The PCAOB and China: What’s Happened Since the HFCAA Became Law

Since the signing of the Holding Foreign Companies Accountable Act (“HFCAA” or “Act”) into law in December 2020, the Public Company Accounting Oversight Board (“PCAOB”), the accounting firms registered with the PCAOB that are headquartered in mainland China and Hong Kong (collectively, “China”), and their US-listed company clients have been very active. 


Over the past three years we have seen – 

  1. US-listed companies based in China change auditors to accounting firms in PCAOB-accessible jurisdictions;
  2. A game-changing agreement between China authorities and the PCAOB enabling unobstructed access to inspect and investigate China-based auditors registered with the PCAOB;
  3. The completion and publication of the PCAOB’s first full inspections of two China-based accounting firms; and 
  4. The first enforcement actions of China-based firms as a result of using its full investigative authority.


We explore more about what has happened over the last three years, what China-based accounting firms may expect from the PCAOB in 2024, and the challenges they face. 


The HFCAA and the PCAOB’s Initial Determination it was unable to Inspect and Investigate China Auditors Fully

The HFCAA was enacted to address the limitations on the PCAOB’s ability to inspect and investigate PCAOB-registered public accounting firms headquartered in China because of positions taken by authorities in the People’s Republic of China (“PRC”).


According to the HFCAA, the PCAOB is required to determine whether it is “unable to inspect and investigate completely because of a position taken by an authority in the foreign jurisdiction” (e.g., China and Hong Kong). This determination is made by the PCAOB Board annually in accordance with the PCAOB’s rules1. If the PCAOB does not have complete access for inspections and investigations for two consecutive years, the SEC would be required to prohibit trading in the securities of issuers engaging those audit firms2. 


China-based US-Listed Companies Change Auditors

In December 2021, the PCAOB issued a report on its determination (the “Initial Determination”) that it was unable to inspect or investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong because of positions taken by the PRC3. 


In March 2022, the SEC published a list of China-based US-listed companies that SEC staff identified were subject to possible trading prohibitions if the PRC did not permit the requisite access to the PCAOB, as required by the HFCAA. The SEC has continued to update the list on a rolling basis since March 2022, which now encompasses 174 companies (the SEC’s “Conclusive List”)4. 


The reaction by many China-based companies from the PCAOB’s Initial Determination and their appearance on the SEC’s Conclusive List was to change auditors in an apparent attempt to avoid the threat of having their stock delisted in the United States. After the Conclusive List was first published, 24 of those companies changed auditors, according to an article published by NikkeiAsia.5


Accounting firms in the US and Singapore were the primary beneficiaries of the fallout, according to the article6. Accounting firms that were and may continue to be beneficiaries of the reshuffle should carefully consider whether they have the scalability and quality controls in place to take on multiple audit clients over a short duration. Although the PCAOB’s settled enforcement action with Marcum LLP7 is an extreme example of what can go wrong when accepting too many clients at once, any firm that has taken on multiple China-based clients in short duration is at a heightened risk of a PCAOB inspection, investigation, and possible enforcement action.


PCAOB Obtains Access to Inspect and Investigate Completely

In August 2022, the PCAOB announced that it signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China, marking the first step toward opening access for the PCAOB to inspect and investigate PCAOB registered public accounting firms headquartered in mainland China and Hong Kong completely8.  This was a game changer for the PCAOB and investors in US-listed companies with China-based auditors.


Inspection Results of the First Two Firms 

As a consequence of the Protocol, the PCAOB was successful in conducting its first two full inspections of China-based audit firms in 2022. In December 2022, the PCAOB vacated its Initial Determination because of the full access it experienced9 and the SEC followed suit by acknowledging that there are no issuers currently at risk of having their securities subject to a trading prohibition10. 


In May 2023, the PCAOB published the inspection reports of the two firms it inspected in 2022: KPMG Huazhen LLP (“KPMG Huazhen”) in mainland China and PricewaterhouseCoopers in Hong Kong (“PwC HK”). As the PCAOB suspected, there was a high rate of deficiencies, including part I.A deficiencies, which the PCAOB defines as having such significance that the PCAOB believed the firm, (i) at the time it issued its audit report(s), had not obtained sufficient appropriate audit evidence to support its opinion(s) on the issuer’s financial statements and/or ICFR or (ii) in audit(s) in which it was not the principal auditor, had not obtained sufficient appropriate audit evidence to fulfill the objectives of its role in the audit. 


