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Our capital markets evolve with the world around us, but our profession’s commitment to maintaining audit quality remains unchanged.

On November 21, 2024, the Public Company Accounting Oversight Board (PCAOB or Board) voted to adopt its Firm and Engagement Metrics and Firm Reporting rules (rules or new requirements) and send them to the Securities and Exchange Commission (Commission or SEC) for approval. The...

<p class="x_MsoNormal" data-olk-copy-source="MessageBody">On November 21, 2024, the Public Company Accounting Oversight Board (PCAOB or Board) voted to adopt its <i>Firm and Engagement Metrics </i>and <i>Firm Reporting</i> rules (rules or new requirements) and send them to the Securities and Exchange Commission (Commission or SEC) for approval. The Board adopted these rules despite concerns expressed by more than 70% and 85% of commenters. Given these concerns, we respectfully request the Commission consider the options it has to afford sufficient time for stakeholders to review the rules and participate in a robust comment process.</p>
<p class="x_MsoNormal">Read the full comment letter <a href="https://www.thecaq.org/wp-content/uploads/2024/11/caq-comment-letter_sec_firm-reporting_metrics_11.22.24.pdf">here</a>.</p>

CAQ Comment Letter to the SEC in Response to PCAOB’s Adoption of Final Rules

Auditors

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Comment Letter

Audit Quality

As part of the Center for Audit Quality’s (CAQ) ongoing effort to keep members and stakeholders informed on significant public policy and accounting matters, we are pleased to offer the Public Policy and Technical Alert (PPTA). Each month, the PPTA...

Public Policy and Technical Alert | October 2024

Newsletter

PPTA

Welcome to another edition of Capital Markets Pulse, a monthly newsletter from the Center for Audit Quality that brings you insights, resources, and tools on the latest issues impacting the capital markets

It’s a significant week in Washington as we are...

<img class="aligncenter wp-image-13866" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2023/06/Header_JBL_1200x400_600x200_FINAL_Website.png" alt="Capital Markets Pulse with Julie Bell Lindsay" width="650" height="163" />

<strong>Welcome to another edition of Capital Markets Pulse</strong>, a monthly newsletter from the Center for Audit Quality that brings you insights, resources, and tools on the latest issues impacting the capital markets

It’s a significant week in Washington as we are just a few days out from knowing the outcome of the US election (we hope). To that end, the CAQ recently released our annual Audit Partner Survey to better understand how businesses are preparing for the election and taking its potential impact into account in their business strategies. Read on for these results and other audit partner insights on the economy in 2025.

I also recently had a great conversation with Sam Ross, the Founder of AssuranceMark, the Investors Consortium for Assurance, on several topics, including the value of assurance in our markets. The perspectives we discussed on these topics were shared during an investor-auditor dialogue the CAQ hosts periodically with AssuranceMark on various topics of mutual interest to investors and public company auditors.

The past several weeks have featured many notable updates for the public company audit profession. On the regulatory front, the SEC approved a significant PCAOB standard on firm systems of quality control, while the IAASB approved its final standard on sustainability assurance. The PCAOB’s Investor Advisory Group (IAG) also held a public meeting, topics of which included private equity and accounting firm structures.

Finally, the AICPA announced a successor to Barry Melancon, the long-standing CEO of the AICPA. The CAQ has worked closely with Barry over the years on key issues impacting the public company audit profession. We’re grateful for his many years of service to the profession.

I am incredibly proud of the work the CAQ team does on behalf of public company audit firms and the capital markets. Read on for what’s on my radar.

<em>Please note that these perspectives are my own. If this email was forwarded to you, <a href="https://go.thecaq.org/l/834983/2020-04-22/fskb">subscribe here</a> so that you never miss a public company auditing update. </em> ​​​
<h2>CAQ Updates</h2>
<h3><strong>Latest Audit Partner Survey Reveals Recession Concerns, Labor Shifts </strong></h3>
The CAQ has released the results of our latest biannual audit partner survey, which provides independent and objective perspectives on a range of topics, including economic risks and business transformation. Going into 2025, a potential recession, ongoing inflation, and geopolitical instability are just some of the top concerns of audit partners and the companies they audit.

