New Concerns around Going Concern: Is Management Properly Prepared?
It seems like a lifetime ago, but back in early 2020 and continuing into 2021, consideration of a company’s ability to continue as a going concern was top of mind for both management teams and their auditors due to the global COVID-19 pandemic. Back then, going concern considerations were necessary due to shutdowns, mask mandates, employees having to work remotely – many employees were laid off or furloughed, which led to a drop in consumer demand especially in industries such as retail, travel, entertainment, and service industries and a drop in manufacturing / production. In April 2020, our article Weathering the Storm: Auditing Going Concern in an Age of Economic Uncertainty discussed how auditors should have reacted to the address going concern during the global pandemic.
Starting in 2021 and continuing into 2022 we now have different concerns being raised. The global economy has been affected by truly worldwide events – the great resignation has resulted in severe labor shortages in many industries, rapidly rising consumer demand has led to supply chain shortages, the recent microchip shortage resulted in a ripple effect across many industries that use microchips and semiconductors in their products, the war in Ukraine and resulting Russian sanctions has affected the supply of goods from Ukraine and Russia, rising costs of almost every commodity (gas, food, labor), and rising interest rates. All of these are causing companies to reassess and alter their typical business models to respond to the new norm. Companies are experiencing the pressure of higher wages and/or higher raw material costs while trying to pass these costs along to consumers, seeking out alternative supplies of goods and raw materials to mitigate the supply chain delays, and continuing to transition to a greater web presence for sales of goods and services.
The old way of doing business has had to change.
What is an auditor’s responsibility?
With all this change in the business model, we thought we should revisit what is required from an auditor based on the PCAOB’s Auditing Standard (AS) 2415.
Firstly, it is not necessary that an auditor design audit procedures to specifically identify conditions or events that would indicate there is substantial doubt about a company’s ability to operate as a going concern for a reasonable period of time. These going concern indicators can come about from other procedures that the auditor performs as part of his/her regular auditing procedures, such as when performing analytical procedures, reviews of compliance with loans or loan covenants, legal counsel inquiries, and when reading various company minutes. The auditor should not ignore any information identified that calls into question a company’s ability to operate as a going concern. Such information is disconfirming information that needs to be evaluated, and most important of all, the evaluation must be documented in the workpapers. Often when we support our audit firm clients though in-flight reviews, we see red flags that make us step back and ask engagement teams how they addressed this information. These issues usually call into question the company’s ability to continue as a going concern and frankly these important discussion are not happening with management early enough.
As an auditor is working through his/her procedures, here are some other considerations that auditors should consider:
- How are a company’s supply chain issues affecting its ability to service its customers and keep their customers happy before they decide to shop elsewhere?
Are legacy large customers now looking to other avenues to find suppliers of product? Even in Great Britain, the long staple corner fish and chip shop, is not immune. The supply and costs of cod and fish oil has been
devastating for thousands of shops.
- Is the ‘great resignation’ labor shortage affecting the company’s ability to manufacture product, develop new product, perform quality controls on its current product? One just has to look at the current US baby formula shortage. The domestic supply of formula is controlled by a handful of manufacturers. COVID-19 had already created significant supply chain issues and when one of the largest manufacturers had to shut down one of its manufacturing facilities due to tainted goods, that caused significant upheaval and shortages in the baby formula industry.
- How are rising interest rates affecting the company you’re auditing? How is that affecting the monthly cash flows for existing variable interest rate debt? Is interest expense eating into already slim margins and the company’s available cash flows?
If these types of questions are coming up on your audit, and you conclude based on your considerations that a substantial doubt about the ability of the company to continue as a going concern exists, the auditor should look to obtain information about management's plans and:
- Consider whether these plans will mitigate these adverse effects for a reasonable period of time; and
- That these plans can be effectively implemented.
The standard provides some examples of considerations that the auditor should make in order to reach a conclusion:
Plans to reduce or postpone expenditures – how feasible is management’s plans to be able to effectively reduce overhead or administrative expenses? Would management delay important machinery maintenance expenses if it affected the useful lives of currently used machinery? Can machinery sit idle for an extended period of time without damage?
Plans to increase ownership equity – how feasible is it that management can increase ownership equity through raising additional capital? Are there already pre-existing commitments to raise additional capital? Just because a company was successful in the past in raising capital, it does not automatically correlate that it would be successful in today’s climate.
Plans to borrow money or restructure its current debt – Consider whether the company currently has access to lines of credit or if not, that there is availability of debt financing. Similar to the point above, just because a company has been successful in the past in borrowing money or being able to restructure their debt, it doesn’t mean this will happen in this environment.