According to the inspection reports – 

  • KPMG Huazhen11 was the principal auditor of 30 US-listed audit clients and participated in the audits of 77 other US-listed company audits. Of these, the PCAOB selected four audits for inspection, all of which were determined to have Part I.A deficiencies. 
  • PwC HK12 was the principal auditor of three US-listed audit clients and participated in the audits of 27 other US-listed company audits. Of these, the PCAOB selected four audits for inspection, three of which were determined to have Part I.A deficiencies.


Deficiencies were numerous and found in the financial statement areas of cash, revenue (and related accounts), inventory, other investments, goodwill and intangible assets, long-lived assets, and significant transactions, and involved departures from the following PCAOB rules and standards:

  1. Audit evidence (AS 1105)
  2. Audit documentation (AS 1215)
  3. Communications with audit committees (AS 1301)
  4. Auditing internal control over financial reporting (AS 2201)
  5. Responding to the risk of material misstatement (AS 2301)
  6. Substantive analytical procedures (AS 2305.16)
  7. Audit sampling (AS 2315)
  8. Consideration of fraud in a financial statement audit (AS 2401.61)
  9. Auditing accounting estimates (AS 2501)
  10. Auditor reporting on financial statements (AS 3101)
  11. Form AP - reporting of certain audit participants (Rule 3211) 


The PCAOB acknowledges that it is not unexpected to find numerous deficiencies in jurisdictions that are inspected for the first time and that the deficiencies identified by the PCAOB above are consistent with the types and number of findings the PCAOB has encountered in other first-time inspections around the world13. These deficiencies have not resulted in an enforcement action with these firms at this time. 


These two firms will almost assuredly be inspected again in 2024 or 2025.   


PCAOB Enforcement Activity

The PCAOB was also very active in sanctioning China-based accounting firms since it obtained access to fully investigate China-based accounting firms in the PRC. In 2023, the PCAOB published three settled enforcement actions with PCAOB registered firms based in China. Two of the cases involving PwC were the direct result of information learned in the inspections the PCAOB conducted in 2022 after securing complete inspection access, according to the PCAOB’s press release announcing the settlements14. The following summarizes the PCAOB’s findings and corresponding money penalties imposed (refer to the related Orders for other sanctions), according to the PCAOB’s Orders published on its website – 


  • PwC China and PwC HK violated the integrity and personnel management elements of the PCAOB quality control standards by failing to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses15. These firms agreed to collectively pay $7 million in money penalties to settle their cases.
  • Shandong Haoxin and four of its auditors falsified an audit report, failed to maintain independence from their issuer client, and improperly adopted the work of another accounting firm as their own. Interestingly, the US-listed company that was the audit client disclosed in the Order (Gridsum Holding Inc.) is not listed on the SEC’s Conclusive List. The firm agreed to pay $750,000 and the four auditors collectively agreed to pay $190,000 to settle the matter16. 


What to Expect in 2024

In a May 2023 news release by PCAOB Chair Erica Williams, she stated, “[t]he two firms we inspected in 2022 audited 40% of the total market share of U.S.-listed companies audited by Hong Kong and mainland China firms, and we are on track to hit 99% of the total market share by the end of this year.” 17 In addition, The 2024 PCAOB Budget includes the resources necessary to continue to drive inspection activities in support of the PCAOB’s mission to protect investors, “including inspecting the remaining firms registered in mainland China and Hong Kong under our mandate.”18 


These statements suggest the PCAOB continues to have unobstructed access to inspect and investigate PCAOB registered firms in China and Hong Kong. Accordingly, it is expected that – 


  1. The PCAOB will release the inspection reports of the accounting firms that comprise the remaining 56% of the 99% of the total market share of U.S.-listed companies audited by China accounting firms in or about May 2023, and we anticipate those reports to continue to reveal that firms based in China have a lot of work to do to improve audit quality. 
  2. Any remaining China-based accounting firms that have not been inspected—those making up the remaining 1% of the total market share—and follow-up inspections on those initially inspected are likely to occur this year, in 2024; and 
  3. The PCAOB’s Division of Enforcement and Investigations will likely have continued to receive referrals from the Inspection Division as a result of the 2023 inspections of China-based accounting firms, and there will be multiple enforcement actions in 2024 or later as a consequence. 


What Firms in HK and China Should Do Now

Prepare for initial inspection: An inspection is an examination of both the firm’s quality control policies and selected applicable client engagements. In essence, the inspection begins before the firm has even started an audit. An effective system of quality control provides the firm with reasonable assurance that its personnel comply with applicable professional standards and the firm’s standards of quality. In addition to reviewing the firm’s quality control documentation, the inspectors will review the audit work papers of the selected audits. Therefore, it is imperative that audit documentation be robust, easy to follow, provide a clear road map from planning and risk assessment to the conclusions reached, and is fully assembled in compliance with PCAOB standards. The achievement of these two objectives will go a long way toward making the firm’s initial inspection a smooth one.