Below are a few key findings:

<strong>Partners Neutral on the Economy Despite Perceived Risks  </strong>
<ul>
 	<li>A potential recession is the largest economic risk factor audit partners foresee over the next 12 months, followed by regulations and geopolitical instability.</li>
 	<li>Despite the risks, audit partners' outlook for the US economy over the next 12 months is trending neutral.</li>
 	<li>Auditors are less positive about inflation, with the majority believing it will continue to impact businesses in their primary industry sector for the next six to 12 months.</li>
</ul>
<strong>Businesses are Concerned About Potential Election Impact </strong>
<ul>
 	<li>According to the audit partners, most businesses are concerned about the potential impact of the US election on their financial performance over the next 12 months (65%).</li>
 	<li>​​​​​Despite this, most public companies are not adjusting their business strategies and do not foresee direct disruptions to their business are a result of the election.</li>
</ul>
<strong>Labor Strategies Signal Mixed News for Workers  </strong>
<ul>
 	<li>Audit partners report a significant shift in labor priorities, with labor shortages dropping down considerably among their list of economic risks.</li>
 	<li>According to the audit partners, upskilling employees is the top human capital action they are observing among companies in their industry sectors (66%).</li>
 	<li>However, this is closely followed by reducing headcount (59%) and decreasing workplace flexibility (51%).</li>
</ul>
<strong>Technology Shifts in AI and Cryptocurrency  </strong>
<ul>
 	<li>The shift in labor strategies may be influenced by public companies' use of technology. According to the audit partners, process automation (62%), customer service (52%) and predictive analysis (34%) are all areas they see companies increasing their utilization of artificial intelligence (AI).</li>
 	<li>​​​​While the audit partners reported an increase in the use of AI, organizations appear to be losing interest in cryptocurrency, with most (83%) reporting that organizations in their industry sector have no exposure to it.</li>
</ul>
Download the report, <a href="https://www.thecaq.org/audit-partner-pulse-survey"><em>Fall 2024 CAQ Audit Partner Survey</em></a>, to access the full survey results.
<h3><strong>Accounting+ Launches “The Bottom Line” Podcast </strong></h3>
Accounting+ has launched a new podcast hosted by two college accounting students that features real-world accountants in conversation about everything students need to know to level up in their career journey. Tune in to the first two episodes:
<ul>
 	<li><strong><a href="https://www.joinaccountingplus.com/podcast">Episode 1: Intro to Accounting: Could it Be for Me?</a></strong>
<ul>
 	<li>In this episode, the hosts discuss the benefits, necessary skills, and common misconceptions about the accounting field.</li>
</ul>
</li>
 	<li><a href="https://www.joinaccountingplus.com/podcast"><strong>Episode 2: Accounting Skills to Uplift Your Community</strong></a>
<ul>
 	<li>In this episode, the hosts discuss how accounting skills play a critical role in supporting social impact and sustaining communities.</li>
</ul>
</li>
</ul>
<h3><strong>CAQ Attends EVERFI’s IMPACT Summit</strong></h3>
In September, the CAQ attended EVERFI from Blackbaud’s Impact Summit where our VP of Talent and Operations, Liz Barentzen, discussed with Ellen Patterson, EVERFI’s CEO, how in this ever-evolving global economy, fostering a diverse talent pipeline is crucial for innovation and progress.

<img class="aligncenter" src="https://go.thecaq.org/l/834983/2024-10-31/3np42w/834983/17303849315IF98S59/Ellen_and_Liz_1.jpeg" width="400" height="267" />

<strong>ICYMI: </strong>In September we issued our 2023-2024 School Year Impact Report. Highlights include:
<ul>
 	<li>During the 2023-2024 school year, Accounting Careers: Limitless Opportunities reached over 80,000 learners from all 50 states.</li>
 	<li>After the course, 70% of students said accounting skills are very or extremely valuable compared to 57% of students before the course.</li>
 	<li>Widespread adoption of the program by educators, with 5,600 educators incorporating program materials into their instruction.</li>
</ul>
Read the full report <a href="https://thecaq.wpenginepowered.com/wp-content/uploads/2024/09/CAQ-EVERFI-IMPACT-REPORT_FINAL_2024.pdf">here</a>.
<h3><strong>CAQ Observes Hispanic Heritage Month with KPMG’s Becky Sproul</strong></h3>
In a new Audit in Action blog, KPMG US’s Audit Talent and Culture Officer, Becky Sproul, shares how her background as a Cuban American has shaped who she is personally and professionally. She reflects on Hispanic Heritage Month as a time to celebrate the achievements and contributions of Hispanic and Latino Americans.

Read the blog: <a href="https://www.thecaq.org/celebrating-hispanic-heritage-month">Celebrating Hispanic Heritage Month: Embracing Diversity, Leadership and Community</a>.