As we coach our audit clients in this area, oftentimes we see auditors evaluating management’s plans by merely having conversations with management, without obtaining appropriate evidence and challenging management on the feasibility of their plans. For example, a general discussion with management on reducing or postponing expenses is insufficient. Management should put pen to paper with specifics about forecasts for the next 12 months (i.e. including appropriate assumptions such as reducing general office headcount by x%, reducing marketing budget by $Y, etc.). The auditor should then demonstrate professional skepticism and examine any available evidence (and contrary evidence) to confirm the plausibility of management’s plans (e.g. is it really feasible that management will not do ANY equipment maintenance in the next 12 months). As part of an auditor’s evaluation, particular focus should be given to assumptions that are:
- Very sensitive to change
– Consider a trucking company where gas is a significant cost, which would be affected by swings in the gas rate.
- Not consistent with historical trends – The difficulty here is that the COVID-19 has reset many historical trends such that is it reasonable to assume that a business will return to pre-COVID sales and operation levels – so is it appropriate to compare to historical trends?
- Material to the prospective financial information.
Finally, if the auditor concludes after evaluating management’s plans that substantial doubt about the company’s going concern has been alleviated, the auditor still needs to assess the need for disclosure of the principal conditions and events that initially caused him/her to believe there was substantial doubt. We have also seen SEC comment letters recently where the company has disclosed conditions that raised substantial doubt about its ability to continue as a going concern and the SEC has asked whether the auditor assessed the company’s ability to continue as a going concern and how the auditor concluded that an explanatory paragraph in the audit opinion was not considered necessary.
Clearly, going concern is still top of mind at the SEC and the auditor should thus have good documentation of procedures it has performed to be able to conclude why an emphasis of matter paragraph in the opinion is not necessary.
Points to consider
Here are also a few additional points for auditors to consider as they evaluate going concern:
- Evaluate early – If the audit has any inkling that going concern may be an issue for the client, make sure to start having those discussions with management early in the audit process. Don’t wait until the 11th hour.
- Communicate to audit committee – Be mindful that AS 1301 requires that the auditor communicate to the audit committee its evaluation of a company’s ability to continue as a going concern.
- Evaluate as a Critical Audit Matter (CAM) – Typically going concern determinations are going to meet the definition of CAMs because they are challenging, subjective, or complex and also that the going concern conclusions are required to be communicated to the audit committee.
In summary, always have going concern top of mind. Back in the midst of the COVID pandemic, it was pretty obvious that auditors needed to assess going concern. However, the COVID pandemic has now been replaced with new and different global considerations, and which auditors should not be ignoring as they deal with a company’s ability to continue as a going concern for a reasonable period of time
Geoff Dingle, JGA Managing Director, works with PCAOB-registered accounting firms helping them identify, develop, and implement opportunities to improve audit quality. With over 20 years of public accounting experience, he spent nearly half of his career at the PCAOB where he conducted inspections of audits and quality control. Geoff has extensive experience in audits of ICFR and firms’ systems of quality controls. Prior to the PCAOB, he worked on audits in various industries at Deloitte in Atlanta and Durban (South Africa).
Introduction In today’s regulatory climate, audit firms must take a fresh look at how they evaluate engagement acceptance and client continuance. The stakes have never been higher. With the PCAOB’s newly adopted QC 1000 standard and the AICPA’s SQMS 1 framework now in effect , firms are expected to demonstrate a more rigorous, risk-based approach to quality control—starting with the very first decision: "Should we take this engagement?" The PCAOB recently released a new Audit Focus: Engagement Acceptance on this topic (Audit Focus). At the same time, we’ve been speaking, writing, and helping firms improve their process in this area. On the steps of PCAOB’s recent and timely guidance, this article explores the evolving risk landscape and offers practical guidance for firms to strengthen their engagement acceptance protocols in line with new regulatory expectations and JGA’s quality management insights. The New Risk Landscape: What QC 1000 and SQMS 1 Require The PCAOB’s QC 1000 standard introduces a scalable, risk-based framework that applies to all firms performing PCAOB engagements. It emphasizes that engagement acceptance is not just a procedural checkpoint, it’s a critical quality control decision that must reflect the firm’s risk profile, independence safeguards, and capacity to deliver a high-quality audit. Key risks highlighted in QC 1000 include: Independence and ethics violations: Firms