PCAOB INSPECTION OBSERVATIONS: A Recap of 2021 Inspections
PCAOB Inspection Observations: A Recap of 2021 Inspections
As part of its initiative to increase visibility as well as to provide meaningful information, over the past couple years, the PCAOB has released an annual inspections observation report. The 2021 inspection observations, which was most recently published in December 2022, contains various sections which address some of the trends related to inspections, the recurring deficiencies both at the engagement and QC level, as well as some of the best practices observed. Let’s take a closer look at each of the four main sections of the report:
Trends in Inspections
This is the first visibility into audit quality during the pandemic. During 2021, the PCAOB inspected a total of 690 audits across 141 audit firms; 12 of those firms are annually inspected and the other 129 are triennial firms. 2021 inspections were predominantly over audits of fiscal years ending on December 31, 2020. Overall, the PCAOB found an increase in inspection findings across all inspections. Approximately 55% of audits will have at least one Part I.A and/or Part I.B deficiency, up from 44% in 2020.
The PCAOB continued to increase unpredictability in its inspections, both in the selection of issuers and in selection of focus areas. That said, the Board still performs its own risk assessment and intentionally inspected larger public companies with a focus on financial statement areas with a greater risk from COVID, such as impairment and current expected credit losses (CECL). In addition, the PCAOB’s Target Team also performed inspections across firms over specific focus areas. In 2021, the Target Team focused on fraud, going concern, SPACs, and cash and cash equivalents; their findings can be found in the PCAOB’s August Spotlight.
Common Deficiencies
The most insightful portion of the PCAOB’s spotlight is the section on recurring deficiencies. We’ve written about many of these before, including the Regulator Who Cried Wolf and Repeat Findings, so it should come as no surprise that many of the current year's findings are repeats from prior years.
The PCAOB explicitly stated: “We expect audit firm leadership to address the recurring nature of these deficiencies and monitor the effects of actions taken. An audit firm’s inadequate response to address recurring deficiencies may warrant additional action such as the Division of Registration and Inspections referring firms to the Division of Enforcement and Investigations for potential investigation or disciplinary action for failing to comply with PCAOB standards.” We have seen through our work with firms that the PCAOB is in fact taking enforcement seriously. The PCAOB has also expressed its expectation that firms begin performing root cause analyses to understand the reason for repeat findings. Root cause and remediation are significant parts of the new quality control standards, so firms need to take this statement to heart.
Let’s take a closer look at each of the sections identified by the Board:
Internal Control over Financial Reporting (ICFR)
- Management review controls (MRCs): MRCs continue to be one of the most cited deficiencies in inspections. Engagement teams need to understand and document precision, review procedures performed by management and how the engagement team validated these procedures, identification of items for follow-up and whether such items were addressed.
- Identifying and selecting controls to test: This goes back to understanding the likely sources of potential misstatement or “what could go wrong” (WCGW). Each WCGW should have a correlated control to address the risk. This includes controls around completeness and accuracy of information used in controls.
- Testing operating effectiveness (aside from MRCs): Engagement teams need to ensure they are sufficiently testing all relevant control objectives. Remember that inquiry alone is not sufficient. Also, the nature of the test and the evidence obtained must correlate to the assessed risk.
- Evaluating deficiencies in ICFR: Engagement teams are quick to document why every deficiency is “just a deficiency” and not a material weakness. We encourage teams to begin with the concept that if a control is in scope, it is designed to address a risk of material misstatement, which means that if it is deficient, it is a potential material weakness. Start with that premise and then consciously pare it back based on the relevant criteria.
ICFR is especially important in integrated audits given the fact that controls often impact the nature, timing and extent of the substantive audit. In other words, if controls are not tested properly, then the substantive audit testing approach may no longer be supported.
Revenue and Related Accounts
- Evaluating accounting: Especially in light of the new ASC 606 guidance, the PCAOB has focused on the auditor’s evaluation of the technical accounting, in accordance with the applicable financial reporting framework. Inspectors consistently took issue with engagement teams’ failures to evaluate the identification and satisfaction of performance obligations and the allocation of transaction price. In addition to accounting, the PCAOB cited concerns around insufficient footnote disclosures.
