AICPA Conference Takeaways: The Only Constant is Change

I just spent three days in Washington, D.C. at the 2022 AICPA and CIMA Conference on SEC and PCAOB developments. Days were filled with presentations from various regulators such as the SEC, the PCAOB, the FASB, the IASB, and other stakeholders within the industry. Topics were varied but certainly there was a consistent theme: we are living in unprecedented times filled with an incredible amount of uncertainty and with ever-increasing rates of change; exponential evolution some might say. As the old adage goes: the only constant is change.

Tone at the Top

Having attended many of these AICPA conferences, what I thought was perhaps most notable this year was a significant shift in tone, and I saw this in two distinct manners. First, whether the SEC, the PCAOB, the FASB or any other industry group, presenters repeatedly emphasized the importance of acting on behalf of investors and stakeholders and the significance of seeking input from stakeholders. All regulators have processes designed to incorporate feedback on proposed standards and almost every group has various oversight and investor stakeholder committees to ensure the investor public is represented and heard. The other major shift in tone was the emphasis on quality: quality financial reporting, quality disclosures, and perhaps most notably, quality audits. Last year, the SEC enforcement division started that tone shift with a bold statement that auditors are the gatekeepers. This year, the PCAOB’s new board continued that messaging; the Chair of the PCAOB, Chair Williams, made it very clear that the PCAOB is holding auditors accountable and is pursuing strong enforcement actions, as evidenced by the significant increase in both the number of enforcement cases closed in 2022 and the dollar amount of monetary penalties imposed on individuals and registered firms through enforcement actions.

Key takeaway: Investors and stakeholders should get involved and be heard in the standard-setting process. Quality is paramount, and the regulators are holding all responsible parties accountable.

Economic Uncertainty

Though perhaps sensationalized in the media, the reality is that we are indeed living in unprecedented times. Inflation in the US (and most of the world) is the highest it has been in almost 40 years. To combat inflation, interest rates have also been rising to levels not seen in decades. Compounding these factors, there are continued supply chain disruptions partially resulting from effects of the global pandemic, there is Russia’s war in Ukraine, and amongst other variables, there is the unexpected labor shortage (from the Great Resignation). All these factors beg the question: are we in a recession? If not yet, when? How bad will it be? How long will it last?

While these developments make for “interesting” political rhetoric, they also pose real challenges to the accounting and audit professions. For example, rising interest rates (which means higher discount rates) and rising inflation, particularly on costs (which translates to challenging cash flow projections and potentially lower margins), likely implies lower fair values when performing asset valuations for potential impairment. Rising interest rates also indicates higher incremental borrowing rates which equates to lower values for leased assets (and to be fair, lower liabilities as well).

Key takeaway: the uncertainty in the economy is posing real challenges to accounting for and auditing of estimates that are an essential part of financial reporting. Perhaps most simply stated, it’s NOT the same as last year. Auditors need to keep professional skepticism in mind and thoroughly challenge estimates and assumptions, including considering management bias and potential contradictory evidence.

Disclosures and Disaggregation

While many in the audit and accounting profession focus on the numbers in the financial statements themselves, the resounding message from the SEC was simply this: disclosures matter, so get them right! The SEC (Corp Fin, Enforcement, and OCA) spent most of its sessions discussing the significance of disclosures in the financial statements, including disclosures outside the financial statements, but required in the filing such as MD&A. For instance, the SEC made clear that registrants need to revisit risk disclosures and ensure that they are accurate and up to date considering the evolving economic landscape. In fact, though risk disclosures often read as hypotheticals, currently, many of the risks are now actual realities. There is no risk of inflation; inflation is real and relevant. There is no risk of rising interest rates; interest rates have gone up significantly over the past year.

In addition, the SEC and FASB discussed the increasing demand for disaggregation of disclosures. The FASB is currently considering increased disaggregation and disclosure related to segment reporting and income statement line items (such as further disaggregation of expenses and income taxes) and further disclosure related to statements of cash flows. The SEC is similarly releasing additional guidance and interpretations around further disaggregation over disclosures, or perhaps stated differently, around further depth and clarity. Don’t just tell the users “what” but give them more color as to “why.”

Finally, the SEC continued their focus on non-GAAP disclosures and ensuring these are a) labeled appropriately (clearly identified as non-GAAP and not using titles or labels similar to those used in GAAP metrics), b) are NOT more prominent than GAAP disclosures and c) are NOT misleading. The SEC does thorough reviews of SEC filings, but it’s important to know that the SEC also reviews anything available in the public domain including all press releases, earnings reports and issuers’ and management’s social media activity.

Key takeaway: Diligently review disclosures and ensure they are accurate, sufficiently precise (consider further disaggregation) and not misleading or contradictory in any capacity.

Recurring Hot Topics

Just as revenue recognition, leases and credit losses were the subject of recurring discussions for an almost three- or four-year period, the new hot topics included ESG, crypto, and cybersecurity.