Post-inspection: The next step for firms after their initial inspection is to perform a root-cause analysis and remediate. A sound remediation plan that includes (i) focused training (ii) enhancements to policies, procedures, and methodologies; (iii) the adoption of PCAOB-specific audit tools and templates; and (iv) the implementation of pre-issuance reviews on riskier audits and post-issuance reviews of completed audits are just a few of the things firms can do to prevent poor inspection results and avert a referral to enforcement.


Conclusion

In sum, every audit should be conducted with the highest level of quality and with the notion that your audit will be selected for a PCAOB inspection. The published inspection reports and enforcement actions of the China-based accounting firms should serve as a guide. Read them carefully and revisit the standards cited therein to understand precisely why the firms were criticized and how the standards should be applied. Make audit quality your top priority.


                                                                                                                                                                                                                                                                     


  1. PCAOB Rule 6100.
  2. This was originally three years in the HFCAA, it was reduced to two years with the singing of the Consolidated Appropriations Act, 2023.
  3. PCAOB Makes HFCAA Determinations Regarding Mainland China and Hong Kong.
  4. The list is located on the SEC’s website at SEC.gov Holding Foreign Companies Accountable Act.
  5. Chinese companies switch auditors to avoid U.S. delisting risk - Nikkei Asia, May 16, 2023.
  6. Id.
  7. See PCAOB press release: Imposing $3 Million Fine and Requiring First-Ever Changes to Supervisory Structure, PCAOB Sanctions Marcum LLP for Significant Quality Control Violations | PCAOB (pcaobus.org)
  8. PCAOB Signs Agreement with Chinese Authorities, Taking First Step Toward Complete Access for PCAOB to Select, Inspect and Investigate in China | PCAOB (pcaobus.org).
  9. FACT SHEET: PCAOB Secures Complete Access to Inspect, Investigate Chinese Firms for First Time in History | PCAOB (pcaobus.org)
  10. SEC.gov | Holding Foreign Companies Accountable Act
  11. 2022 - KPMG China - Inspection Report
  12. 2022 - PwC Hong Kong - Inspection Report
  13. PCAOB Secures Complete Access to Inspect, Investigate Chinese Firms for First Time in History | PCAOB (pcaobus.org)
  14. FACT SHEET: PCAOB Imposes Historic Sanctions on China-Based Audit Firms
  15. In the Matter of PricewaterhouseCoopers and In the Matter of PricewaterhouseCoopers Zhong Tian LLP
  16. In the Matter of Shandong Haoxin Certified Public Accountants Co., Ltd., et al
  17. PCAOB Releases 2022 Inspection Reports for Mainland China, Hong Kong Audit Firms | PCAOB (pcaobus.org)
  18. Chair Williams’ Statement Before the SEC Open Commission Meeting on the PCAOB’s Proposed 2024 Budget | PCAOB (pcaobus.org)

Jackson Johnson Appointed to AICPA & NASBA International Qualifications Appraisal Board (IQAB)

June 8, 2026
Johnson Global Advisory is pleased to announce that Jackson Johnson, CPA, President, has been appointed to serve on the AICPA & NASBA International Qualifications Appraisal Board (IQAB). The IQAB is responsible for evaluating international accounting qualifications and facilitating mutual recognition agreements between the United States and other countries, helping to support global mobility and consistency in professional standards. “It’s an honor to serve on the IQAB and contribute to efforts that strengthen the global accounting profession,” said Johnson. “As the profession continues to evolve, collaboration across jurisdictions is critical to maintaining high standards and enabling greater mobility for accounting professionals worldwide.”