must have systems to identify and escalate potential conflicts, including automated tracking of financial interests. Monitoring of in-process engagements: Firms are expected to assess quality risks before and during engagements, not just after the fact. Scalability and oversight: Larger firms face enhanced requirements, including external oversight and formal complaint tracking mechanisms. Similarly, SQMS 1 requires firms to design and implement a system of quality management that includes robust procedures for engagement acceptance and continuance. These procedures must consider: integrity and reputation of the client firm competence and resources ethical and legal requirements, and risks to audit quality and compliance. Issues arising from poor or inconsistent client or engagement acceptance policies and procedures isn’t new, but is being looked at in new ways by firms and their regulators with the: decrease in public company auditors qualified or going to market on conducting public company audits increasing number of firms that have been stripped of their privilege to conduct public company audits, and movement of companies to different auditors (think BF Borgers as the most egregious example, but your typical attrition in the most common case). The PCAOB, AICPA, and other regulators around the world, will take these business risks and apply them in a new lens in their inspection, peer review, and enforcement processes as they look at how firms have identified and addressed risks when implementing their QC system when it comes to client acceptance. Improving Communications: Predecessor Auditors & Audit Committees Recent PCAOB inspection findings and the Audit Focus document emphasize that engagement acceptance decisions are under increasing scrutiny. Deficiencies in areas like AS 1301 (Communications with Audit Committees) and AS 2610 (Successor Auditor Communications) often stem from weak or incomplete risk assessments at the outset of the engagement. Firms must be prepared to engage in transparent, candid conversations with audit committees, especially when the going gets tough. Whether it’s disclosing an unanticipated CAM , identifying a material weakness in internal control , or explaining a shift in audit scope, the ability to communicate openly and credibly is a hallmark of audit quality. Similarly, in our article on audit committees , we emphasized that audit committees are becoming more sophisticated and assertive. They expect auditors to be proactive, risk-aware, and ready to explain their judgments—not just their procedures. The Audit Focus does a great job of asking questions for firms to consider in assessing the quality of both management and the AC. As part of your engagement acceptance process, assess not only the technical risks of the engagement, but also the firm’s ability to maintain transparency and trust with the audit committee. Ask: Will we be able to have frank conversations with this client’s governance team? Are we prepared to deliver difficult messages if needed? Do we have the right people and protocols in place to support those conversations Internal Inspections: Engagement Acceptance as a Root Cause The Audit Focus also highlights how engagement acceptance decisions can directly impact audit quality and inspection outcomes. We encourage firms to examine their internal inspection programs to see how/whether outcomes can inform or rise to potential root causes targeting the firm’s engagement/client acceptance process. For example, a risk-based selection for the annual internal inspection process should include certain jobs tied specifically to new client and new engagements:
Introduction As explored in previous JGA Advisor articles, the implementation of quality management standards such as ISQM 1, SQMS 1, and QC 1000 has reshaped how audit firms approach compliance, risk, and continuous improvement. These standards demand a proactive, risk-based, and firm-wide system of quality management (SoQM) that is both scalable and adaptable to local jurisdictions. We have seen through our work with firms that a tech solution is just part of the equation. Of course, having the right human capital with the capacity, drive, skills, and leadership to influence implementation across so many functions of the firm is critical. Also, understanding a baseline of risks and controls – beyond the minimum explained in the standards – will go a long way for smoother implementation. We recommend taking a look at the AICPA Practice Aid and many other AICPA resources for firms embarking on their implementation journey. While the standards themselves are rigorous, the complexity of implementation—especially across multiple jurisdictions—has led many firms to look to ways to document their system with reliable workflows in a database or other system. What we have seen is that – at a minimum – an excel solution, especially coupled with other tools like smart sheets, is the easiest entry point for a tech solution for implementation. Other more advanced tools not only streamline compliance but also enhance documentation, accountability, and real-time monitoring. In this article, we explore how three platforms—Inflo, Caseware, and QMCore—are helping firms meet these challenges and elevate their quality management systems. Why Software Matters for Quality Management Successfully implementing a SoQM under ISQM 1, SQMS 1, QC 1000, or other jurisdictional standards requires more than