&nbsp;

<img class="wp-image-14496 aligncenter" src="https://www.thecaq.org/wp-content/uploads/2024/02/Header_JBL_1200x400_600x200_PODCAST_V2.png" alt="" width="600" height="150" />
<h2>Discussing Investor Perspectives on the Value of Assurance, Audit Committee Oversight, and the Final SEC Climate Rule</h2>
In the latest episode of Capital Markets Pulse, I met with Sam Ross, Founder of AssuranceMark, the Investors Consortium for Assurance, to discuss investor perspectives and expectations regarding the value of assurance, audit committee oversight and disclosures, and the final SEC climate rule.

The following are a few highlights from Sam during our discussion:
<ul>
 	<li><strong>On a finding from the CAQ’s research describing assurance as an “outdated tool”: </strong>As you said, your survey found 43% of institutional investors said that this sentiment resonated with them. You asked if this aligned. No, it did not. Investors during the roundtable expressed surprise at the idea of the audit being outdated…there was acknowledgement that there has been audit failures over the years and there is more work to do on audit quality and financial statements generally. Those kinds of issues popping up in the press can degrade confidence.</li>
 	<li><strong>On skepticism about the value of assurance: </strong>What we heard is that auditors need to show they’re working effectively to address the weaknesses that have been exposed. They need to show that they can really get a handle on setting the right incentives to serve markets and they have to reduce deficiency rates and establish cultures that demonstrably challenge poor reporting, aggressive reporting, aggressive estimates, weak controls over the preparation of data investors use and other problems. They need to be seen as standing for transparency.</li>
 	<li><strong>On the role of the audit committee: </strong>The key here too is transparency. What I find very important about the audit committee is investors see them as the committee representing the company and its relationship with the capital markets and investors. Audit committees do have a role in overseeing financial management and overseeing the development of financial reporting. That’s critical to investors because that financial reporting is the communication to investors. But investors also see the audit committees’ role as building trust in overall communication to the capital markets…they want to see that the audit committee is on top of all the different risks and statements that the company makes on various topics throughout the year. They want to see that the audit committee therefore is championing high-quality audits.</li>
</ul>
Listen to the <a href="https://www.thecaq.org/podcast-capital-markets-pulse-episode-10">podcast here</a>.

Be sure to subscribe to the latest episodes on <a href="https://open.spotify.com/show/0Eom56jIKUbXXufaJ98yBX">Spotify</a>, <a href="https://podcasts.apple.com/us/podcast/capital-markets-pulse/id1690673211">Apple Podcasts</a>, <a href="https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5idXp6c3Byb3V0LmNvbS8yMTkyMjg2LnJzcw==">Google Podcasts</a>, or <a href="https://music.amazon.com/podcasts/a9d37ab7-2e09-4ce9-93a5-bc0399d25fae">Amazon Music</a>.

&nbsp;

<img class="aligncenter wp-image-13867" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2023/06/Header_JBL_1200x400_600x200_RADAR-1024x256.png" alt="On my radar" width="600" height="150" />
<h2>Profession Updates</h2>
<h3><strong>PCAOB’s September IAG Meeting Focuses on Audit Committee Engagement, Critical Audit Matters</strong></h3>
In late September, the PCAOB’s Investor Advisory Group (IAG) held <a href="https://www.thecaq.org/comment-letter-pcaob-fem-and-frp-supplemental-data-from-ac-members-and-investors">a day-long meeting</a> with several panels focused on areas of investor interest such as audit committee engagement, private equity and firm structure, cybersecurity and critical audit matters (CAMs).

The panel on audit committee and investor engagement specifically focused on company and audit committee responses to the PCAOB’s <a href="https://pcaobus.org/oversight/standards/standard-setting-research-projects/firm-and-engagement-metrics"><em>Firm and Engagement Metrics</em></a> proposal. Theo Bunting, a member of the CAQ’s Audit Committee Council, shared insights from the <a href="https://www.thecaq.org/comment-letter-pcaob-fem-and-frp-supplemental-data-from-ac-members-and-investors">CAQ’s research</a> on how investors and audit committees can better engage.

During the panel on critical audit matters (CAMs), which is on the PCAOB’s research agenda, the PCAOB cited <a href="https://www.thecaq.org/wp-content/uploads/2024/09/caq_cams-survey-research-findings-q3-survey_2024-07.pdf">CAQ research</a> demonstrating investor support for this information. Specifically, the survey found that ninety-two percent of investors said they use CAMs, while a combined 90% responded they are very or somewhat satisfied with the quality and clarity of CAMs.