AI Governance Belongs in the Boardroom, Not the Server Room

May 20, 2026
Few technologies have generated as much excitement—and as much promise—for accounting firms as artificial intelligence (“AI”). The potential to streamline audit execution, reduce hours, and enhance firm profitability is real and already being realized. However, AI does not simply change how audits are performed; it fundamentally alters how firms must think about oversight, responsibility, and quality management. As regulators sharpen their focus on AI‑enabled audits, firm leadership must move beyond adoption and address a more complex challenge: establishing clear and scalable AI governance. This article outlines why AI governance is now a strategic imperative for accounting firm leadership. As discussed in JGA’s article What Regulators Expect to See When AI is Used , inspectors do not evaluate AI tools in isolation. They evaluate whether the engagement team obtained sufficient appropriate audit evidence, exercised professional skepticism, and applied appropriate supervision and review when AI was used. Those expectations are grounded in existing auditing standards and apply regardless of whether AI was used for risk assessment, testing, or documentation support. Against that backdrop, AI governance is not simply about approving tools or managing technology risk. It is about ensuring the firm’s system of quality management supports consistent, supervised, and well-documented use of AI that aligns with audit objectives and withstands inspection scrutiny. When firms treat AI as an IT matter, governance discussions tend to center on 1) Data security, 2) System access, 3) Vendor due diligence, and 4) Infrastructure controls. Those topics matter—but they are only the baseline. Inspectors do not evaluate whether AI systems are well engineered; they evaluate whether AI enabled audit work complies with standards, supports professional judgment, and is governed within the firm’s system of quality management. In short, AI governance is a firmwide audit quality issue, not a back office technology function. Using AI does not change the auditor’s responsibilities. Requirements still apply when AI is used for 1) Audit evidence, 2) Professional skepticism, 3) Supervision and review, 4) Engagement partner accountability and 5) Firm level quality controls. From an inspection standpoint, AI introduces new audit quality risks, including: Over reliance on automated outputs Reduced professional skepticism (automation bias) Inconsistent application across engagements Insufficient documentation of judgment Lack of transparency around how conclusions were reached These are not IT risks—they are audit quality risks. AI Touches Nearly Every Component of a QC System Under modern quality management frameworks (including PCAOB QC 1000 , AICPA SQMS No. 1, IAASB ISQM 1), AI affects nearly every component of a firm’s QC system, not just technology or data governance. 

Joe Lynch, JGA Shareholder, to Present at 41st Midyear SEC Reporting & FASB Forum in San Francisco

May 20, 2026
Johnson Global Advisory ("JGA") is proud to announce that Joe Lynch, Shareholder, will be speaking on a panel at the 41st Midyear SEC Reporting & FASB Forum . Joe will deliver the PCAOB update on June 5, with attendance available both in person and virtually. This panel will summarize the activities of the PCAOB including: Recite new requirements for the lead auditor’s use of other auditors Anticipate the new standard, “The Auditor’s Use of Confirmation” 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” Understand the amendments addressing aspects of audit procedures that involve technology-assisted analysis of information in electronic form Learn about the proposal to replace existing auditing standards related to an auditor’s use of substantive analytical procedures Anticipate other Standard-Setting and Research Projects Summarize PCAOB inspection findings and enforcement activities Understand recent PCAOB publications, including: Spotlight Publications Audit Focus Publications Data Points Publications Click here to register and learn more. Johnson Global 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 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. 

JGA Response to PCAOB Request for Comment on Strategic Priorities

May 15, 2026
Johnson Global Advisory (JGA) has submitted its response to the PCAOB’s request for input on its 2026–2030 strategic priorities. Drawing on extensive experience supporting firms subject to PCAOB oversight, JGA’s comments emphasize a more modern, risk-based approach to regulation focused on audit quality, scalability, and transparency. View JGA's comments here. Johnson Global 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 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.

Monitoring and Remediation: Turning Engagement Deficiencies Into System Improvement