policies and procedures—it requires leadership, training, communication, and a culture of quality. But most importantly, it requires technology. Software platforms like QMCore, Inflo, and Caseware offer firms the ability to: Assign and track ownership of quality tasks across the firm, ensuring accountability, and transparency. Streamline risk assessment, monitoring, and remediation, which are core to all modern quality management standards. Provide real-time reporting and dashboards that allow leadership to monitor compliance and identify deficiencies early. Adapt to evolving regulatory requirements across jurisdictions, including CSQM 1 (Canada), SSQM 1 (Singapore), ASQM 1 (Australia), and PES 3 (South Africa). Educate and enable staff through embedded guidance, links to standards, and intuitive workflows. For firms evaluating whether to adopt software, the key considerations should include: scalability, jurisdictional adaptability, ease of implementation, audit trail integrity, and the ability to evolve with regulatory changes. We strongly suggest taking a look at our previous guidance on adoption of software audit tools as well. There are other applications being developed for the market as well. Inflo: A Centralized Platform for Quality Management Oversight Inflo’s Quality Management solution is designed to help firms implement and maintain a System of Quality Management (SoQM) that aligns with ISQM 1 and other global standards. Unlike traditional tools that focus solely on audit execution, Inflo’s platform provides a centralized environment for managing the entire quality lifecycle—from risk assessment to monitoring and remediation. Key Features of Inflo’s Quality Management Platform: Centralized Oversight: Inflo consolidates all quality management activities into a single platform, giving firm leadership real-time visibility into the status of quality objectives, risks, and responses. Customizable Risk Assessment: Firms can tailor their risk identification and assessment processes to reflect their unique service lines, geographies, and regulatory environments. Automated Monitoring & Remediation: Inflo streamlines the tracking of deficiencies and corrective actions, ensuring that issues are addressed promptly and transparently. Evidence of Compliance: The platform maintains a complete audit trail of all quality management activities, supporting both internal reviews and external inspections. Scalable Across Jurisdictions: Inflo’s solution is adaptable to various regulatory frameworks, making it suitable for firms operating in multiple countries or under different standard-setting bodies. By integrating quality management into a digital workflow, Inflo helps firms move beyond static documentation and toward a dynamic, data-driven approach to compliance and continuous improvement. Caseware: Integrated Methodology and Real-Time Collaboration Caseware’s cloud-based platform, particularly through its Dynamic Audit Solution (DAS), offers a comprehensive approach to quality management. Built in collaboration with CPA.com and the AICPA, Caseware provides: End-to-End Audit Workflow: Integrating methodology, workpapers, and execution tools in a single environment. Real-Time Collaboration: Enabling teams to work simultaneously on engagements, improving efficiency and reducing version control issues. Data-Driven Risk Assessment: Supporting a risk-focused audit approach aligned with ISQM 1 and SQMS 1. Caseware is especially effective for firms embedding quality management into daily audit operations while maintaining compliance with evolving standards. QMCore (FinReg): Purpose-Built for Global Quality Management Standards QMCore, developed by FinReg, is a purpose-built platform designed to help firms implement and maintain a System of Quality Management (SoQM) in compliance with ISQM 1, SQMS 1, QC 1000, and their global counterparts. It is powered by the FinReg GRC platform and has received technology accreditation from the ICAEW. Key Benefits of QMCore: Comprehensive Coverage: Seamlessly integrates all eight components of ISQM 1 and SQMS 1, including governance, risk assessment, monitoring, and remediation Task Ownership and Accountability: Allows firms to assign responsibilities clearly and track progress with ease Monitoring & Remediation: Embedded tools provide high visibility into deficiencies and corrective actions, with real-time dashboards and drill-down analytics Jurisdictional Flexibility: Adaptable to regional standards such as CSQM 1, SSQM 1, ASQM 1, and PES 3 Audit Trail Integrity: Tracks all inputs and changes, ensuring transparency and defensibility; and User Enablement: Educates staff on the standards, enables them to act, and evidences compliance through structured workflows and embedded guidance. QMCore is securely hosted on AWS and accessed via the internet, making it easy to implement and scale across firms of varying sizes and geographies. Conclusion The shift to modern quality management standards is not just a compliance exercise—it’s an opportunity to enhance audit quality, improve operational efficiency, and build a culture of continuous improvement. Software platforms like Inflo, Caseware, and QMCore are proving essential in helping firms navigate this transformation. Other players may be entering the market, and we encourage a discussion to understand the latest and compare benefits and what’s best for your firm. 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 .
