliance with Laws and Regulations Gain insight on the PCAOB’s 2024 Inspection Priorities Learn about other Standard-Setting and Research Projects 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 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.
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