April 28, 2026
In our work with firms, we have seen a clear shift in how monitoring and remediation are viewed under modern quality management frameworks. They are no longer treated as retrospective compliance exercises. Instead, engagement deficiencies are increasingly used as meaningful inputs into an ongoing, risk-based system designed to identify issues early, address them thoughtfully, and reduce the likelihood of recurrence. Regulatory messaging reinforces this evolution. Oversight bodies are signaling a shift in focus from isolated engagement outcomes and more on whether firms have a system of quality management that consistently detects quality risks, responds appropriately, and demonstrates that remediation is working in practice. Based on our experience, while individual engagement deficiencies remain important, the more critical question is becoming how firms analyze, respond to, and learn from those issues over time. Engagement Deficiencies Are Signals, Not Endpoints Engagement deficiencies can surface through many channels, including pre-issuance reviews, internal inspections, post-issuance reviews, peer reviews, and regulatory inspections. Regardless of source, firms benefit most when these findings are evaluated through a consistent quality management lens. In practice, we encourage firms to look beyond whether a single engagement fell short . The more meaningful consideration is whether the deficiency points to potential weaknesses in governance, methodology, training, supervision, resourcing, or monitoring activities. We often observe that when issues are quickly labeled as engagement-specific, without assessing whether they reflect broader quality risks, valuable insight is lost. Modern quality management frameworks are designed to use these signals to strengthen the system, not simply close individual findings. What Effective Monitoring and Remediation Looks Like in Practice Firms that navigate this environment effectively tend to apply a disciplined and repeatable approach when deficiencies are identified. Based on our experience supporting firms across a range of practice areas, several elements consistently make a difference: Assess whether the issue may be systemic Recurring observations across engagements, service lines, or time periods often indicate system-level risk. Similar documentation gaps, inconsistent application of methodology, or supervision challenges rarely arise in isolation. Perform meaningful root cause analysis Effective root cause analysis typically moves beyond surface explanations. Firms benefit from evaluating whether policies and procedures were designed appropriately, implemented as intended, and supported by sufficient training, time, and resources. Design remediation that directly responds to the quality risk Remediation is most effective when it is clearly linked to the underlying risk. Depending on the circumstances, this may include enhancements to methodology, targeted training, revised review requirements, or changes to engagement acceptance, staffing, or oversight processes. Validate remediation through timely monitoring Implementing corrective actions is only part of the process. In our experience, firms are most successful when they also confirm that remediation operates as intended. Follow-up monitoring performed early enough to prevent recurrence is a critical component of this step. Failure to validate remediation remains one of the most common and consequential weaknesses we observe across firms. Case Study: When Remediation Is Not Validated In one situation we encountered, a firm identified engagement deficiencies through post-issuance reviews. The issues mirrored observations that had previously been noted during peer review and were communicated as having been addressed by the group responsible for report issuance. However, responsibility for validation was not clearly assigned, and no follow-up procedures were performed to evaluate whether the revised processes were effective. Subsequent post-issuance reviews, triggered by an organizational change, revealed that similar and additional deficiencies had re-emerged. From a quality management perspective, this was not an engagement execution failure. It reflected a breakdown in monitoring and remediation. The firm had information indicating quality risk but did not adjust its monitoring activities to confirm that remediation was working. Viewed through a system lens, this represents a system-level deficiency rather than an isolated engagement issue. Quality Management Applies Across All Engagement Types Modern quality management frameworks apply across a firm’s assurance and attestation practice, including private company audits, public company audits, SOC engagements, nonprofit audits, and other services. Deficiencies identified in any practice area may signal broader weaknesses in: Governance and leadership Methodology and training Monitoring activities Remediation processes In our experience, firms struggle to maintain an effective system of quality management when certain practices are treated as exempt from system-level evaluation. Key Takeaways Engagement deficiencies are inputs into the system, not endpoints. Recurring issues often indicate systemic quality risk. Remediation should be validated, not assumed. Monitoring activities should evolve as risks emerge. Quality management applies across all engagement types. Firms that treat monitoring and remediation as a continuous feedback loop, rather than a periodic exercise, are typically better positioned to improve engagement quality and respond to evolving regulatory expectations. Looking for an independent perspective on whether engagement deficiencies have been fully addressed? Based on our experience working with firms across assurance and attestation practices, Johnson Global Advisory supports clients by performing independent reviews, validating remediation efforts, and strengthening monitoring processes. If you would like support refining policies, training, workflows, or documentation standards, or would benefit from an objective assessment ahead of regulatory, peer, or internal inspections, contact your JGA audit quality advisor to discuss your needs.

What Regulators Expect to See When AI Is Used

April 28, 2026
Artificial intelligence (“AI”) is no longer experimental in public company audits. From risk assessment and scoping decisions to population testing, anomaly detection, and documentation support, AI enabled tools are increasingly embedded in audit execution and workflow. As use expands, the auditor’s core obligations do not shift to the technology, they remain with the engagement team. If AI is used to inform judgments, influence the nature, timing, or extent of procedures, or summarize and interpret information, auditors must still demonstrate that they obtained sufficient appropriate audit evidence and applied professional skepticism throughout. In practice, auditors must understand what the tool is doing, confirm that inputs are complete and accurate, and evaluate whether the outputs are reliable and fit for purpose in the specific audit context. While the auditing standard devoted solely to AI have not been issued, our experience is that inspectors have been increasingly direct—through staff publications, questions from inspectors in the field, and public remarks—about what they expect to see when AI is used. The expectations are grounded in existing standards and longstanding inspection focus areas: audit evidence, supervision and review, professional skepticism, and firm quality control (now quality management). In other words, AI does not create a “new” audit; it amplifies the need to show your work. Firms that treat AI as a “shortcut”, rely on outputs that cannot be explained or reproduced, or fail to govern and document how tools were selected, configured, and monitored are inviting new risks to support their audit conclusions. Conversely, firms that can clearly articulate the purpose of the tool, how it aligns to audit objectives, how inputs and outputs were validated, and how experienced personnel supervised and challenged the results will be far better positioned during inspection. The table below summarizes what inspectors typically expect to see documented when AI is used in a public company audit. Firms can use these themes to evaluate whether their engagement documentation tells a complete story that an experienced auditor (and an inspector) can follow from objective, to procedure, to results, to conclusion. 