Environmental, Social and Governance (or ESG)

Unsurprisingly, ESG was front and center in almost every discussion during the conference. It would be an understatement to say that huge changes are coming. While the fate of the 550-page SEC proposal is undetermined, the future of the US ESG movement is still inextricably linked to the forward progress in Europe. Global multinational firms as well as companies that are in any way a part of the European supply chain will have to start some form of ESG reporting and compliance in the coming years. The discussions at the conference further delved into the potential changes and challenges facing ESG. It seems all major corporations are struggling to find where to house this emerging department, though many agree that financial reporting will house and/or have significant involvement in this area given the current processes and controls in place. Consensus indicates that the biggest struggle will be in two facets:

Divergence in standards and practice: Currently, there are various standards and metrics, and companies are struggling to synthesize the requirements from a global perspective. Much like accounting and financial markets, uniformity across regulators will be difficult to achieve. As well, each industry has different risks and contributions to the ESG space, so uniformity of disclosures and metrics across industries will be difficult. This divergence challenges the comparability of information presented.

Reliability of data: Despite uncertainty in exactly “what” will be required, companies are moving forward with ESG disclosures, thanks largely to investor demands. The other big challenge is figuring out where/how to obtain the data needed for disclosures and then how to ensure this data is reliable. Although data used in financial reporting is subject to rigorous controls over completeness and accuracy (“C&A”), much of the data used for ESG disclosures will come from either internal operations (which may not be subject to strong controls over C&A) or from third parties (which makes it difficult for companies to evaluate C&A). The requirement for some form of assurance (currently expected to be “limited assurance” as opposed to “reasonable assurance” which is the basis for auditing financial statements) will inherently require understanding sources of data and how that data was validated for C&A. This poses a huge challenge to audit firms. Many audit firms are starting “trial runs” with clients to help companies understand the potential level of detail needed to perform a quality audit (or whatever form of attestation the standards eventually require) over ESG reporting. Additionally, ESG will continue to evolve over time and the industry will need to learn to distinguish between errors in previous disclosures and data versus improvements in the quality and granularity of disclosures and data.

Key takeaway: it’s never too early to start preparing for this emerging reporting requirement and do NOT underestimate the amount of time and resources it will take to obtain the data from all potential parties involved, (such as small upstream suppliers), to prepare the disclosures, and to perform a quality assurance service over the ESG reporting.

Crypto

The recurring joke amongst presenters was that you couldn’t sit up on stage and not mention crypto…and sure enough, almost every presenter discussed crypto currency and digital assets. There appears to be a lot of demand for additional guidance (at least the questions submitted to the panels seemed to indicate that); I believe that stems from perhaps a lack of understanding of the emerging technology. Although the SEC and FASB have released interpretations and limited guidance on how to account and report digital assets, both entities seemed to indicate that the current accounting and financial reporting frameworks provide sufficient guidance. The PCAOB also includes crypto as a risk factor when selected risk-based audits for inspection; although there continue to be deficiencies in the audit space, the PCAOB also believes its standards are currently sufficient. So, while there was always mention of crypto, there was actually very little in-depth discussion of crypto.

Key takeaway: understand the technology/industry before engaging in an audit over crypto (meaning, this should be part of your client acceptance considerations, evaluating whether the firm has the right knowledge and competencies to perform a quality audit) and review the various SEC, FASB and PCAOB releases related to crypto and digital assets. I wouldn’t expect drastic changes and/or significant new standards specific to crypto.

Cybersecurity

Surprisingly (in this author’s humble opinion), there was far less discussion of cybersecurity than one might expect. That said, one of the panelists, Pete Cordero, former FBI and current cybersecurity advisor/consultant, also emphatically stated that cybersecurity is “THE risk of the decade.” And I don’t disagree. Specific to audit and accounting, cybersecurity poses a risk to the integrity of financial reporting systems which in turn poses a pervasive threat to the entire financial reporting process. Cybersecurity also poses a greater risk to society at large whether threatening utilities, financial institutions, or as many learned from Colonial Pipeline, general supply chains, including oil and gas.

Although there was only one hour devoted to cybersecurity, the discussion was robust and informative. The SEC requires disclosures around cybersecurity risks (if they are real and relevant, which given email, inherently applies to every company) and cybersecurity breaches. By its very nature, given the pervasiveness of technology, it’s difficult to determine “what constitutes a material breach?”

Perhaps most indicative of how future regulation may develop, Mr. Cordero discussed some of the proposed amendments to the New York Department of Financial Services’ DFS Part 500 Cybersecurity Rules including the requirement for certain companies with heightened risk to conduct an annual, independent audit of cybersecurity programs. Stop and digest that for a minute. In a realm of ever-changing and unlimited potential risk, what is the appropriate threshold to assert that controls are sufficiently designed, implemented and operating effectively to prevent and/or detect cybersecurity threats and breaches? There’s a lot to unpack here, but for another time.

