PCAOB auditing standards and change management

Since its creation in 2002, the Public Company Accounting Oversight Board (PCAOB) has regulated and monitored accounting firms’ audits of public companies to protect the investing public. In recent months, the PCAOB has shown it’s willing to be aggressive in its inspections, findings reports, and issuance of fines for firms that still use inadequate independence-related processes — especially as it relates to monitoring their professionals’ financial interests.

The newly proposed quality control standard (QC 1000) mandates that certain accounting firms implement an automated financial interest independence solution. This mandate is causing firms to ponder the optimal response.

Firms know that if they’re unable to meet the updated PCAOB auditing standards, the PCAOB will take regulatory actions against them or even specific people within the firms. A firm’s reputation may also suffer, as the PCOAB is showing a willingness to make these findings more public than in previous years.

But implementing an industry-grade financial interest tool may seem like a daunting task for firms, especially as relates to change management. Unless a firm’s professionals understand the need for new technology and/or processes, it’s unlikely that they’ll embrace and successfully adopt these changes

In this article, we’ll explore how firms can address change management with the right financial interest independence solution.

Embrace a risk-based approach to auditing

Historically, accounting firms have often used the same evaluation process for all new business, regardless of the varying risk levels that each new business posed to the firm. For example, a firm would run the same risk assessment process on a low-value recurring piece of tax compliance work as it would on a high-value audit of a new client with a complex corporate tree.

However, using a “one-size-fits-all” or “checklist” method for accepting new business often leads to firms missing threats to independence and other types of risk.

The PCOAB frowns upon this “checklist” method and has consistently promoted a risk-based approach. Risk-based business acceptance is designed to distinguish high-risk from low-risk business and treat each new piece of business according to the risk level it poses to the firm, as opposed to treating all new business with the same process.

The PCAOB not only recommends that firms embrace this type of risk-based business acceptance and auditing methodology, but it uses this method itself.  The PCAOB conducts a portion of its inspections based on a firm’s potential weak areas, such as new industries. For example, if a firm recently began auditing cryptocurrency companies, the PCAOB may ask to inspect a batch of crypto-related audits. The PCAOB recognizes these specific audits are likely rife with several, albeit unintentional, errors that need to be reviewed and addressed.

Replace manual processes and outdated technology

To successfully and efficiently conduct risk-based audits and meet the high quality-control standards of the PCAOB, accounting firms must give up their old manual processes and invest in automated technology. But for many firms, making this change is easier said than done.

Firms unfamiliar with the risk assessment systems available on the market may consider building a system themselves. But building a system from scratch can take a considerable amount of time and money. It also takes additional resources to maintain and update the system once it’s built.   

Many firm leaders also worry that the training period for a new system will take up too much of their professionals’ and partners’ time and greatly disrupt productivity and their focus on billable work. And, not wanting to take on any additional large projects during the “busy season,” accounting firms have a limited window of time to implement new systems.

Furthermore, once implementation is complete, firms need to sure that the solution will deliver the value that was promised. For these and many other reasons, accounting firms are often reluctant to give up their present, familiar processes  — even if they aren’t the most effective.

To minimize change management, accounting firms should invest in risk technology that offers both advanced features and a modern, intuitive user interface (UI). A friendly UI makes it easier for new users to learn and use the tool, increasing the likelihood of a quick and successful rollout. Users can then take full advantage of built-in features, such as workflow automation, to speed up their processes and conduct risk processes more efficiently than before.

At the same time, firms should also be able to adjust their tools to meet any specific and unique needs they may have. So, it’s important to invest in a highly configurable solution — especially as PCAOB auditing standards continue to increase in volume and complexity.

Leverage a purpose-built tool

Accounting firms looking for advanced, purpose-built risk software can turn to Intapp Employee Compliance. This modern software solution is designed with accounting firms in mind, and helps them streamline personal independence processes and meet PCAOB auditing standards.

Intapp Employee Compliance is an automated system that enforces policy compliance, simplifies disclosure of financial activities, and streamlines trade pre-clearance. Your firm can configure the system to meet your firm’s specific needs and policies, including restricted lists and workflows. The software also automatically tracks progress and alerts users if any action is required. Compliance users and firm leadership can leverage personalized reports by filtering and configuring data as needed.

With Intapp Employee Compliance, your professionals can easily review, update, and complete documentation and audit compliance decisions and actions. Using this single tool, your firm can save time, increase accuracy, and simplify compliance.

Schedule a demo to learn more about Intapp Employee Compliance and how it can help your accounting firm conduct compliant audits.