The full event can be <a href="https://pcaobus.org/news-events/events/event-details/pcaob-investor-advisory-group-meeting-september-2024">watched here</a>.
<h3><strong>SEC Approves Quality Control Standard</strong></h3>
The SEC recently <a href="https://www.sec.gov/newsroom/press-releases/2024-119">approved</a> the PCAOB’s QC 1000, <em>A Firm’s System of Quality Control</em>. The standard modernizes the existing standard and will require all PCAOB-registered public accounting firms to identify specific risks to audit quality and design a quality control system that includes appropriate responses to guard against those risks.  The standard was supported by SEC Commissioners, including <a href="https://www.sec.gov/newsroom/speeches-statements/gensler-statement-qc1000-090924">Chair Gary Gensler </a>and Commissioners <a href="https://www.sec.gov/newsroom/speeches-statements/lizarraga-statement-qc1000-090924">Jaime Lizárraga</a> and <a href="https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-qc1000-090924">Caroline Crenshaw</a>, who all highlighted how the adoption of QC 1000 will help audit firms design and implement more effective systems. The other commissioners, <a href="https://www.sec.gov/newsroom/speeches-statements/peirce-statement-qc1000-090924">Hester Peirce</a> and <a href="https://www.sec.gov/newsroom/speeches-statements/uyeda-statement-qc1000-090924">Mark Uyeda</a>, did not support adoption, both expressing concerns that more feedback and engagement were needed prior to adopting a final standard.

PCAOB Chair Erica Williams <a href="https://pcaobus.org/news-events/news-releases/news-release-detail/chair-williams-statement-on-sec-approval-of-new-pcaob-quality-control-standard">expressed her gratitude</a> to the PCAOB for adopting the standard, stating, “the new standard represents a major step forward for the Board’s strategic goal to modernize standards, given that the PCAOB’s current QC standards were developed and issued by the accounting profession before the PCAOB was established in 2002.”

Leading up to the SEC’s approval, the CAQ encouraged the PCAOB to move forward expeditiously with updating the US quality control standard to, in part, bring it up to date with the international standard. However, in our <a href="https://www.thecaq.org/comment-letter-sec-qc-1000-a-firms-system-of-quality-control-and-other-amendments-to-pcaob-standards-rules-and-forms">comment letter</a> to the SEC we expressed specific concerns about the External Quality Control Function (EQCF) aspect of the PCAOB’s final standard. QC 1000 will take effect on Dec. 15, 2025.
<h3><strong>IAASB Approves Sustainability Assurance Standard</strong></h3>
In September, the IAASB approved International Standard on Sustainability Assurance 5000, <em>General Requirements for Sustainability Assurance Engagements</em>. The standard will replace ISAE 3000 (Revised), currently <a href="https://www.journalofaccountancy.com/news/2023/dec/aicpa-comments-on-proposed-standard-sustainability-assurance.html">used by 99% </a>of the world’s largest audit firms, as the global framework for providing assurance of sustainability disclosures.

The standard-setting body expects to "share final language before the end of the month and formally publish by the end of the year".

Remaining on the IAASB’s agenda in the near term is finalizing its fraud and going concern standards – also both on the PCAOB’s standard setting agenda.
<h3><strong>Firms Announce Support for Alternative Pathways to CPA Licensure</strong></h3>
Over the past month, several firms, including KPMG, EY, PwC and Deloitte have indicated their support for alternative pathways to CPA licensure, including a 120-credit hour alternative (with two years of experience) and “automatic” mobility. KPMG’s CEO, Paul Knopp, <a href="https://www.ft.com/content/3f1db452-afaa-465e-beb0-666045f8e73e">said of the decision</a>, “I can’t over-emphasize, it’s not just the Big Four. We need more accountants in corporations and outside of the Big Four. The industry that we are in is systemically important to the functioning of the capital markets.”

<a href="https://www.thecaq.org/increasing-diversity-in-the-accounting-profession-pipeline">CAQ research</a> demonstrates that the existing licensure model is a barrier to students in pursuing a career in accounting, particularly for students of color. We are pleased to see public company audit firms’ and other stakeholders, <a href="https://www.journalofaccountancy.com/news/2024/jul/pipeline-plan-of-action-read-the-accounting-talent-strategy-report.html">including the AICPA</a>, exploring avenues that can make the profession more attainable for students.
<h3><strong>AICPA Announces Barry Melancon’s Successor </strong></h3>
The AICPA recently <a href="https://www.journalofaccountancy.com/news/2024/oct/mark-koziel-to-become-ceo-of-the-association-of-international-certified-professional-accountants.html#:~:text=The%20appointment%20comes%20after%20a,2025%2C%20after%20a%20transition%20period.">announced</a> that Mark Koziel, CPA, CGMA, will helm AICPA &amp; CIMA as the CEO starting January 1, 2025. Mark will be the successor to Barry Melancon, CPA, CGMA, the longest-serving CEO in AICPA history.