This is an exert of the AI Accounting Playbook . Building Trust in AI Accounting As accounting firms adopt AI tools in audits, they face new questions about reliability, transparency, and compliance. Regulators like the PCAOB have made clear that if AI outputs can’t be explained or reproduced, they could violate existing standards. Yet formal guidance on AI use in audits remains limited, leaving firms unsure about how to move forward. Some firms have responded by limiting AI to non-public clients, but this caution also presents a chance to lead. Firms that build strong AI governance practices now can stay ahead of future regulation and establish trust in their use of AI. This chapter covers key compliance barriers, governance best practices, and steps to create a trusted control environment. Key Compliance Barriers Accountants face several key compliance barriers when using AI, particularly as regulators such as the PCAOB, AICPA, and SEC increase their scrutiny. Explainability One major challenge is explainability. Many AI models, especially machine learning and generative AI, don’t clearly show how they reach conclusions. This is a problem for auditors who need to support their findings. This lack of clarity makes it harder to meet audit evidence requirements, which must be sufficient, appropriate, and easy to understand, as outlined in PCAOB standard AS 1105. Poor Documentation Poor documentation is another major issue. This includes inadequate records of data inputs and outputs, training data, model logic, and controls over changes. Such deficiencies may violate documentation and risk assessment requirements, as seen when audit teams use AI for journal entry testing without documenting the rationale for flagged entries or threshold settings. Data Privacy Data privacy becomes a concern as firms use AI to handle large amounts of sensitive financial and personal information. This can lead to violations of laws like GDPR and CCPA, especially when client data is processed in cloud or third-party systems. Firms often struggle to maintain consistent policies for data classification, encryption, and access. Auditor independence may also be at risk if AI tools are built by a firm’s advisory armor are deeply integrated with a client’s systems. For instance, if both the firm and client use the same predictive AI tool for forecasting, it could lead to a self-review threat. AI Skills Gap A skills gap and overreliance on AI further complicate compliance. Many auditors lack the training needed to critically evaluate AI outputs or to recognize when human judgment should override algorithmic conclusions. This can lead to audit failures, such as misinterpreting a false negative from an AI-driven risk assessment as a clean result. Validation and Testing Testing and validating AI tools is another challenge, especially for tools that keep learning over time. Firms need to test tools when they’re first used and then on a regular basis, just like they do when relying on third-party service providers. But this is hard to do if the AI vendor doesn’t offer enough detail about how the tool works or the controls in place. Change Management Managing updates and changes to AI models is a concern. If a tool is updated or retrained without documentation, it can lead to inconsistent results. For example, a model may flag different transactions in different quarters without any clear reason why. Many firms also lack a formal AI governance plan tied to their quality management systems, which causes inconsistent control practices and unclear responsibilities. Lack of Guidance Regulators have been slow to issue formal guidance on how AI should be integrated into the audit process, leaving many firms in a state of uncertainty. The good news is that momentum is building. PCAOB Board Member Christina Ho has publicly emphasized the transformative potential of AI in auditing, particularly in automating routine tasks such as cross-referencing data, extracting key contract terms, and documenting interviews. She has advocated for the PCAOB to evolve its standards to promote responsible AI use, calling for transparency, bias mitigation, and auditability in AI tools. Similarly, the International Auditing and Assurance Standards Board (IAASB) has demonstrated its commitment to supporting firms by releasing its Technology Position, which is a strategic framework that outlines how the board will adapt auditing standards to align with emerging technologies, including AI. Until these guardrails are firmly in place, firms should proactively develop internal AI frameworks modeled on established control standards. COBIT can support firms in assessing and governing AI systems, including data and system integrity. COSO can be applied to evaluate AI governance, model risk, and internal control implications, particularly when AI impacts financial reporting or ICFR. NIST provides guidance to help firms build trustworthy AI systems and establish appropriate cyber security and governance protocols. Best Practices for Governance To use AI confidently and compliantly in accounting, especially in regulated environments like audit and assurance, firms should implement strong governance practices that align with both regulatory expectations and ethical standards. 1. Test AI Internally Before Use In Engagements Before you bring AI into your audits, you’ll need to put it through its paces. The starting point is an internal review and certification process, ideally led by your firm’s risk or national office. They should evaluate the AI tool’s design, logic, and controls, and may require your vendor to share documentation, control reports, and allow independent testing. A great way to do this is by running the AI on historical data from past audits with known results. That helps confirm whether the AI delivers the same conclusions auditors already reached. Scenario analysis is another smart move. Challenge the AI with tricky edge cases like known fraud or anomalies. This can expose blind spots or bias in the model. Be sure to maintain a complete audit trail of how the tool was tested and what controls were in place. If any issues pop up during testing, document and resolve them. And before you roll it out firm-wide, get an independent review of the tool. Think of it like a second set of eyes, similar to a concurring partner review. Only once your firm is fully confident in the tool should it be used in your accounting processes. 