- Completeness and Accuracy (C&A): This topic seems to recur throughout all the PCAOB’s findings and will only continue to rise in importance as companies move away from more manual processes and implement more information systems, automating significant processes. Data is only as useful as it is complete and accurate (if generated from inside the company) or relevant and reliable (if generated from outside the company).
- Technology-Based Tools: Firms are increasingly using software audit tools in substantive audit procedures; in particular, the PCAOB noted increased use of technology in revenue, but also in testing inventory, journal entry testing, investments, and CECL. Inspectors are identifying concerns around:
- Populations used in data analytics: What is the population being used? Is it complete? Is it relevant? Is the data “pure” or is it mixed with other irrelevant information? For instance, if the engagement team is performing a cash proof for revenue, how does the engagement team know that the cash population is ONLY for revenue payments? Does the cash population include cash payments for other financial statement accounts?
- Resolving exceptions identified: When using data analytics, all exceptions need to be identified AND resolved.
Accounting Estimates
Estimates have always been difficult to audit, but COVID especially challenged the auditing of estimates given subjective assumptions and measurement uncertainty. The most prominent findings included:
- CECL – Engagement teams often did not sufficiently evaluate qualitative factors used in calculating reserves. The PCAOB specifically indicated its concerns around teams’ failures to evaluate changes in qualitative factors AND/OR evaluating the lack of changes year over year.
- Reasonableness of significant assumptions: Specifically, in forecasted cash flows, engagement teams failed to sufficiently evaluate the basis for the assumption as well as the consistency of the assumption within the industry or compared to external factors (i.e. COVID) as well as within company, taking into account management’s intent and ability.
In other words, as part of the evaluation of significant assumptions, it’s not enough to just obtain some support; auditors need to take a step back and fulfill all requirements of the standard, including comparing the assumptions to external factors, to management’s intent or ability, and to past years’ performance (i.e. perform a lookback review) to understand changes AND lack of changes in assumptions. This is especially true given the unprecedented nature of COVID.
Inventory
- Valuation: Engagement teams failed to sufficiently test the cost of material inventory balances. If a balance is material, by its very nature, it poses a risk of material misstatement. We’re not saying you have to audit all 100% of inventory, but the engagement team needs to evaluate (and potentially document) the residual risk of material misstatement for all untested balances.
- C&A: Yet again, completeness and accuracy of information used in valuation testing, such as inventory reserves, needs to be tested and documented.
Equity and Equity Related Transactions
- Evaluating accounting: Again, teams need to evaluate technical accounting to ensure it is in accordance with the applicable financial reporting framework. In particular, the PCAOB found that many auditors concluded incorrectly on the accounting for warrants related to SPACs.
Digital Assets
Audit evidence: The PCAOB challenged the appropriateness of audit evidence used in performing audits of digital assets. Said differently, the PCAOB is challenging the completeness and accuracy and/or relevance and reliability of information used in audit procedures when testing digital assets.
Other Areas
- CAMS: Engagement teams need to keep in mind the completeness of their evaluation of potential CAMs and ensure the completeness and accuracy of the CAMs disclosure in the audit report. The standard is clear that ALL communications to audit committees must be evaluated and documented, even if it’s clear that the communication is not a CAM.
- Audit Report: Despite being several years old, engagement teams are still struggling to appropriately calculate auditor tenure, specifically, the start date. For more information, the PCAOB has provided specific guidance.
- Audit Committee (AC) Communications: Teams need to remember to communicate ALL required AC communications, including discussing use of accounting firms and shared service organizations, critical accounting policies/practices, and providing material written communications, such as the management rep letter.
- Form AP: Like audit tenure, Form AP has been a requirement for several years, but firms are still failing to accurately (specifically regarding use of other accounting firms and accurately calculating % participation based on hours incurred) and timely file Form AP. Again, the PCAOB has specific guidance over Form AP.
- Audit Documentation: The PCAOB was often provided with “persuasive other evidence” during inspections, indicating that firms are failing to archive a complete set of workpapers.
- Fraud Considerations: Recurring findings include failing to evaluate/document the completeness of the JE population, examining underlying support for journal entries selected for testing, and testing all journal entries meeting the “characteristics of potential fraudulent entries.”