&nbsp;

<hr />

<h3 style="text-align: center;">Julie Bell Lindsay</h3>
<p style="text-align: center;"><em>Chief Executive Officer, CAQ</em></p>

Capital Markets Pulse | October 2024

Investors

Auditor Independence

Company Management

The Center for Audit Quality’s (CAQ) Audit Partner Pulse Survey, now in its third year, asked audit partners at the country’s leading public company audit firms about their views on the current business environment in the United States. Topics covered...

Audit Partner Pulse Survey

Publications

Washington DC, October 30, 2024 – Going into 2025, a potential recession, ongoing inflation, and geopolitical instability are just some of the top concerns of audit partners and the companies they audit, according to the Center for Audit Quality’s (CAQ)...

<strong>Washington DC, October 30, 2024</strong> – Going into 2025, a potential recession, ongoing inflation, and geopolitical instability are just some of the top concerns of audit partners and the companies they audit, according to the Center for Audit Quality’s (CAQ) most recent Audit Partner Pulse survey. The Audit Partner survey provides independent and objective perspectives on a range of topics, including economic risks and business transformation.

“Public company auditors are in every public company, of every size, in every industry, in the U.S.,” said Julie Bell Lindsay, Chief Executive Officer, CAQ. “This breadth and depth provides public company audit partners with unique insights into how America’s businesses operate.”

Below are key findings from their observations.

<strong>Partners Neutral on the Economy Despite Perceived Risks </strong>
<ul>
 	<li>A potential recession is the largest economic risk factor audit partners foresee over the next 12 months, followed by regulations and geopolitical instability.</li>
 	<li>Despite the risks, audit partners' outlook for the U.S. economy over the next 12 months is trending neutral.</li>
 	<li>Auditors are less positive about inflation, with the majority believing it will continue to impact businesses in their primary industry sector for the next six to 12 months.</li>
</ul>
<strong>Businesses are Concerned for the U.S. Election </strong>
<ul>
 	<li>According to the audit partners, most businesses are concerned about the potential impact of the U.S. election on their financial performance over the next 12 months (65%).</li>
 	<li>Despite this, most public companies are not adjusting their business strategies and do not foresee direct disruptions to their business are a result of the election.</li>
</ul>
<strong>Labor Strategies Signal Mixed News for Workers </strong>
<ul>
 	<li>Audit partners report a significant shift in labor priorities, with labor shortages dropping down considerably among their list of economic risks.</li>
 	<li>According to the audit partners, upskilling employees is the top human capital action they are observing among companies in their industry sectors (66%).</li>
 	<li>However, this is closely followed by reducing headcount (59%) and decreasing workplace flexibility (51%).</li>
</ul>
<strong>Technology Shifts in AI and Cryptocurrency:  </strong>
<ul>
 	<li>The shift in labor strategies may be influenced by public companies' use of technology. According to the audit partners, process automation (62%), customer service (52%) and predictive analysis (34%) are all areas they see companies increasing their utilization of artificial intelligence (AI).</li>
 	<li>While the audit partners reported an increase in the use of AI, organizations appear to be losing interest in cryptocurrency, with most (83%) reporting that organizations in their industry sector have no exposure to it.</li>
</ul>
Download the report, <a href="http://www.thecaq.org/audit-partner-pulse-survey"><em>Fall 2024 CAQ Audit Partner Survey</em></a>, to access the full survey results.

<strong>About the Center for Audit Quality</strong>

The CAQ champions the public interest in the capital markets by:
<ul>
 	<li>Elevating the quality, credibility, and transparency of public company audits;</li>
 	<li>Advancing critical issues affecting public company audits;</li>
 	<li>Driving innovation in assurance; and</li>
 	<li>Providing a collaborative forum for capital market stakeholders to address evolving needs and challenges.</li>
 	<li>As the voice of the public company audit profession, we work to instill trust in corporate reporting and the integrity of the auditing process, ultimately empowering investors, companies, and society as a whole.</li>
</ul>
<strong>Contact:</strong>

Brad Jacklin

Director of Communications

Bjacklin@thecaq.org

(202) 494-9560

Audit Partners’ 2025 Economic Outlook Highlights Recession, U.S. Election Concerns

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Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

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Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

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