Integra International Audit & Accounting Alert Newsletter | February 2025 | Issue 2
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Integra International - Audit & Accounting Alert
ISSUE 2 | FEBRUARY 2025

At-A-Glance

Last month, the Audit & Accounting Alert covered the new rules that the Public Accounting Oversight Board (PCAOB) issued, describing substantial specific information that auditors will need to provide concerning the operation of their audit practices on a firmwide and engagement level basis. Continuing coverage of the PCAOB, this edition of the Audit & Accounting Alert highlights a new resource designed to enhance support offered to smaller accounting firms that audit public companies. Also, with the new United States Presidential Administration, changes could be in store for the future of the PCAOB.

Also, our Worldwide Update covers news from organizations across the globe.
Gerry Herter
Gerald Herter - Editor

PCAOB Turns Attention to Smaller Firms

New resource offers specific guidance

The number of publicly traded companies in the United States today is only about half the number that existed when the Public Company Accounting Oversight Board (PCAOB) was formed twenty-three years ago. According to the PCAOB, more than 3,200 of those companies are audited by accounting firms that each audit 100 or fewer of them. For these accounting firms, which number over 500, the PCAOB has issued a new resource, a dedicated website page, Information for Smaller Firms.

This resource is organized into three areas:

1. Forum

2. Adopting standards and rules designed to be scalable

3. Audit Focus

The forums are an opportunity for the PCAOB to provide updates on activities and to receive direct feedback from the smaller accounting firms.

The scalability of standards and rules allows flexibility for smaller firms with regard to the timing and document requirements in a manner that is feasible for the level of resources available to them.

Audit Focus is a series of aids that assist the smaller firms in complying with the standards and rules. Three areas are currently addressed:

1. Journal Entries

2. Critical Audit Matters

3. Audit Committee Communications

Each of the aids opens with the notice that the PCAOB is still finding a lot of shortcomings in the auditors’ work. The procedures for determining, examining, documenting, and communicating within the audit process are found to be wanting. The applicable PCAOB standards are referenced and discussed. Then common deficiencies are pointed out, with reminders of the auditor’s responsibilities, followed by a description of good practices. Here are summaries of the deficiencies and recommended practices.

Journal Entries

Common Deficiencies:

1. Not obtaining an understanding of the financial reporting process and controls

2. Not identifying and selecting journal entries and other adjustments for testing

3. Not testing the completeness of the population

4. Not testing any of the journal entries that met the auditor’s criteria for fraud potential

Good Practices:

1. Use of an IT specialist or person(s) with specialized skill or knowledge of IT

2. Guidance with examples

3. Training

4. Journal entry practice aids

5. Structured templates

6. Review programs

7. Software audit tools

Critical Audit Matters

Common Deficiencies:

1. Not analyzing, as part of the determination of potential CAMs, all matters communicated to the audit committee

2. Not performing any procedures to determine the presence of CAMs in the audit

3. Not accurately describing how CAMs were addressed

4. Not taking into account certain required factors

5. Not including a description of principal considerations

Good Practices:

1. Use of practice aids

2. Audit firm guidance, training, and tips

3. Involvement of other firm personnel

Audit Committee Communications

Common Deficiencies:

Not providing the audit committee with:

1. Copies of the management representation letter

2. The overall audit strategy, including the names, locations, and planned responsibilities

3. All significant deficiencies and material weaknesses

4. The schedule of corrected misstatements

5. All critical accounting policies and practices used by the public company

6. The auditor’s evaluation of the public company’s identification of, accounting for, and disclosure of related parties

Good Practices:

1. Structured templates

2. Disclosure of other participants in the audit

3. Guidance and training

Finally, with the new United States Presidential Administration, there could be changes in the future for the PCAOB. The new Department of Governmental Efficiency (DOGE) is busily trimming down and eliminating various governmental agencies. A possibility would be to roll up the PCAOB into the Securities and Exchange Commission (SEC), if not eliminate it all together. Stay  tuned.

Further details can be found at  Information for Smaller Firms.

Worldwide Update

Periodic roundup of recent and upcoming actions and activities by auditing and accounting organizations throughout the world.

International

IASB – International Accounting Standards Board (www.ifrs.org)

  • Applying IFRS S1 when reporting only climate-related disclosures in accordance with IFRS S2, guidance issued January 30, 2025, “to help companies understand how to report only climate-related information when applicable using International Sustainability Standards Board (ISSB) Standards.”

IFAC – International Federation of Accountants (www.ifac.org) 

  • No new developments.

IFR4NPO - International Financial Reporting for Non-Profit Organisations (www.ifr4npo.org)

  • No new developments.

IOSCO – International Organization of Securities Commissions (www.iosco.org)

  • No new developments.

ACCA – Association of Chartered Certified Accountants (www.accaglobal.com)

  • No new developments.

Africa, Europe, India and the Middle East (AEIME)

FRC – Financial Reporting Council of the UK (www.frc.org.uk)

  • No new developments.

ICAEW - Institute of Chartered Accountants in England and Wales (https://www.icaew.com/)

  • No new developments.

EC – European Commission (https://ec.europa.eu/)

  • No new developments.

EFRAG – European Financial Reporting Advisory Group (www.efrag.org)

  • No new developments.

Americas, Asia, Australia and New Zealand (AAANZ)

AICPA & CIMA – American Institute of Certified Public Accountants (www.aicpa.org)

  • No new developments.

FASB – Financial Accounting Standards Board (www.fasb.org)

  • Exposure Draft - Codification Improvements, Proposed Accounting Standards Update Issued: January 22, 2025, “a standing project to address suggestions received from stakeholders on the Accounting Standards Codification and to make other incremental improvements to generally accepted accounting principles (GAAP).” Comments Due: April 22, 2025. 

GASB – Governmental Accounting Standards Board (www.gasb.org)

  • No new developments.

COSO - The Committee of Sponsoring Organizations of the Treadway Commission (www.coso.org)

  • No new developments.

PCAOB – Public Company Accounting Oversight Board (www.pcaob.org)

  • Considerations for Audit Firms Using the Work of Specialists, spotlight report published February 4, 2025, “highlights recent staff observations that are designed to help audit firms ensure appropriate procedures are performed when using the work of a specialist.”
  • Information for Smaller Firms – See article in this edition.

SASB – Sustainability Accounting Standards Board (www.sasb.org)

  • No new developments

SEC – Securities and Exchange Commission (www.sec.gov)

  • No new developments

Additional A&A News
Audit & Accounting Alert is a publication of Integra International intended to highlight emerging issues in the profession.  The goal is to give Integra members an awareness of developments impacting the practice of Audit & Accounting enabling them to stay on the forefront of industry trends.This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.  Please refer to your advisors for specific advice.
Editor Gerald E. Herter

 

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