Quality Control Considerations
Through the inspection process, the PCAOB also reviews different quality control aspects of a firm. Some of these findings are identified through specific inspection procedures (e.g. independence checks) while other findings are derived from themes emerging from the results of engagement inspections (e.g. supervision and review). With the release of the proposed QC 1000, the PCAOB will continue to focus more on the effectiveness of firms’ systems of quality control.
Independence
- SEC Reg S-X Rule 2-01: The PCAOB continues to find that firms are failing to prevent and/or identify Rule 2-01 violations. Inspection results indicated that firms’ internal independence compliance and monitoring is often deficient.
- Audit Committee pre-approval: Both the SEC and the PCAOB have specific AC pre-approval requirements for audit work, tax services, and non-audit work. In other words, all services performed for a public issuer audit client must be pre-approved in some capacity by the audit committee.
Supervision and Review
The issues below typically stem from audit engagement failures identified in the section above. In other words, if there is a deficiency in auditing estimates (which are typically linked to significant and/or fraud risks), the PCAOB takes the stance that a thorough review by the engagement partner and EQR should/could/would have identified these issues and thus, a prevalence of Part I issues indicates a deficiency in the supervision and review. Specifically:
- Documentation: Audit documentation is often insufficient for managers, partners and EQRs to perform a thorough review.
- Evidence of EQR review: The PCAOB took issue with the lack of evidence of review. Remember, an EQR review is more than just a sign-off.
Internal Monitoring
- Performing reviews: Internal inspections are a requirement under the current PCAOB QC 20. They will become an even more important part under the newly proposed QC 1000. Whether internally, externally, or co-sourced, the point is, firms must perform internal inspections.
- Ineffective reviews: The PCAOB often performs inspections of audits previously inspected by the firm itself. The point is to evaluate the effectiveness of the firms’ review. When the PCAOB identifies issues NOT identified by the firm, it’s an indication that the firms’ reviews are ineffective.
Registration
- State registration: The PCAOB identified multiple audits performed in states where firms are not licensed / registered.
Good Practices
In an attempt to provide more useful information to firms to help remediate deficiencies and ensure quality audits, the PCAOB has begun to release “good practices” it has identified from various interviews with firms. These are important tools and concepts that firms should consider incorporating into their own systems, especially considering the impending overhaul of QC systems.
Templates
Many firms are developing templates (that pull directly from the standards) to help facilitate the execution of audit procedures, such as how to test MRCs or how to audit accounting estimates.
Improving risk assessment
- Given an increased focus on risk assessment, many firms are revising how they approach risk assessment; ultimately, we perform risk-based audits, so let’s be sure to thoroughly evaluate the risks and then link our audit procedures to the assessed risks.
Subject Matter Experts (SMEs)
- The PCAOB noted that many firms are requiring the use (or perhaps consultation) of SMEs in specific audit areas, typically those with higher risk, such as business combinations. In addition, many firms have used personnel outside of the engagement team to help with reviews of certain areas, such as CAMs. SMEs and targeted reviewers help bring expertise and drive consistency in approach and execution across the firm.
Independence
- Technology: Firms are investing in technology to help prevent / detect independence violations. For instance, technology tools tracking time charged vs. financial holdings vs. independence sign-offs. Technology can also be used to expand/change how certain procedures are performed, such as importing brokerage statements as opposed to manual input of financial holdings.
- Confirmations: More frequent independence confirmations (i.e. quarterly or semi-annually) have also shown to help prevent independence violations.
- Disciplinary actions: Finally, some firms are implementing new processes, including disciplinary actions, for failure to comply with firm policies and independence requirements.
Supervision and Review
- Metrics: Firms are using technology to start tracking supervision and review, measuring actual reviews against targeted timelines. Achieving these milestones, or failing to, is also being incorporated into performance evaluations. Similarly, firms are establishing certain ranges for various metrics, such as an engagement partner’s and EQR’s hours as a percentage of total audit hours. For partners and EQRs who fall outside the range, firms are meeting to understand the circumstances and conclude on whether additional measures are needed to ensure audit quality.