2. Develop AI Governance Policies Strong policies lay the foundation for responsible AI use. These should outline your standards for data inputs, risk reviews, decision-making responsibilities, and transparency. Deloitte recommends a universal governance policy that applies to all AI technologies across the firm. This policy should define acceptable (and prohibited) use cases, require approval for new AI tools, and establish review intervals. Ethical usage also needs to be a priority. That means clear guidelines around privacy, bias, and legal compliance — with transparency as a core value. Internally and externally, stakeholders should understand when and how AI is being used in order to build trust in AI usage. To oversee this, consider forming a dedicated AI GRC (Governance, Risk, Compliance) team. Roles might include a Chief AI Risk Officer, Data Protection Manager, AI Project Manager, and an AI Governance Committee. Need help building your framework? Look to proven models like NIST AI RMF and ISO 42001. COSO’s recent guide Realize the Full Potential of AI shows how to extend COSO’s ERM framework to AI, and it’s a great place to start. 3. Implement Data Quality Controls AI tools are only as reliable as the data they process. The old adage “garbage in, garbage out” underscores the importance of data quality in AI-driven accounting. To minimize the risk of inaccurate or biased AI outputs, firms should implement data validation, cleansing, and standardization processes. High-quality data improves AI performance and supports more reliable audit conclusions. Protecting sensitive data is also crucial. Firms should limit access to confidential information using role-based access controls (RBAC) and multi-factor authentication (MFA). Audit logs tracking data access provide an added layer of oversight, helping firms monitor and secure critical information. Data lifecycle management is equally important. Retention and deletion policies should be in place to ensure outdated data does not become a liability. While GDPR is an EU regulation, it sets a high standard for data management and serves as a strong benchmark for firms looking to enhance their data governance practices
WASHINGTON, D.C.: Johnson Global is proud to announce our first charitable contribution in support of the daughters of the American Revolution (DAR) —a historic nonprofit organization founded in 1890 and dedicated to historic preservation, education, and patriotism. With over 130 years of tradition and more than one million members since its founding, the DAR continues to make a meaningful impact through local, national, and global initiatives. "We are honored to support an organization whose enduring mission aligns with our values and commitment to community" said Jackson Johnson, JGA President. "This partnership marks a significant milestone for Johnson Global Advisory as we expand our philanthropic efforts and invest in organizations creating lasting, positive change". "Thank you JGA for this impactful donation will allow our chapter to continue our mission" said Jill Mathieu, Regent of DAR. To explore more about the impact of DAR, visit: www.dar.org/discover About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
Johnson Global Advisory ("JGA") is proud to announce that Joe Lynch, Shareholder and Managing Director, will be speaking on a panel at the 40th Midyear SEC Reporting & FASB Forum . Joe will deliver the PCAOB update on June 6, with attendance available both in person and virtually. This panel will summarize the activities of the PCAOB including: • Understand the current regulatory landscape and emerging issues under new SEC leadership • Summarize rulemaking from the FASB’s technical agenda, including segment reporting and disaggregation of income statement expenses • Anticipate accounting and reporting issues incurred with income taxes, including ASU 2023-09 “Improvements to Income Tax Disclosures” • Identify changes from the FASB on accounting for financial instruments • Prepare for disclosure requirements on ESG and climate change, including the EU’s Corporate Sustainability Reporting Directive (CSRD), the requirements of California’s ESG disclosures legislation and the status of the SEC final rule • Recall recent developments and the most frequent comment areas in the SEC review process Click here to register and learn more. About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
On May 13th, 2025, the PCAOB held a QC 1000 workshop in Washington, DC, providing critical insights into the upcoming quality control standard. With the effective date of December 15th, 2025 , firms must proactively identify and manage quality risks by setting quality objectives, assessing risks, and implementing responses. Examples and case studies with breakout groups played a crucial role to help firms understand and apply each stage of the implementation process, from risk assessment to monitoring and remediation. Many attendees are still early in their understanding of the standard, highlighting the need for clear guidance and support. In a live poll, a significant portion of the workshop attendees indicated they have not yet started implementation. The inspection approach of QC 1000 has not been finalized. As such, they did not take any questions regarding how this would be inspected in its formative years. However, we did read between the lines from a different question around audit documentation, that it’s possible they may select components on a test basis during an inspection. Background of the Standard The QC 1000 standard emphasizes the integration of eight components: the risk assessment process, governance and leadership, ethics and independence, acceptance and continuance of engagements, engagement performance, resources, information & communication, and monitoring and remediation process. For more background information on QC 1000, please see these JGA resources: Applying the QC 1000 and Other Standards to Your Firm Understanding the Broader Benefits of ISQM 1 and SQMS 1 Applying the Benefits of ISQM 1 & SQMS 1 Across the Firm Key Topics from the Workshop Key terms such as applicable professional and legal requirements (APLR), firm personnel, other participants, and third-party providers were defined to clarify roles and responsibilities within