Audit Documentation: From Low-Hanging Fruit to Load-Bearing Standard

March 30, 2026
In a previous article, Back to Basics: Audit Documentation Failures Have Become Dangerous Low Hanging Fruit , we highlighted how audit documentation had quietly re-emerged as a source of regulatory risk after years of relative deprioritization. While PCAOB Auditing Standard 1215, Audit Documentation (AS 1215), has historically been cited less frequently than other standards, our direct experience from recent inspection activity, enforcement actions, and internal inspection results, demonstrate that documentation failures are increasingly treated as indicators of deeper execution, supervision, and quality management breakdowns. In today’s environment, audit documentation is no longer merely a record of work performed. It is the primary evidence inspectors rely on to evaluate whether an engagement was properly planned, executed, and supported at the time the auditor’s report was issued. What has been low-hanging fruit now requires firms to close these gaps and transform them into a load-bearing foundation for audit quality. From Rare Enforcement to Systemic Inspection Risk AS 1215 establishes clear requirements regarding what must be documented, when documentation must be completed, and how engagement files must be assembled and retained. As discussed in our prior article, failures to comply with these requirements were historically viewed as technical or secondary issues, often resulting in inspection comments rather than enforcement action. That distinction is no longer meaningful. Recent enforcement actions involving backdating, improper (both intentionally, and inadvertent) modification of workpapers, and failure to timely assemble a complete audit file reflect an evolving regulatory view. Documentation failures do not simply violate procedural requirements; they call into question the credibility of the audit opinion itself. More importantly, beyond enforcement, documentation deficiencies are increasingly cited as core inspection findings. Inspectors are challenging situations where engagement teams assert that work was performed but cannot demonstrate that work within the archived file. In these cases, the absence of timely, complete, and clear documentation is no longer treated as a formality. It is treated as evidence that the engagement may not have been properly executed, supervised, or supported in accordance with PCAOB standards. This represents a fundamental shift. Documentation is no longer “low-hanging fruit.” It is a systemic inspection risk that cuts across execution, supervision, and firm-level quality management. From Misconduct to Execution Failures Pervasive documentation failures that do not involve intentional misconduct but still result in non-compliance are increasingly observed. For example, reviewer signoffs occurring near the documentation completion date, rather than contemporaneously with the performance of audit procedures, raise questions about whether effective supervision occurred during the audit or was deferred to meeting archiving deadlines. Similarly, engagement teams may assert that key judgments can be explained verbally, even when those judgments are not clearly documented in the audit file. In today’s environment, the distinction between “we can explain it” and “it is clearly documented” is critical. If procedures, judgments, and conclusions are not evident in the documentation itself, inspectors increasingly conclude that the work was not performed in accordance with PCAOB standards. The issue is not whether the engagement team can explain what they did after the fact. The issue is whether the archived documentation allows an experienced auditor, with no prior connection to the engagement, to understand the procedures performed, evidence obtained, and conclusions reached at the time of the auditor’s report. When documentation fails to reach that standard, inspectors are increasingly concluding that the audit itself was not properly executed, regardless of intent. This reflects an important shift. Documentation failures are no longer viewed primarily as misconduct. They are viewed as symptoms of execution breakdowns, including delayed supervision, compressed review cycles, and audit workflows that defer documentation until the end of the engagement. As a result, AS 1215 has become a direct proxy for how audits are actually performed in practice. How the 14-Day Documentation Completion Requirement Changes the Risk Profile The execution risks are further amplified by the PCAOB’s shortened documentation completion timeline. Recent amendments to AS 1215 reduce the timeframe to assemble a complete and final audit file from 45 days to 14 days after the report release date. While this change may appear procedural, its implications are operational. Under this accelerated timeline, engagement teams no longer have a meaningful post-issuance window to resolve review notes, complete documentation, or finalize supervisory evidence. What were once viewed as “clean-up” activities are now more likely to result in timing violations and non-compliance. This shift places increased emphasis on: Contemporaneous documentation Real-time supervision Realistic workload and staffing models Audit Documentation as a Cornerstone of Audit Quality Audit documentation has long been described as low-hanging fruit in the inspection process. That characterization no longer reflects its role in today’s regulatory environment. Documentation now serves as the primary lens through which regulators assess whether an engagement was properly executed, supervised, and supported. With shortened timelines, expanded quality management expectations, and increased regulatory scrutiny, firms can no longer treat documentation as a downstream activity. It must be embedded into how engagements are planned, staffed, reviewed, and completed. In an environment where inspection conclusions are driven by what is, and what is not, in the audit file, strong documentation is not merely defensive. It is foundational to audit quality. At Johnson Global Advisory , we support firms in selecting, implementing, and optimizing these tools to meet their unique needs. For more insights, visit our blog or contact us to learn how we can help your firm AmplifyQuality®. For more information, please contact your JGA audit quality expert .