- Templates: As mentioned above, templates (and training) can help guide reviews in accordance with standards.
Key Takeaways
- Whew! Breathe for a minute; that’s a lot of information.
- Recurring findings are apparent and the PCAOB expects firms to drive change to remediate these issues.
- There are several resources (as evidenced by all the links) to help better understand the identified issues and to help resolve the deficiencies.
- You don’t have to go it alone; so, don’t hesitate to reach out if you don’t know where to start.
WASHINGTON, D.C.: Johnson Global is proud to announce our first charitable contribution in support of the daughters of the American Revolution (DAR) —a historic nonprofit organization founded in 1890 and dedicated to historic preservation, education, and patriotism. With over 130 years of tradition and more than one million members since its founding, the DAR continues to make a meaningful impact through local, national, and global initiatives. "We are honored to support an organization whose enduring mission aligns with our values and commitment to community" said Jackson Johnson, JGA President. "This partnership marks a significant milestone for Johnson Global Advisory as we expand our philanthropic efforts and invest in organizations creating lasting, positive change". "Thank you JGA for this impactful donation will allow our chapter to continue our mission" said Jill Mathieu, Regent of DAR. To explore more about the impact of DAR, visit: www.dar.org/discover About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
Johnson Global Advisory ("JGA") is proud to announce that Joe Lynch, Shareholder and Managing Director, will be speaking on a panel at the 40th Midyear SEC Reporting & FASB Forum . Joe will deliver the PCAOB update on June 6, with attendance available both in person and virtually. This panel will summarize the activities of the PCAOB including: • Understand the current regulatory landscape and emerging issues under new SEC leadership • Summarize rulemaking from the FASB’s technical agenda, including segment reporting and disaggregation of income statement expenses • Anticipate accounting and reporting issues incurred with income taxes, including ASU 2023-09 “Improvements to Income Tax Disclosures” • Identify changes from the FASB on accounting for financial instruments • Prepare for disclosure requirements on ESG and climate change, including the EU’s Corporate Sustainability Reporting Directive (CSRD), the requirements of California’s ESG disclosures legislation and the status of the SEC final rule • Recall recent developments and the most frequent comment areas in the SEC review process Click here to register and learn more. About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
On May 13th, 2025, the PCAOB held a QC 1000 workshop in Washington, DC, providing critical insights into the upcoming quality control standard. With the effective date of December 15th, 2025 , firms must proactively identify and manage quality risks by setting quality objectives, assessing risks, and implementing responses. Examples and case studies with breakout groups played a crucial role to help firms understand and apply each stage of the implementation process, from risk assessment to monitoring and remediation. Many attendees are still early in their understanding of the standard, highlighting the need for clear guidance and support. In a live poll, a significant portion of the workshop attendees indicated they have not yet started implementation. The inspection approach of QC 1000 has not been finalized. As such, they did not take any questions regarding how this would be inspected in its formative years. However, we did read between the lines from a different question around audit documentation, that it’s possible they may select components on a test basis during an inspection. Background of the Standard The QC 1000 standard emphasizes the integration of eight components: the risk assessment process, governance and leadership, ethics and independence, acceptance and continuance of engagements, engagement performance, resources, information & communication, and monitoring and remediation process. For more background information on QC 1000, please see these JGA resources: Applying the QC 1000 and Other Standards to Your Firm Understanding the Broader Benefits of ISQM 1 and SQMS 1 Applying the Benefits of ISQM 1 & SQMS 1 Across the Firm Key Topics from the Workshop Key terms such as applicable professional and legal requirements (APLR), firm personnel, other participants, and third-party providers were defined to clarify roles and responsibilities within the firm's QC system. The workshop included a walkthrough of Appendix A2 of the standard. The firm’s system must consider the APLRs that are applicable to the firm, which is unique to each firm. APLR is defined in the standard as: Professional standards, as defined in PCAOB Rule 1001(p)(vi); Rules of the PCAOB that are not professional standards; and To the extent related to the obligations and responsibilities of accountants or auditors in the conduct of engagements or in relation to the QC system, rules of the SEC, other provisions of U.S. federal securities law, ethics laws and regulations, and other applicable statutory, regulatory, and other legal requirements. It is important to be able to clearly identify the type of resource in your QC 1000 implementation journey. Paragraph .05 also discusses the terms firm personnel, other participants and third-party providers. These are defined in Appendix A.5 (firm personnel), A.7 (other participants) and A.13 (third -party providers). 