Key Takeaway: Let’s not overlook cybersecurity just because other hot topics dominate the headlines. Cybersecurity is an ever-present danger that poses pervasive risks to companies and the financial markets and is an important consideration for accountants and auditors alike.

Resources Abound

There is a significant amount of change in the industry and we’re all feeling it. There is a sense of overwhelm at times and we didn’t even touch on the labor shortages and the new quality management standards impacting audit firms. We get it and we feel the pressure many of our clients are facing. Despite the number of changes and emerging topics, I took comfort in seeing just how much the regulators seem to understand the evolving landscape. While they are there to represent their stakeholders, they also want to support the accountants and auditors to empower quality financial reporting and auditing. There is an abundance of resources on almost every topic covered at the conference including publications from the FASB, SEC, PCAOB, AICPA, CAQ, IASB, ISSB, Big 4, industry groups, etc. In addition, as evidenced in the hallways and the underwriter booths, there are literally dozens of companies out there to support you whether in data analytics, scheduling and temporary staffing, knowledge experts and training, etc. And yes, we here at JGA have our fingers on the pulse of the audit industry and are ready to help however we can.

Key takeaway: Resources abound; you don’t have to go it alone!

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Joe Lynch, JGA Shareholder, to Provide Insights on Changes to Engagement Quality Review Requirements

By Jackson Johnson • January 20, 2026

JGA is pleased to announce that Joe Lynch , JGA Shareholder, will be a featured guest on the upcoming AICPA & CIMA A&A Focus live webcast on February 4, 2026. Joe has been invited to join the program to provide insights on changes to engagement quality review requirements. This appearance offers a valuable opportunity for viewers to gain practical, real-time guidance on effective EQR practices—an increasingly critical component of audit quality and compliance under the evolving professional standards landscape. Click here for m ore information about the program and registration details. 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 .

Quality Management in 2026: Considerations to Successfully Adapt to a Transforming Environment

By Boyd O'Rourke • January 20, 2026

Introduction The accounting firm industry experienced a ground-breaking transaction in August of 2021 when TowerBrook acquired EisnerAmper, which marked the first private equity (“PE”) transaction of a large-scale accounting firm. This transaction was structured using an alternative practice structure (“APS”). Historically, licensing and independence rules have barred non-CPAs from owning accounting firms. Through an APS, a PE firm may invest in the non-attest entity with service lines such as tax advisory and consulting. The CPA partners retain control over the attest functions, which preserves regulatory compliance. While the APS model has been in existence since the 1990s, this August 2021 transaction brought new attention to this structure. What has followed is an extraordinary volume of deal activity. Per the CPA Trendlines (“CPAT”) Cornerstone report posted on November 18, 2025, CPAT has tracked over 115 PE-related transactions from 2020 to 2025, with over 80 transactions in 2025. While PE in the accounting firm space is no longer news, the pace and volume of transactions is certainly news-worthy. Impact of PE Investment The impact of PE investment on the accounting firm space is unprecedented. The APS has enabled PE to fuel billions of capital investment. PE-backed firms provide immediate payouts to partners at appealing valuations while providing access to capital to these firms for merger and acquisition growth, technology investments, and other priorities. Well-capitalized firms now have an improved ability to invest in technological capabilities, attract experienced talent to be more competitive for college graduates, and improve their market position. With new technologies, routine tasks are being automated such as data entry, tie-outs and controls testing, resulting in less time needed to perform certain audit procedures. What the regulators are saying 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. PCAOB Acting PCAOB Chair George Botic described that both transformative technologies (e.g., artificial intelligence or “AI”) and the continuing expansion of private equity investments in accounting firms are two developments that bring opportunities and challenges. Mr. Botic noted that while AI has enhanced risk assessment, reduced manual processes and made it possible to efficiently analyze entire populations of data (which can reduce the risk of missing irregularities or unusual patterns), that overreliance on AI may ultimately threaten auditors’ exercise of professional skepticism and judgment. As it relates to private equity, Mr. 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.” SEC SEC Chair Atkins discussed in his remarks that he would like the PCAOB to modify its inspections process to place more reliance on the system of quality management and that inspection of certain engagements would inform the PCAOB if the firm’s system of quality management is effective. He also expressed a view that accountability for audit quality should move upward to firm leadership. How is a firm’s system of quality management (“SQM”) impacted? Today’s transforming environment has far-reaching impacts on a firm’s SQM. This publication will focus on risk assessment, governance and leadership, ethics and independence, resources, engagement performance, and monitoring and remediation.