the firm's QC system. The workshop included a walkthrough of Appendix A2 of the standard. The firm’s system must consider the APLRs that are applicable to the firm, which is unique to each firm. APLR is defined in the standard as: Professional standards, as defined in PCAOB Rule 1001(p)(vi); Rules of the PCAOB that are not professional standards; and To the extent related to the obligations and responsibilities of accountants or auditors in the conduct of engagements or in relation to the QC system, rules of the SEC, other provisions of U.S. federal securities law, ethics laws and regulations, and other applicable statutory, regulatory, and other legal requirements. It is important to be able to clearly identify the type of resource in your QC 1000 implementation journey. Paragraph .05 also discusses the terms firm personnel, other participants and third-party providers. These are defined in Appendix A.5 (firm personnel), A.7 (other participants) and A.13 (third -party providers). 1. Firm personnel include: EQR (inside the firm), Staff at shared service centers, secondees and leased staff, specialists employed by the firm. 2. Other participants include other auditors, EQR (outside the firm), internal auditors of the client that provide direct assistance to the auditors, specialists engaged by the firm, Networks, and external QC function. 3. Third-party providers include audit software providers, system security vendor, audit methodology provider, confirmation intermediary, pricing services, and broker-dealer monitoring systems. There are four distinct roles and responsibilities as described in paragraphs .11 -.17 of the QC standard. The first two roles are the certifiers of the Firm’s QC results: 1. The principal executive officer and 2. Individual responsible for the operational responsibility and accountability for the QC system as a whole. The principal executive officer (PEO) is ultimately responsible for the design, implementation, operation, and evaluation of the firm’s QC system. Only firm personnel are permitted to fill the roles required by QC 1000 . JGA Insights: 1. Not all “participants” of a firm’s structure must be included in a firm's quality control policies and procedures, which is especially important for shared service centers and outsourced staffing arrangements. These roles must be clearly defined and applied as the different levels of participants within an organization are considered differently by the standard. 2. PCAOB-registered firms of all sizes – regardless of whether the firm currently audits issuers – must adhere to these components, ensuring consistency with international quality control frameworks. 3. While it was expressed in the session by PCAOB Staff that firms are not expected to reengineer their process (e.g. more than 1 set of QC documentation), firms may need to align or “top-up” their processes with multiple standards to ensure comprehensive compliance. Keep in mind here that the top-up may not just be for QC 1000. In fact, a system in compliance with QC 1000 may need top-up considerations for SQMS 1 and/or ISQM 1. Risk Assessment Principles There were several examples and case studies to go through among table groups during the session. These activities helped illustrate the importance of getting risk assessment right, since this drives what the firm focuses on for an effective system. When it comes to implementing QC 1000, there are some key takeaways from the risk assessment process that can really guide firms in the right direction. JGA Insights: Here are a few important points to keep in mind as you work through identifying and assessing quality risks 1. The QC 1000 standard does not prescribe a specific method for identifying and assessing quality risks. This gives firms flexibility but also places responsibility on each firm individually based on their circumstances. It’s more work upfront from a “cookie-cutter” approach but ensures the design of a process that fits a firm’s unique context. 2. Quality risks should not be viewed as the opposite of quality objectives . Instead, they are factors that could potentially hinder the achievement of those objectives. 3. The threshold of “reasonable possibility of occurring” applies to all risks, including risks of intentional misconduct by firm personnel and other participants. This means that firms must consider the likelihood of risks occurring and their potential impact on the quality objectives. The PCAOB staff shared during the workshop that the concept of reasonably possible follows the same definition as used in FASB ASC Topic 450 on Contingencies. Ethics and Independence Considerations The QC 1000 standard does not alter existing ethics and independence requirements under PCAOB or SEC standards. Firms must continue to comply with those as currently written. Compared to other standards like ISQM 1 and SQMS 1, QC 1000 is more stringent in certain areas. For example, it requires: 1. Creating and maintaining a restricted entity list; 2. Periodic review of the list to ensure accuracy; 3. Appropriate certifications related to independence; and 4. Audit committee approvals where applicable. Register for the next workshop and get going on implementation To gain a deeper understanding of the QC 1000 standard and its implementation, we strongly encourage you to attend the PCAOB Smaller Firm Workshop on June 17, 2025, in Irving, Texas. This in-person-only session will provide valuable insights and practical guidance for firms navigating the new quality control standard. Register now to secure your spot. As always, reach out to your JGA Expert with any questions. About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporate solutions which navigate those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global is pleased to announce that Joe Lynch, JGA Managing Director will speak at the AICPA® & CIMA® ENGAGE+ 25 on May 15, 2025, and will be attending the full conference on June 9–12, 2025, at the ARIA Resort & Casino in Las Vegas, NV and live online. This CPE-eligible event is the premier annual event for accounting and finance professionals, bringing together thousands of peers, experts, and industry leaders for top-tier learning, networking, and career growth opportunities. Register by May 1, 2025, to take advantage of Early Bird rates— $1,995 for members ( regularly $2,095 ) and $2,445 for nonmembers ( regularly $2,545 ). *PCPS, Tax and PFP section members and CITP®, PFS™, CGMA® credential holders save an additional $150 . Discount reflected in section member/credential pricing during checkout. Register Today ! About Johnson Global Advisory Johnson Global partners with leadership of public accounting firms, driving change to achieve the highest level of audit quality. Led by former PCAOB and SEC staff, JGA professionals are passionate and practical in their support to firms in their audit quality journey. We accelerate the opportunities to improve quality through policies, practices, and controls throughout the firm. This innovative approach harnesses technology to transform audit quality. Our team is designed to maintain a close pulse on regulatory environments around the world and incorporates solutions which navigates those standards. JGA is committed to helping the profession in amplifying quality worldwide. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global Advisory (JGA) is proud to sponsor the Accountants' Liability Conference hosted by ALI-CLE. This two-day event will take place in Washington, D.C. and virtually on June 2nd and 3rd. This is an excellent opportunity to gain valuable insights into a wide range of critical issues. The 2025 conference will focus on audits and oversight, providing essential guidance to help you navigate the evolving landscape of regulatory compliance and better protect your firm and clients. “We are pleased to sponsor this conference for the last several years. This event brings together top law firms, internal counsel, and risk experts for dynamic discussions on trending topics such as accounting liability and other important issues affecting the profession,” said Jackson Johnson, JGA President. “I look forward to personally engaging with participants, presenters, and stakeholders at this conference.” This year’s program is still being finalized but planned topics include: Recent Trends in Accounting Litigation Living in a post- Jarkesy world The future of enforcement PCAOB inspection program update SEC perspectives on gatekeeper liability AI and emerging technologies in the accounting industry Accounting firms entering the legal space International firm considerations Alternative practice structures and AICPA independence rules Register by April 25 to attend in-person and use the code “ JGA ” to save $250 off . OR, for webcast attendance, use the code " JOHNSON " to save $125 off the tuition. Click here to register. About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff, JGA professionals are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global Advisory (JGA) makes third annual contribution to the Boys & Girls Club of Greater Kansas City. The 29th Annual Kids Night Out is scheduled for Saturday, April 26, 2025, and promises to be an unforgettable evening, bringing together over 1,500 guests to support the children served by Boys & Girls Clubs of Greater Kansas City. “We’re thrilled to continue our support for the Boys & Girls Club of Greater Kansas City. This marks our third year backing this chapter, and I know that many of our JGA employees have personally benefited from the programs the Boys & Girls Clubs offer nationwide,” said Jackson Johnson, JGA President. “Kids Night Out is Boys & Girls Clubs of Greater Kansas City’s biggest fundraiser each year– and all dollars raised stay right here in Kansas City”, said Andy Burczyk, Board Member and Chair of Kids Night Out. “This organization is doing extraordinary things, and it is because we as a community invest in their impact.” For over 100 years, Boys & Girls Clubs of Greater Kansas City has provided a safe, supportive environment for youth. Serving over 8,000 kids and teens annually across 11 locations, the organization helps young people achieve their full potential through programs that promote academic success, healthy lifestyles, and character development. Through mentoring and leadership training, they equip members with the skills needed for success now and in the To learn more information on the Boys & Girls Club of Greater Kansas City and their work with the youth, please visit www.bgc-gkc.org . About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff, as well as JGA professionals, are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.
WASHINGTON, D.C.: Johnson Global Advisory (JGA) is proud to provide a financial contribution to Sustainable Harvest International (“SHI”). SHI is a nonprofit helping Central American farmers adopt sustainable farming practices for over 27 years. Their mission is to address the destruction of tropical forests caused by slash-and-burn farming and logging. SHI’s mission benefits both current and future generations by equipping farmers with the knowledge to farm sustainably. “We’re proud to partner with Sustainable Harvest International in their important work,” said Jackson Johnson, JGA President. “This collaboration helps drive lasting, positive changes and by backing such vital organizations, we stay true to our mission of giving back and making a real difference. JGA’s philanthropic efforts focus on supporting organizations that are important to our people. I appreciate Vernon sharing his experience as a board member and we are grateful to work with him to amplify this organization.” Vernon Johnson, JGA Director, is a Board Member and Treasurer for SHI. He is actively involved in this organization. "My nonprofit work has helped me maintain perspective in both life and at work,” said Vernon. “It’s taught me to stay calm during challenges and focus on the bigger picture. This experience has improved my relationships and made me more resilient in stressful situations. My advice to busy professionals is to step back, appreciate the simple things, and not sweat the small stuff—being thankful and present can make a big difference." To learn more about SHI, visit www.sustainableharvest.org/donate . About Johnson Global Advisory JGA is dedicated to helping public accounting firms around the globe achieve the highest level of audit quality. All CPAs and former PCAOB inspection staff and JGA professionals are passionate and practical about working alongside firm leadership to ensure the right controls, policies, and practices are implemented throughout the organization. Visit www.johnson-global.com to learn more about Johnson Global.