1. Firm personnel include: EQR (inside the firm), Staff at shared service centers, secondees and leased staff, specialists employed by the firm. 2. Other participants include other auditors, EQR (outside the firm), internal auditors of the client that provide direct assistance to the auditors, specialists engaged by the firm, Networks, and external QC function. 3. Third-party providers include audit software providers, system security vendor, audit methodology provider, confirmation intermediary, pricing services, and broker-dealer monitoring systems. There are four distinct roles and responsibilities as described in paragraphs .11 -.17 of the QC standard. The first two roles are the certifiers of the Firm’s QC results: 1. The principal executive officer and 2. Individual responsible for the operational responsibility and accountability for the QC system as a whole. The principal executive officer (PEO) is ultimately responsible for the design, implementation, operation, and evaluation of the firm’s QC system. Only firm personnel are permitted to fill the roles required by QC 1000 . JGA Insights: 1. Not all “participants” of a firm’s structure must be included in a firm's quality control policies and procedures, which is especially important for shared service centers and outsourced staffing arrangements. These roles must be clearly defined and applied as the different levels of participants within an organization are considered differently by the standard. 2. PCAOB-registered firms of all sizes – regardless of whether the firm currently audits issuers – must adhere to these components, ensuring consistency with international quality control frameworks. 3. While it was expressed in the session by PCAOB Staff that firms are not expected to reengineer their process (e.g. more than 1 set of QC documentation), firms may need to align or “top-up” their processes with multiple standards to ensure comprehensive compliance. Keep in mind here that the top-up may not just be for QC 1000. In fact, a system in compliance with QC 1000 may need top-up considerations for SQMS 1 and/or ISQM 1. Risk Assessment Principles There were several examples and case studies to go through among table groups during the session. These activities helped illustrate the importance of getting risk assessment right, since this drives what the firm focuses on for an effective system. When it comes to implementing QC 1000, there are some key takeaways from the risk assessment process that can really guide firms in the right direction. JGA Insights: Here are a few important points to keep in mind as you work through identifying and assessing quality risks 1. The QC 1000 standard does not prescribe a specific method for identifying and assessing quality risks. This gives firms flexibility but also places responsibility on each firm individually based on their circumstances. It’s more work upfront from a “cookie-cutter” approach but ensures the design of a process that fits a firm’s unique context. 2. Quality risks should not be viewed as the opposite of quality objectives . Instead, they are factors that could potentially hinder the achievement of those objectives. 3. The threshold of “reasonable possibility of occurring” applies to all risks, including risks of intentional misconduct by firm personnel and other participants. This means that firms must consider the likelihood of risks occurring and their potential impact on the quality objectives. The PCAOB staff shared during the workshop that the concept of reasonably possible follows the same definition as used in FASB ASC Topic 450 on Contingencies. Ethics and Independence Considerations The QC 1000 standard does not alter existing ethics and independence requirements under PCAOB or SEC standards. Firms must continue to comply with those as currently written. Compared to other standards like ISQM 1 and SQMS 1, QC 1000 is more stringent in certain areas. For example, it requires: 1. Creating and maintaining a restricted entity list; 2. Periodic review of the list to ensure accuracy; 3. Appropriate certifications related to independence; and 4. Audit committee approvals where applicable. Register for the next workshop and get going on implementation To gain a deeper understanding of the QC 1000 standard and its implementation, we strongly encourage you to attend the PCAOB Smaller Firm Workshop on June 17, 2025, in Irving, Texas. This in-person-only session will provide valuable insights and practical guidance for firms navigating the new quality control standard. Register now to secure your spot. As always, reach out to your JGA Expert with any questions. About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global is pleased to announce that Joe Lynch, JGA Managing Director will speak at the AICPA® & CIMA® ENGAGE+ 25 on May 15, 2025, and will be attending the full conference on June 9–12, 2025, at the ARIA Resort & Casino in Las Vegas, NV and live online. This CPE-eligible event is the premier annual event for accounting and finance professionals, bringing together thousands of peers, experts, and industry leaders for top-tier learning, networking, and career growth opportunities. Register by May 1, 2025, to take advantage of Early Bird rates— $1,995 for members ( regularly $2,095 ) and $2,445 for nonmembers ( regularly $2,545 ). *PCPS, Tax and PFP section members and CITP®, PFS™, CGMA® credential holders save an additional $150 . Discount reflected in section member/credential pricing during checkout. Register Today ! About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporates solutions which navigates those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global Advisory (JGA) is proud to sponsor the Accountants' Liability Conference hosted by ALI-CLE. This two-day event will take place in Washington, D.C. and virtually on June 2nd and 3rd. This is an excellent opportunity to gain valuable insights into a wide range of critical issues. The 2025 conference will focus on audits and oversight, providing essential guidance to help you navigate the evolving landscape of regulatory compliance and better protect your firm and clients. “We are pleased to sponsor this conference for the last several years. This event brings together top law firms, internal counsel, and risk experts for dynamic discussions on trending topics such as accounting liability and other important issues affecting the profession,” said Jackson Johnson, JGA President. “I look forward to personally engaging with participants, presenters, and stakeholders at this conference.” This year’s program is still being finalized but planned topics include: Recent Trends in Accounting Litigation Living in a post- Jarkesy world The future of enforcement PCAOB inspection program update SEC perspectives on gatekeeper liability AI and emerging technologies in the accounting industry Accounting firms entering the legal space International firm considerations Alternative practice structures and AICPA independence rules Register by April 25 to attend in-person and use the code “ JGA ” to save $250 off . OR, for webcast attendance, use the code " JOHNSON " to save $125 off the tuition. Click here to register. About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff, JGA professionals are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global Advisory (JGA) makes third annual contribution to the Boys & Girls Club of Greater Kansas City. The 29th Annual Kids Night Out is scheduled for Saturday, April 26, 2025, and promises to be an unforgettable evening, bringing together over 1,500 guests to support the children served by Boys & Girls Clubs of Greater Kansas City. “We’re thrilled to continue our support for the Boys & Girls Club of Greater Kansas City. This marks our third year backing this chapter, and I know that many of our JGA employees have personally benefited from the programs the Boys & Girls Clubs offer nationwide,” said Jackson Johnson, JGA President. “Kids Night Out is Boys & Girls Clubs of Greater Kansas City’s biggest fundraiser each year– and all dollars raised stay right here in Kansas City”, said Andy Burczyk, Board Member and Chair of Kids Night Out. “This organization is doing extraordinary things, and it is because we as a community invest in their impact.” For over 100 years, Boys & Girls Clubs of Greater Kansas City has provided a safe, supportive environment for youth. Serving over 8,000 kids and teens annually across 11 locations, the organization helps young people achieve their full potential through programs that promote academic success, healthy lifestyles, and character development. Through mentoring and leadership training, they equip members with the skills needed for success now and in the To learn more information on the Boys & Girls Club of Greater Kansas City and their work with the youth, please visit www.bgc-gkc.org . About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff, as well as JGA professionals, are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global Advisory (JGA) is proud to provide a financial contribution to Sustainable Harvest International (“SHI”). SHI is a nonprofit helping Central American farmers adopt sustainable farming practices for over 27 years. Their mission is to address the destruction of tropical forests caused by slash-and-burn farming and logging. SHI’s mission benefits both current and future generations by equipping farmers with the knowledge to farm sustainably. “We’re proud to partner with Sustainable Harvest International in their important work,” said Jackson Johnson, JGA President. “This collaboration helps drive lasting, positive changes and by backing such vital organizations, we stay true to our mission of giving back and making a real difference. JGA’s philanthropic efforts focus on supporting organizations that are important to our people. I appreciate Vernon sharing his experience as a board member and we are grateful to work with him to amplify this organization.” Vernon Johnson, JGA Director, is a Board Member and Treasurer for SHI. He is actively involved in this organization. "My nonprofit work has helped me maintain perspective in both life and at work,” said Vernon. “It’s taught me to stay calm during challenges and focus on the bigger picture. This experience has improved my relationships and made me more resilient in stressful situations. My advice to busy professionals is to step back, appreciate the simple things, and not sweat the small stuff—being thankful and present can make a big difference." To learn more about SHI, visit www.sustainableharvest.org/donate . About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff and JGA professionals are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.