Year in Review: Here are the Top 10 Actionable Insights of 2025

By Jackson Johnson • December 30, 2025

As we wrap up an incredible year, we’re showcasing the insights that sparked the most conversations and drove the most impact. Here are the Top 10 Actionable Insights from 2025: Use of Other Auditors: Managing Risk and the New PCAOB Standard ISQM 1, SQMS 1: Influencing the Firm on the Benefits Beyond Compliance (Part II) Case Study – Example Successor Auditor Considerations QC 1000 Implementation: Key Themes and Guidance from the PCAOB Workshop Clearing the Roadblocks: Auditing Estimates with Confidence in Small Firms Enhancing Auditor Independence: Key Themes from PCAOB Recent Spotlight The Never-Ending Story: How to Remediate Recurring EQR Findings – Part Deux Cryptic Audits of Crypto Assets: Auditing Digital Assets Innovative Solutions for QC 1000, SQMS 1, & ISQM 1: Quality Management tools in the Marketplace Enhancing Audit Evidence: PCAOB Expectations and What We Are Seeing in Practice

Enhancing Audit Evidence: PCAOB Expectations and What We Are Seeing in Practice

By Stephanie Mickens • November 24, 2025

As companies increasingly rely on cloud platforms, external data providers, and integrated third-party systems, the boundary between “internal” and “external” information has blurred. Audit evidence today may originate outside the company, but often arrives through the company, transformed, mapped, merged, or embedded within systems before it reaches the auditor. In response to this evolving landscape, the PCAOB amended AS 1105, Audit Evidence, effective for audits of fiscal years beginning on or after December 15, 2025. Central to these amendments is AS 1105.10A, which introduces a principle-based, risk-scalable framework for evaluating the reliability of electronic information provided by the company. At JGA, we view this development as a natural response to the data ecosystems shaping today’s financial reporting. We also see it rapidly becoming a recurring area of focus by global audit regulators, particularly when the information supports significant risks, revenue, fraud procedures, or management estimates. This article summarizes key themes from the PCAOB’s Board Policy Statement on Evaluating External Electronic Information (issued September 2025) paired with practical observations from JGA’s inspection support and methodology enhancement work with firms across the profession. Why External Electronic Information is a Growing Focus Area Across industries, external platforms now drive core financial and operational processes: payment processors, logistics platforms, third-party fulfillment solutions, subscription systems, industry data services, and more. Although such information originates from outside the company, it is often: Received, stored, or routed through company systems Transformed within spreadsheets or EUCs Merged with internally generated data Exported in formats that allow modification Provided to auditors without a traceable chain to the original source. Our direct experience working with our clients shows that PCAOB inspection teams consistently emphasize that external does not inherently mean reliable. The auditor must understand how the information was obtained, how it was handled, and whether there was a reasonable possibility that it could have been modified before reaching the auditor. Understanding AS 1105.10A The Board Policy Statement highlights two foundational expectations: 1. Auditors should understand the source and flow of the information. Inspection teams frequently question whether the engagement team understood: The true originating source of the data How the company received it (e.g., automated feed vs. manual upload) Whether the information is editable or configurable Whether it passed through multiple systems or spreadsheets How it is used in controls, substantive testing, or significant estimates In JGA’s experience, inspection findings often arise from situations where teams relied on a “system-generated” or “externally sourced” report without fully understanding where it came from or whether it could have been changed. 2. Auditors should address the risk of modification. The standard allows for two broad approaches, testing the information itself or relying on controls, depending on the assessed risk. The standard is intentionally flexible, but this flexibility requires well-supported judgments, especially for information affecting significant accounts or fraud risks. The PCAOB also acknowledged scenarios where separate testing may not be required (e.g., direct-to-auditor feeds or read-only API transfers) but emphasized that this exception applies only when the risk of modification is no more than remote. What We Observe in PCAOB Inspections Through JGA’s transformation activities with firms, we continue to see consistent challenges in the following areas: Reliance on information provided by the company without evaluating whether transformed, filtered, or merged with other data sets. Use of external or industry data in analytics without understanding the methods, assumptions, or relevance to the issuer. External information embedded in significant estimates or complex models without evaluating management’s process for compiling that information. System-generated or external journal entry listings used in fraud procedures without establishing completeness and reliability. In each of these situations, inspection teams focus on whether engagement teams understood how the information was obtained, how it was processed, and whether there was a reasonable possibility of modification before it reached the auditor. Emerging PCAOB Expectations Although the standard is principles-based, several expectations are now appearing consistently in inspections: Reliability cannot be presumed, external information must be evaluated just like any other audit evidence. Understanding the company’s process for receiving and handling external information is foundational. Judgments about whether separate testing is required must be risk-responsive and well-supported. Documentation should clearly articulate the source of the information, the company’s process, and the basis for concluding the information was reliable. These expectations are shaping how firms need to think about IPE testing, data flows, and the role of technology within the audit. Areas Where Firms Often Seek Assistance Across our methodology enhancement and inspection support work, firms consistently ask for help in: Identifying when information is “external electronic information provided by the company”. Determining whether reliance on management’s process is appropriate. Navigating situations where data passes through multiple systems or spreadsheets. Evaluating third-party or industry data used in analytics. Assessing effects on significant risks, especially revenue and fraud. Aligning documentation practices with PCAOB expectations. Many firms have strong processes for testing IPE, but other nuances of the standards require an additional layer of consideration that is still evolving in practice. Looking Ahead As companies build increasingly automated and interconnected systems, auditors must deepen their understanding of those environments to obtain sufficient appropriate evidence. Firms that proactively adapt their methodologies and train engagement teams will be better positioned for both compliance and audit quality. At JGA , we help firms interpret emerging regulatory requirements, strengthen methodologies, and enhance the use of technology and data in the audit. Ultimately, ensure compliance and consistency get to our ultimate goal of helping firms grow and scale responsibly. To learn how we can help your firm navigate these expectations and #AmplifyQuality, visit www.johnson-global.com, or contact a member of your JGA client service team.