Accounting Firm Acquisitions: Why Due Diligence and Integration Determine Long-Term Success

March 30, 2026
Mergers and acquisitions within the accounting firm industry continue to accelerate, driven by succession planning needs, technology investment, talent constraints, geographic expansion, and the pursuit of new service lines. The pace and volume of transactions is being fueled, in large part, by private equity investment in the accounting firm space. Yet as deal activity accelerates, so does a critical reality: the long term success of an acquisition is determined well before the transaction closes—and long after the announcement is made. Experience across the profession shows that insufficient due diligence and poorly executed post acquisition integration are the most common sources of value erosion in accounting firm transactions. What the Regulator is saying and How JGA sees it At the AICPA December 2025 conference on Current SEC and PCAOB Developments, common topics were the presence of private equity in the accounting firm space and the opportunities and challenges that come with this investment. As it relates to private equity, then-acting PCAOB Chair George Botic noted that while these investments have the potential to enhance audit quality by increasing firm capacity and modernizing audit tools with advanced technologies, the presence of private equity presents a risk that firms shift incentives to prioritize profitability over audit quality. Mr. Botic stated, “Both AI and private equity investments in accounting firms carry the potential to truly reshape the profession. Yet these opportunities come with clear challenges to ensure that overreliance on AI and the pressures of private equity do not jeopardize audit quality.” At JGA, we expect the PCAOB to increase its inspection focus on a firm’s system of quality management. To the extent that acquisitions present quality risks to a firm, we expect increased attention from the PCAOB in terms of how firms are managing these risks. Due Diligence: Looking Beyond the Numbers Financial performance, partner buy ins, and deal structure naturally receive significant attention during an acquisition. However, professional services firms—particularly those providing audit and assurance services—certain of the greatest risks often reside outside the financial statements. Effective accounting firm due diligence must assess not only what the target firm has earned, but how it has earned it—and whether that performance is sustainable. This includes gaining a deep understanding of: Audit quality history, including inspection and peer review results, Independence, ethics, and regulatory compliance practices, Industries served, industry concentration and related expertise, Client concentration, retention trends, and engagement risk profiles, Partner governance, compensation alignment, and succession readiness, Technology platforms, data security, and scalability, and Firm culture, leadership dynamics, and decision making processes. When these areas are not rigorously evaluated, issues frequently surface after the transaction closing—when remediation is more disruptive, more expensive, and far more visible to regulators, clients, and staff. The Risks of Inadequate Due Diligence Inadequate diligence often leads to unanticipated post transaction challenges, including: Regulatory findings related to legacy engagements, Independence violations requiring retroactive remediation, Client attrition driven by service disruption or cultural misalignment, Talent loss stemming from unclear expectations or compensation inequities, and Technology incompatibilities that impair efficiency and data integrity. Deficiencies inherited through acquisition can affect inspection outcomes, firm reputation, and overall audit quality long after the transaction closes. Integration: Where Value Is Created—or Lost Even when due diligence is performed thoughtfully, post acquisition integration remains the most common point of failure. Integration is often underestimated, treated as an operational exercise rather than a strategic initiative requiring sustained leadership attention. Successful integration goes far beyond combining systems or standardizing branding. It requires deliberate alignment across how the firm operates, governs itself, and delivers quality—particularly in areas such as: Audit methodology and documentation standards Quality management systems and monitoring processes Partner roles, authority, and accountability Talent development, evaluation, and retention Communication with clients, regulators, and staff Absent a structured integration plan, firms risk operating as a collection of semi independent practices rather than a cohesive organization. This fragmentation can undermine consistency, weaken accountability, and complicate regulatory compliance. A Strategic Imperative in a Changing Profession As consolidation continues and regulatory scrutiny intensifies, rigorous due diligence and disciplined integration are no longer optional. They are essential to managing risk, sustaining quality, and realizing the full value of a transaction. For accounting firm leaders, the message is clear: growth through acquisition can be a powerful strategy—but only when supported by a comprehensive understanding of what is being acquired and a deliberate plan for how the combined firm will operate as one. Firms that treat diligence and integration as leadership imperatives—rather than transactional steps—are better positioned to protect audit quality, retain talent, and preserve client trust while achieving growth objectives. JGA’s Role Guiding Firms through these Opportunities For firms seeking to grow through acquisition without sacrificing quality, control, or visibility, JGA is a solution. JGA is uniquely qualified with deep experience working with accounting firms on quality management, governance, and operational transformation. We have proven due-diligence tools built that are designed to be practical, adaptable, and immediately usable—while also supporting long term consistency as firms pursue multiple acquisitions over time. Ready to get started or need help refining your acquisition activities? Contact your JGA audit quality expert today to schedule a consultation and ensure acquisition activities are tailored to your firm’s needs.