The implementation of the System of Quality Management (SQM) is not just a compliance requirement but an opportunity to drive significant business value. By aligning firm-wide goals, improving internal processes, and optimizing controls, firms can streamline their operations, reduce inefficiencies, and improve overall performance. The process also provides an opportunity for firms to gain valuable insights through key metrics, enabling data-driven decisions which provide strategic business insights, enhances audit quality, and promotes employee retention. In addition, early adopters who focus on the business value from the outset see improvements that reach across different practices within the firm, making the SQM implementation a strategic investment that benefits the whole firm long-term. We have seen that our work in this area results in meaningful improvements to the way the business of audit and assurance is conducted, and many of these improvements will have benefits that reach across other practices of the firm. This is part II of a series on the benefits of SQM implementation. This article builds on our insights from 2022 in Part I of this series . Compliance as a Driver Compliance is the main driver of the new System of Quality Management (for all standard-setters, referred to as “SQM”) standards issued by the IAASB, AICPA, and the PCAOB. There is no disputing that. However, for the early adopters, what we are finding is immense business value that come out of this process; more so if you start the process with business value in mind. Our ability to anticipate the benefits of executing ISQM 1 years ago is a key strength. Some firms have already implemented ISQM 1 at some level (partial adoption for group audits, for example). For SQMS 1 and QC 1000, since firms are all in various stages preparing for the December 15, 2025, go-live date, now is the time to lay out the strategic value drivers from this compliance exercise. Related: See a breakdown of the various implementation dates here . SQM implementation requires firms to take a closer look at their internal process; every process that touches the value chain of getting an audit done. To demonstrate how this requirement goes beyond the confines of the “audit practice”, consider these examples: Employee onboarding, training, and retention; Software tools and technology used to monitor internal aspects like independence; Tools used by engagement teams, for example, to test 100 percent of smart contracts or select journal entries to examine for fraud; Archiving of binders on time, and in compliance with audit documentation requirements; or Monitoring programs that identify and fix deficiencies in both audit performance and the underlying functions supporting the audit. Getting Buy-In, Aligning Goals, and Engaging Personnel We have seen firm quality leaders struggling to get the buy-in needed from stakeholders across the business (IT, HR, Tax, Advisory) for effective SQM implementation. And we have heard leadership from firms around the world ask: “What’s in it for us?” “All this investment just for a compliance exercise?” “Why do I need to be involved in something the audit group has to do?” But the best question we’ve heard is: “How can the system of quality management implementation improve our business?” When everyone is working toward the same objectives and goals, implementation becomes a cohesive and streamlined process. It’s important to have goals that are aligned throughout the organization, with them tailored to the component and roles within those areas. This includes: Getting the invested support from the partnership board down to process owners; Having goals that are specific and measurable (e.g. documenting the current process and eventually operating controls consistently and timely); Aligning the firm’s tone-at-the-top helps get everyone in sync; and Reinforcing management’s responsibility to establish a culture of quality and its importance in all the services performed by the firm. Management should: Lay out the long-term benefits of improved business performance, reduced risks, more timely and accurate data created which leads to insightful decisions; Emphasize the benefits of overall reduced costs related to non-compliance with network, firm, peer review, and regulators requirements; and Evaluate the potential for lower costs of insurance upon implementation and overtime. Understanding Current Processes Conducting interviews, gathering data, and documenting the processes within the firm’s system of quality management allows visibility of how these processes currently work (or don’t work). When SQM implementation project leaders invite personnel involved in a process together into one room and facilitates an open discussion, a clear picture of how each process really works materializes, and this strengthens cross-functional teaming. For instance, these meetings often result in the realization that two (or more) people are doing the same tasks (inefficiency) or discovering that no one is performing an important review check (gap). Formalizing and Optimizing Processes Once the current process is understood (“As-Is”) and with the right people in the room, the identification of areas where procedures can be more