JGA Welcomes Boyd O’Rourke as Managing Director

By Jackson Johnson • November 6, 2025

WASHINGTON, D.C. Johnson Global Advisory (JGA) is pleased to announce Boyd O’Rourke as a Managing Director, focused on helping audit firms meet their strategic objectives with audit quality in mind. With 30 years of experience in public accounting, Boyd has deep experience in firm management, strategy, risk management, and quality control. Boyd’s skillset complements JGA’s core services by adding new firm strategy and risk management service offerings. “ I have a passion for building high-functioning groups inside accounting firms,” said Boyd. “With private equity firmly in the accounting firm space, service line growth, acquisitions, and consolidation are happening at record speed. JGA’s goal is to help firms manage this growth while limiting exposure to regulatory and business risks. I am excited to advise firms navigating this most-critical period of their journey. ” Most recently, Boyd held multiple senior roles at CBIZ CPAs (formerly Mayer Hoffman McCann P.C.), including Executive Committee Member, National Practice Leader, Chief Risk and Quality Officer, National Director of Quality Control, Mid-west Regional Attest Practice Leader, and National Training Director. “ By most measures, Johnson Global Advisory is a small consulting firm—but over the past eight years, our impact on individual firms and the global profession as a whole has been vastly disproportionate to our size,” said Jackson Johnson, President and Founding Shareholder, JGA. “That is only possible because every professional that joins the JGA team brings deep senior-level experience, technical expertise, and a genuine ability to connect with our clients around the world. I am especially grateful that Boyd O’Rourke has chosen JGA as the platform to share his leadership and expertise to help firms grow and scale. Having known Boyd for several years, I’ve seen firsthand his commitment and executive approach to solving complex problems affecting public accounting firms. His decision to join us is a testament to the unique opportunities JGA offers—and to our shared mission of making a meaningful difference for our clients and the industry .” Boyd is based in the Kansas City area and received his Bachelor of Business Administration in Accounting from the University of Iowa. To learn more about Boyd and the full JGA team, read here . At Johnson Global Advisory , we support firms in selecting, implementing, and optimizing solutions and tools to meet their unique needs. For more insights, visit our blog or contact us to learn how we can help your firm AmplifyQuality®.

