Are Your Compliance Processes Keeping Up with Evolving Audit Requirements?

Discover how SAP solutions lay a solid foundation for audits and next level PCAOB or AICPA compliance reviews.

For any public company, the goal of successfully complying with periodic financial reviews by external auditors cannot be overstated. While passing each audit is a critically important milestone, companies also should understand that it is only one aspect of ensuring their financial transparency and integrity. 

This post provides a deeper look into the organizations that are overseeing your auditors and provides key insights into how your financial, compliance and reporting processes need to be robust enough to satisfy these "audit the auditors" reviews. 

Overview of the PCAOB and AICPA

The Public Company Accounting Oversight Board (PCAOB) is a regulatory body established by the Sarbanes-Oxley Act of 2002 in response to corporate accounting scandals like Enron and WorldCom. Its primary role is to oversee and regulate the auditing of public companies to protect investors' interests and ensure the integrity of financial reporting. 

Key responsibilities of the PCAOB include:

• Setting Standards: The PCAOB establishes and enforces auditing, attestation, quality control, and ethics standards for registered public accounting firms.
• Inspections: It conducts regular inspections of registered public accounting firms to assess compliance with PCAOB standards and applicable laws and regulations.
• Enforcement: The PCAOB has the authority to discipline accounting firms and individuals for violations of PCAOB rules and securities laws.
• Standard-Setting: It plays a role in setting and updating auditing standards to enhance the quality of audits and financial reporting.
• Investor Protection: Ultimately, the PCAOB's mission is to protect investors by promoting informative, accurate, and independent audit reports.

The American Institute of Certified Public Accountants (AICPA) is another significant organization in the accounting profession, but it operates differently from the PCAOB. Here's an overview of the AICPA's role and functions:

• Professional Standards Setting: The AICPA is responsible for developing and updating professional standards for certified public accountants (CPAs) in the United States, including auditing, attestation, accounting, and ethics. 
• Certification and Credentialing: The AICPA administers the Uniform CPA Examination, which individuals must pass to become licensed CPAs, and offers credentials such as the Certified Management Accountant (CMA) and Personal Financial Specialist (PFS), to recognize specialized expertise.
• Advocacy and Representation: The AICPA represents the interests of its members and the accounting profession as a whole in legislative and regulatory matters. It advocates for policies that promote the integrity and transparency of financial reporting and supports initiatives aimed at enhancing the profession's reputation and effectiveness.
• Continuing Professional Education: The AICPA provides educational resources and programs to help accounting professionals maintain and enhance their skills and knowledge throughout their careers. 
• Quality Control and Peer Review: The AICPA promotes quality control within the accounting profession through initiatives such as the Peer Review Program to ensure compliance with professional standards and regulatory requirements.
• Research and Thought Leadership: The AICPA conducts research and publishes reports on emerging trends, best practices, and thought leadership topics relevant to the accounting profession. 

The PCAOB and AICPA essentially interpret and enforce accounting rules as promulgated by the Financial Accounting Standards Board (FASB), which is responsible for establishing and improving accounting standards for financial reporting in the United States. FASB's role and functions include:

• Standard-Setting: The primary responsibility of the FASB is to develop and update Generally Accepted Accounting Principles (GAAP), which serve as the foundation for financial reporting by public and private companies, non-profit organizations, and government entities in the U.S.
• Due Process: The FASB follows a rigorous due process procedure to develop accounting standards, which includes conducting research, soliciting input from stakeholders, issuing exposure drafts for public comment, and deliberating on feedback received before finalizing standards.
• Continual Improvement: The FASB continuously monitors developments in financial reporting, including changes in business practices, economic conditions, and regulatory requirements, to identify areas where accounting standards may need to be updated or improved.
• Education and Outreach: The FASB provides educational resources and conducts outreach activities to enhance understanding and implementation of accounting standards.
• Convergence and International Collaboration: The FASB works closely with other standard-setting bodies, such as the International Accounting Standards Board (IASB), to promote convergence of accounting standards and enhance consistency and comparability of financial reporting globally.

Why Should You Care?

Even though the PCAOB and AICPA do not directly audit your company, their review of your frontline auditors' practices and methodologies can have a pass-through impact by surfacing deficiencies in your company's processes. The real world impacts can range from a need to provide more information, to restating previous period reports, or in a worst case, undergoing public investigations and reputation-busting scrutiny.

Another key reason you should pay attention to activities at the PCAOB and AICPA is to stay abreast of potential future decisions that could impact your systems and processes for tracking, collecting, analyzing and reporting key financial data. 

For example, two recent PCAOB proposals would require audit firms to report new metrics and information to the federal board that oversees audits of public companies. The Firm and Engagement Metrics proposal requires PCAOB-registered public accounting firms to publicly report specified metrics relating to their audit practice. The Firm Reporting would amend the PCAOB's annual and special reporting requirements to facilitate the disclosure of more complete, standardized, and timely information.

Also, in December 2023, the Securities and Exchange Commission approved a new PCAOB standard tightening the requirements for auditors when confirming details of an audit, including verifying assertions made by a client in a financial statement.

While these and other ongoing changes may not directly impact your company's audits, whenever your auditors need to collect and analyze information in a more detailed or different manner, it will impact your internal processes.

What Should You Be Doing Now?

Unfortunately, without a magic crystal ball, you can't accurately predict what new process changes may be required by future PCAOB or AICPA mandates.  However, you can "buy some insurance" by investing now in robust financial and ERP systems that unify all of your frontline transaction data with your backend management, reconciliation, and compliance reporting systems so that you build in end-to-end visibility and agility for adapting efficiently to new requirements.

As a leader in implementing SAP-based finance, ERP, compliance, and operational solutions for nearly three decades, Bramasol has broad and deep experience dealing with the overarching business accounting imperatives and the detailed system designs to assure operational efficiency and reporting excellence.

For example, since our decision a decade ago to focus on becoming the leading partner for delivering SAP revenue recognition solutions, Bramasol has established a reputation as the most trusted RevRec specialist in the SAP ecosystem. In recent years, our specialization in SAP Quote-to-Cash solutions provides a unique approach for integrating both frontend customer-facing processes and backend compliance processes within a unified system that can adapt and scale to virtually any requirements.

Along with SAP's ongoing shift to cloud services, the Bramasol team is also at the forefront of implementing SAP GROW and RISE initiatives that are providing visibility and agility needed to track with changes across the entire spectrum of dynamically evolving markets, business goals, and adaptability for handling new accounting and audit requirements. In addition, we've been closely involved with latest rollout of SAP GROW add-on packages for compliance automation, digital banking, treasury management, and revenue operations.

The Bottom Line

We all know that external audits are a fact of life but it's also important to remember that change is inevitable too. By keeping a close eye on happenings and proposals at the PCAOB,  AICPA, and FASB, we can at least gain valuable insights into what changes are coming, as well as when and how they could impact external audit processes.  Just as importantly, we should always strive to design and implement financial management, compliance and reporting processes that have unified architectures and the agility to adapt as audit requirements continue to evolve.