uniform, streamlined or simplified emerges. We often find that processes can be improved without adding more controls. This optimization effort incorporates standardization and normalization across the firm’s services and business functions providing benefit beyond the compliance exercise of the audit practice. Gaining Business Insights A sound system of quality management will bring new business insights and transparency to make confident decisions with reliable data. The optimization process will identify the key information used in the system of quality management (a similar concept to the work auditors performs with their companies as described here). This information provides new insights to help process owners and firm leaders make decisions. A firm can develop key quality metrics that are used to measure and improve the operation of the firm and audit quality which results in a modernized competitive firm. When a firm establishes a system to monitor the SQM environment, these insights allow for timely monitoring which enables leaders to quickly make decisions that address anomalies or negative trends as they arise. Getting Started Early Getting started early begins with: Firm leadership embracing the need for a consistent and well-monitored SQM to improve the business; Aligning objectives and goals for all firm personnel based on their role within the SQM; Disseminating to all firm personnel the importance of how their role contributes to the SQM; and Incentivizing all firm personnel to commit to their SQM objectives and goals which contributes to the benefits of these modern practices that lead to competitiveness. While compliance may be the hand forcing you forward, the upside to this “exercise” is that undoubtedly you will be a stronger, more efficient firm when executed correctly. We see firms that begin with such a mindset have more success internally and in the marketplace. Conclusion The journey of implementing a quality management system is transformative. Beyond compliance, it reveals deep insights and benefits, positioning firms at an advantage in our profession. For more information, reach out to your JGA audit quality expert. Jackson Johnson , JGA President and Founder, is a seasoned expert in audit quality and technical accounting matters. With nearly six years of experience at the PCAOB, he has worked with small and medium-sized accounting firms globally, focusing on firm quality control and ICFR audits. Jackson advises firms in PCAOB and SEC investigations related to cryptocurrency audits and has served on the Enforcement Advisory Committee of the California Board of Accountancy. Before his tenure at the PCAOB, he worked with public and private clients at Grant Thornton LLP in Boston, Los Angeles, and Hong Kong. Jackson is also a frequent speaker on quality control and enforcement issues in the accounting industry. Joe Lynch , JGA Managing Director and Shareholder, and a member of the AICPA Quality Management Implementation Task Force. Joe works with mid-market public accounting firms worldwide to implement quality management programs that integrate technology and process to improve the delivery of audits. Joe spent more than six years as an Inspection Leader at the PCAOB, he conducted inspections of quality control and global issuer audits at large firms in the US as well as foreign affiliate firms, focusing on examining quality control and the design and implementation of audit work. Joe also has experience supporting financial service industry audit teams at a Big Four firm. In addition, his experience includes active-duty service in the US Air Force and supporting companies with IT strategic initiatives such as designing the IT framework for technology departments as well as leading implementations of ERPs and systems.
The Public Company Accounting Oversight Board (PCAOB) recently decided to withdraw proposed rules that would have required registered firms to report a significant new set of firms and engagement metrics. It was also set to mandate that large accounting firms submit financial statements to the U.S. Regulator, as part of a wider effort to enhance oversight. This decision came after criticisms from a variety of stakeholders from both the PCAOB and SEC comment process. For example, the American Institute of CPAs (AICPA) expressed concerns that these requirements could harm U.S. capital markets and negatively impact small and midsized audit firms, potentially driving them out of the public company auditing practice. The PCAOB's decision to withdraw the rules was seen as a positive move by the AICPA, which had urged the Securities and Exchange Commission (SEC) to refrain from approving the rules due to the significant challenges they posed. JGA commented to the SEC on the proposal; you can read our position on the proposal here .
WASHINGTON, D.C.: Johnson Global Advisory (JGA) has published a new third edition guide examining the key considerations faced by public company auditors during their PCAOB inspections. Drawing experience as audit and audit regulation experts and advisors to firms worldwide on all aspects of audit quality improvement, the JGA team has authored NAVIGATING PCAOB INSPECTIONS: Understanding the Inspection Process from Start to Finish.