The Never-Ending Story: How to Remediate Recurring EQR Findings – Part Deux

By Geoff Dingle • October 28, 2025

In September 2022, we wrote an article discussing the struggle that firms were experiencing at that time in remediating Quality Control (QC) criticisms as it relates to their Engagement Quality Review (EQR) process. This struggle seemingly continues today, as, so far in 2025, the PCAOB has publicly re-released previously issued inspection reports for 32 registered firms, and in 19 of those reports, EQR was a QC criticism that was released to the public as these firms had failed to satisfactorily remediate their EQR QC criticism¹. This means that firms continue to struggle to identify and effectively implement remedial actions to the satisfaction of the PCAOB that demonstrate that they have successfully remediated their non-compliance with AS 1220, Engagement Quality Review . So why are firms still failing to remediate this QC criticism? As we stated previously, having worked with engagement teams and looking at the nuanced and sometimes detailed nature of some of the PCAOB Part I findings, attributing the audit issue to a deficient EQR review can sometimes feel like the regulator is being overly exigent. In fact, in its adopting release to the EQR standard , the Board stated that it “…has been sensitive to commenters' concerns and agrees that the EQR should not become, in effect, a second audit.” This is a difficult concept for EQRs to balance though, as engagement teams often ask us, “As EQR am I required to review every test of design and operating effectiveness for internal controls related to every significant risk? Which substantive workpapers in significant risk audit areas should I review and to what level of detail?” Though not explicitly required in AS 1220, implicitly by the very nature of the EQR attribution, the PCAOB is inherently creating an expectation of a detailed EQR review. After all, AS 1220.09 does require the EQR to “review documentation.” When the PCAOB evaluates a firm’s Rule 4009 remediation response, they pay particular attention to recurring deficiencies. If the same deficiency is long-standing or occurs in subsequent reports, remediation efforts undertaken must be incremental in each remediation submission so as to address the recurring deficiency. Said otherwise, a firm cannot deliver the same training year after year and expect it to drive change; it must change its approach to remediate the recurring deficiencies. We have numerous clients telling us that this is the second or third inspection report that includes an EQR QC criticism. They often ask us, “This time, what can we do that is incremental that we haven’t already done?” Remediation Considerations The new quality control standards (QC 1000, ISQM 1 and SQMS1) require firms to perform root cause analyses for audit deficiencies. In doing so, firms should identify the real root cause behind why EQRs are failing to identify audit deficiencies and then design specific remedial actions to address these root causes. So, remedial action should be in response to the actual root cause of the EQR deficiency – i.e., what is the ultimate root cause of EQR’s not identifying the Part I deficiencies at the time of their review? The following are typical actions that we see firms undertake: a. Training as an Action For many firms, they start out the remedial process by providing training to audit professionals that specifically address the requirements of AS 1220. Some firms attempt this by sourcing online training from the marketplace. If this is the first time your firm has received a Part II EQR criticism, then this action might be effective. However, training designed to remediate quality control deficiencies must be specific to the facts and circumstances of your issue(s). Oftentimes though, when the EQR criticism is long-standing or repetitive, training alone is not sufficient. Key takeaway : Consider developing more robust training that specifically addresses nuances of firm findings and walk through examples of EQR reviews. b. EQR Sign-off Checklist as an Action Another common remedial action is for firms to make enhancements to their methodology, including their EQR sign-off checklist . Most firms subscribe to audit software programs already which have a basic EQR checklist that calls out the requirements under AS 1220. Modification to the EQR checklist and/or creation of addendums that specifically focus on the issues or concerns can be a meaningful improvement and can add rigor to the review process. Key takeaway : Firms should determine whether they need to modify their EQR sign-off checklist and/or create addendums to include specific bullets and questions addressing firm audit deficiencies, specifically calling it out to the EQR’s attention. c. EQR mentoring/coaching program as an Action Many firms have already implemented the previous two actions, and they may continue to see deficiencies in the QC criticism. The PCAOB is expecting firms to do more to ensure quality audits. As we have worked with firms on remediation, we recommend firms consider an EQR mentoring/coaching program . When designed and implemented properly – and timely – we believe this action to be important to a successful remediation of QC deficiencies around the EQR function. Key takeaway : Consider designing and implementing an EQR coaching or mentoring program, paying close attention to key elements important for effective remediation criteria. Other Considerations Given that global audit regulators have raised the bar in expectations on recurring findings – specifically on the EQR process – we cannot stress enough the importance of beginning the remediation process early . Engage the PCAOB in a dialogue immediately once your 12-month remediation period begins, to discuss the planned remedial actions and get feedback on the sufficiency of those actions. Pay particular attention to understanding what is considered timely implementation. Do not underestimate the amount of time it will take to fully implement remedial actions. Key takeaway : Engage the PCAOB early in the remediation process to seek feedback on the sufficiency of the remedial actions (perhaps even before the final report has been issued). EQR as last line of defense Another important point is that EQRs are essentially the last line of defense with regard to audit quality. Said differently, audit quality starts with the audit engagement team and the firm’s entire QC system (training, methodology, tools, etc.) that enables and supports audit engagement teams to perform quality audits. Firms must also consider the remedial actions that also address the PCAOB’s Part I audit deficiency(ies). The EQR QC criticism, while linked to its own standard, is really just the review of the audit work performed under all the other audit standards (e.g., AS 2501, AS 1301, etc.). It is a collective effort, and the EQR as well as the entire engagement team should be considered when remediating all QC criticisms identified in firm inspection reports. It may feel like a never-ending story and perhaps regulators are being overly rigorous, but the reality is this issue is not going away, so firms need to consider what incremental actions they can take to truly ensure EQRs perform quality reviews. 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®. ¹ Part I of a PCAOB inspection report contains audit deficiencies; this part is made public when the report is initially published. Part II contains the firm’s QC criticism(s); and this part is not initially released to the public. The firm has one year from the date the report is published to remediate the QC criticism(s). If the remediation is satisfactory to the Board, then Part II is kept private. However, if the firm fails to satisfactorily remediate the QC criticism, the QC criticism in Part II is then released to the public.