JGA to Sponsor ALI's Accountants' Liability 2026 Conference

By Jackson Johnson • February 24, 2026
WASHINGTON, D.C.: — Johnson Global Advisory (JGA) is proud to sponsor the ALI’s Accountants’ Liability 2026 conference hosted by the American Law Institute (ALI). The two‑day program will take place May 14–15, 2026, in Washington, D.C., with a live webcast option available for remote attendees. This annual conference is a premier forum for accounting firm leaders, in‑house counsel, litigators, and regulators to examine the evolving landscape of accountants’ liability, enforcement priorities, and risk management. The 2026 program will explore how recent regulatory, litigation, and technological developments are reshaping the profession and what firms can do to proactively respond. “We are pleased to once again sponsor the ALI Accountants’ Liability Conference,” said Jackson Johnson, President of Johnson Global Advisory. “This event consistently brings together leading regulators, practitioners, and risk professionals to discuss the most pressing liability and oversight issues facing accounting firms today. We value the opportunity to engage with participants and contribute to these important conversations.” The program will feature nationally recognized panels of practitioners, general counsel, industry professionals, and government officials. Planned discussions will address current and emerging challenges facing accounting firms, including: Regulatory and enforcement priorities impacting the accounting profession Recent trends in accounting‑related litigation PCAOB and SEC perspectives on audits, inspections, and gatekeeper liability The impact of AI, cryptocurrency, and emerging technologies on audit quality and firm risk Best practices for navigating an evolving and uncertain regulatory environment Register by April 13, 2026, to attend in-person and use the code “ JGA2026 ” to save $250 off . OR, for webcast attendance, use the code " JOHNSON " to save $125 off the tuition. Click here to register. To learn more about how Johnson Global partners with in-house and outside counsel to support public accounting firms, we invite you to explore our latest brochure. This resource outlines our approach to independent monitoring and consulting, including how we assist firms in navigating PCAOB and SEC investigations, implementing quality control improvements, and responding to regulatory findings. Download the brochure below to see how our experienced team can help your firm meet today’s compliance challenges and build a stronger foundation for the future. Get a copy of our brochure here . 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.

Joe Lynch, JGA Shareholder, to Present in AICPA & CIMA Quality Management Webcast Series

By Jackson Johnson • February 24, 2026
We’re pleased to share that Joe Lynch , JGA Shareholder, will be presenting in a series of AICPA & CIMA webcasts focused on practical considerations for Quality Management. These sessions are designed to provide guidance in your QM journey. They support key elements such as engagement quality reviews, root cause analysis, and ongoing monitoring and remediation. Register for Upcoming Sessions Session 1 — Quality Management: Engagement Quality Reviews What you’ll learn: Practical considerations for your firm's responsibilities for engagement quality reviews and the reviewers requirements when executing engagement quality reviews under the updated quality management standards, including how to make EQRs scalable and effective. Register for this session here . Session 2 — Quality Management: Performing a Root Cause Analysis What you’ll learn: How root cause analysis supports remediation by identifying underlying drivers of the findings and deficiencies; supporting the design of corrective actions that prevent recurrence. Register for this session here . Session 3 — Quality Management: My System is Set Up — Now What? What you’ll learn: Post-implementation requirements of SQMS No. 1, which include monitoring activities, evaluating findings and deficiencies, remediation, and the annual evaluation process—so your system stays responsive and effective. Register for this session here . These sessions are included with a current Webcast Pass. At Johnson Global Advisory , we support firms in selecting, implementing, and optimizing these tools to meet their unique needs. For more insights, visit our blog or contact us to learn how we can help your firm AmplifyQuality®.