From Planning to Practice: 10 Steps to Build Your Firm’s Quality Management System

By Jackson Johnson • September 30, 2025

With the effective date for SQMS 1 and QC 1000 fast approaching, firms of all sizes—especially small and sole practitioners—must take action to implement a system of quality management (SQM) that meets the new standards. The good news? You don’t have to start from scratch. Despite QC 1000’s implementation date deferral, the AICPA’s date hasn’t changed, and the international standards are already effective. It’s important to maintain momentum on the efforts toward implementation of all applicable standards for your firm. This article outlines 10 practical steps to help firms build their SQM. Each step includes actionable guidance and considerations for firms with limited resources, and ties into JGA’s broader thought leadership on quality management, risk assessment, and system evaluation. The 10 Steps to Build Your SQM Step 1: Establish a Project Team Form a team with the right mix of quality expertise and operational insight. For small firms, this may mean involving a manager who can grow into a leadership role or setting aside dedicated time as a sole practitioner. Recommended actions to consider: Identify internal champions with interest or experience in quality. Schedule recurring project meetings to maintain momentum. Join a peer group for support and shared learning. Step 2: Understanding and Awareness Document your firm’s business strategy, service offerings, and operational conditions. This step helps identify factors that may impact quality—such as remote work, new industries, or staff turnover. Recommended actions to consider: Conduct a strategy review with firm leadership. List recent changes in firm structure or engagement types. Use these insights to inform your risk assessment. Step 3: Assign Responsibilities Define who is accountable for the SQM. The new standards require clear delineation of ultimate and operational responsibility, including oversight of independence and monitoring. Recommended actions to consider: Assign roles based on existing responsibilities. Clarify delegation boundaries for managing partners. Document responsibilities in your quality manual. Step 4: Establish a Risk Assessment Function Design a process to identify and assess quality risks. This includes understanding conditions or events that could impact quality objectives. Recommended actions to consider: Create a risk assessment policy tailored to your firm. Use relatable examples to demystify risk factors. Leverage AICPA practice aids for structure and templates. Step 5: Perform the Initial Risk Assessment Conduct brainstorming sessions by component and document risks using the AICPA Risk Assessment Template. Include both formal and informal responses. Recommended actions to consider: Use the AICPA risk library to identify common risks. Tailor risks to your firm’s size and services. Include existing responses—even if informal—for evaluation. Step 6: Finalize the Gap Analysis Evaluate where your current responses fall short. This may include undocumented policies or areas where responses don’t fully address the risk. Recommended actions to consider: Identify gaps in governance, ethics, and technology. Determine which informal practices need formalization. Prioritize gaps based on risk severity and regulatory impact. Step 7: Implement Responses to Address the Gaps Develop policies and procedures to close gaps. Responses must be documented and operational. Recommended actions to consider: Draft policies that reflect your firm’s values and risks. Link procedures to specific quality objectives. Use existing documentation as a starting point. Step 8: Update Your Monitoring Process Move beyond peer review prep—monitoring should be continuous and system-wide. Recommended actions to consider: Assign monitoring responsibilities across the team. Incorporate testing of responses into internal inspections. Use dashboards or checklists to track progress. Step 9: Formalize Root Cause and Remediation Procedures Investigate deficiencies and document why they occurred. This step is essential for both system and engagement-level reviews. Recommended actions to consider: Conduct interviews to understand root causes. Use findings to improve policies and training. Apply remediation even if your firm only undergoes engagement reviews. Step 10: Initial Test of Design and Implementation Review documentation and walk through processes to ensure your system is operational and testable. Recommended actions to consider: Validate that each component is supported by evidence. Simulate a peer review to test your system. Confirm that objectives, risks, and responses align. Conclusion Implementing a system of quality management is not just a compliance exercise—it’s an opportunity to strengthen your firm’s foundation for audit quality, risk management, and long-term success. Whether you’re a sole practitioner or a small firm with a few partners, these 10 steps offer a scalable roadmap to meet the new standards. Ready to get started or need help refining your approach? Contact your JGA audit expert today to schedule a consultation and ensure your implementation is tailored to your firm’s needs. 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®.

Clearing the Roadblocks: Auditing Estimates with Confidence in Small Firms

By Jackson Johnson • September 30, 2025

Introduction Auditing accounting estimates has long been one of the most judgment-intensive and inspection-prone areas of the audit. For smaller firms, the challenge is even greater due to limited resources and evolving regulatory expectations. At JGA , we’ve worked closely with firms navigating these complexities and have identified three critical areas where auditors can strengthen their approach and reduce risk. What’s Recurring and What’s New: Insights from PCAOB’s Latest Audit Focus The PCAOB’s recent Audit Focus¹ underscores persistent deficiencies in how auditors evaluate accounting estimates. Common issues include failure to identify significant assumptions, reliance on inquiry or simple recalculations, and inadequate testing beyond vouching to internal or external data. These recurring gaps continue to surface in inspections of smaller firms. What’s new is a sharper emphasis on critical accounting estimates—those with high uncertainty and material impact. Auditors are now expected to understand how management analyzes the sensitivity of assumptions to other likely outcomes and to incorporate that understanding into their evaluation of bias and reasonableness. Additionally, the PCAOB highlights good practices such as updating internal guidance, enhancing EQR partner reviews, and aligning audit programs with the standards. Key Takeaways and Our Recommended Action Items 1. Evaluate the Reasonableness of Significant Assumptions What the PCAOB said: The PCAOB continues to observe recurring deficiencies in how auditors evaluate significant assumptions used in accounting estimates. Common issues include failing to identify key assumptions, relying solely on inquiry or recalculations, and not assessing whether assumptions are consistent with external factors like market conditions or industry trends. Auditors are expected to evaluate assumptions both individually and in combination, and to consider management’s intent and ability to carry out specific actions when assumptions are forward-looking². JGA’s reaction: In our article “Like Making Concrete out of Jell-O”², we described the inherent difficulty of auditing estimates that are subjective, uncertain, and often based on future projections. We emphasized that auditors must go beyond surface-level validation and challenge management’s assumptions with rigor. In “An Update for Unprecedented Times”³, we noted that economic volatility has made assumption testing even more complex, requiring auditors to evaluate whether recurring assumptions still hold in today’s environment. JGA’s recommendation: Firms should implement structured assumption testing protocols that go beyond vouching. Use external data sources to validate assumptions and ensure that engagement teams document how each assumption was evaluated. Partner and EQR reviews should include a step to confirm that all significant assumptions were tested for reasonableness and consistency. 2. Develop Independent Expectations and Use Reliable Data What the PCAOB said: AS 2501 outlines three approaches to testing estimates, including developing an independent expectation. The PCAOB stresses that auditors must have a reasonable basis for their own assumptions and methods and must evaluate the relevance and reliability of third-party data. This is especially important when using unobservable inputs or when substituting auditor assumptions for those used by management². JGA’s reaction: We’ve consistently advocated independent modeling as a way to reduce bias and improve audit quality. In our earlier articles, we highlighted how auditors can use historical data, peer comparisons, and macroeconomic indicators to build independent expectations. In “An Update for Unprecedented Times”³, we emphasized that auditors must reassess models and assumptions that were previously considered reliable, especially in light of post-pandemic economic shifts. JGA’s recommendation: Firms should train engagement teams to build independent expectations using validated data sources. When using third-party data, document the evaluation of reliability per AS 1105. Consider integrating external audit methodology tools that support independent modeling and provide templates for documenting assumptions and methods. 3. Strengthen Audit Methodology and Engagement Oversight What the PCAOB said: The PCAOB highlights good practices from firms that have updated their internal guidance, audit programs, and review checklists. These updates include scoping exercises for identifying estimates subject to AS 2501, requiring EQR partners to review all significant inputs, and linking risk assessments to audit responses. These practices are especially important for smaller firms that may lack centralized oversight². JGA’s reaction: We’ve seen firsthand how firms that invest in methodology updates experience fewer inspection findings. In “Like Making Concrete out of Jell-O”², we discussed how subjective estimates—like goodwill impairments or startup valuations—require more than just technical compliance. In “An Update for Unprecedented Times”³, we noted that firms must adapt their methodologies to reflect new economic realities and ensure that recurring assumptions are still valid. JGA’s recommendation: Firms should revise their audit programs to include scoping for all types of estimates, not just those flagged as significant risks. Partner and EQR checklists should be updated to ensure comprehensive review of estimate testing. Risk assessment documentation should clearly link identified risks to specific audit responses, with traceable evidence. Conclusion Firms should assess their current audit programs and consider enhancements aligned with AS 2501. JGA offers tailored consultations to help firms implement best practices and prepare for inspections. Contact us today to schedule a review or download our latest audit quality resources. Auditing estimates doesn’t have to feel like “making concrete out of Jell-O.” With a disciplined approach to assumptions, independent analysis, and robust methodology, firms can deliver high-quality audits that stand up to regulatory scrutiny. JGA is here to help you lead with confidence. For more information, reach out to your JGA audit quality expert . Sources ¹PCAOB’s new publication Audit Focus- Auditing Accounting Estimates | PCAOB ²See our full article Auditing Estimates: Like Making Concrete out of Jell-O ³See our full article Auditing Estimates: An Update for Unprecedented Times

PCAOB Technology Innovation Alliance Working Group Report Focuses on Emerging Audit Technologies

By Jackson Johnson • September 5, 2025

The PCAOB’s Technology Innovation Alliance (TIA) Working Group released a report on using AI, data analytics, and digital signatures to improve audit quality and investor protection. It recommends standardizing documentation, adopting responsible AI, and fostering innovation. Joe Lynch , JGA Managing Director, contributed insights as a stakeholder in the TIA roundtables and panels.

Timely Quality Management: Joe Lynch, JGA Managing Director, Insights Featured in Journal of Accountancy

By Jackson Johnson • August 18, 2025

Learn how to build your firm’s quality management system on time with actionable insights from Joe Lynch , Managing Director at JGA, as featured in the Journal of Accountancy . This article outlines eight strategic steps to ensure effective and timely implementation of quality management practices for your business.