Consultations and Differences of Opinion

Nine months ago, we warned that two new sets of quality control and management standards were coming due on December 15, 2025 and strongly advised public accounting firms not to wait until the last minute to begin implementing them. Well, it’s now the last minute. With just six months left until the the American Institute of Certified Public Accountants’ (AICPA) new Statements on Quality Management Standards (SQMS) and the Public Company Accounting Oversight Board’s (PCAOB) new QC 1000 quality control standards go into force, there’s no time left to delay or procrastinate. Here’s a short overview of each set of standards and what’s necessary, but you can find our full blog for the AICPA’s new SQMS here , and the PCAOB’s new QC 1000 standards here . Both will require extensive effort to come into compliance. The AICPA’s SQMS The SQMS are what we here at Collemi Consulting & Advisory Services like to call the “thinking standards.” This means you really have to think it through and customize it for your attest practice, based on the type of clients you have and the services you provide, as the SQMS now takes an entirely new, risk-based approach to quality. There are now eight SQMS components, including two completely new ones: Risk Control, and Information and Communication. The new risk assessment process requires firms to establish specific quality objectives, meaning they must “identify and assess quality risks, and then they must design and implement responses to those risks that are tailored to the firm’s unique circumstances.” Information and communication requires the establishment of processes that support the SQMS, including reliable internal and external sources of information. It also mandates the creation of a culture that supports and reinforces the responsibility for sharing information with colleagues and the firm. All of the six other quality objectives have new requirements as well: ● Governance and leadership ● Relevant ethical requirements ● Acceptance and continuance of client relationships and specific engagements ● Engagement performance ● Resources (formerly Human Resources) ● Monitoring Firms have three responsibilities between now and December 15: 1) Continue using the extant standard (Statement of Quality Control Standard (SQCS) No. 8 (Redrafted) 2) Perform the risk assessment and gap analysis, and then design and implement the new standards. 3) Consult with your peer reviewer before final implementation Firms then have until Dec. 15, 2026 to carry out an annual evaluation of their new quality management system. The PCAOB’s New QC 1000 Standards The PCAOB’s new QC 1000 standard is intended to make independent registered public accounting firms who audit issuers (public companies) and broker-dealers significantly improve their quality control (QC) systems. It applies to all PCAOB-registered member firms. Those that audit more than 100 issuer clients annually have more extensive requirements to contend with. The new standard enables firms to identify their specific risks and design a quality control system, including policies and procedures to guard against those risks. The goal is to create what the PCAOB refers to as a “a continuous feedback-loop for improvement.” QC 1000 has quality control requirements that do not appear in other QC standards. They tend to be more prescriptive and more tailored to the U.S. legal and regulatory systems. There are 10 areas in which the QC 1000 goes beyond what can be found in other existing standards. These are: ● Evaluation and Reporting ● Governance and Leadership ● Ethics and Independence ● Monitoring and Remediation ● Quality Objectives ● Information and communications ● Resources ● Risk Assessment Processes ● Roles and Responsibilities ● Documentation That’s not even an exhaustive list, and it’s coming into effect at the same time as the AICPA’s SQMS. Our recommendation is to make two completely separate documents rather than trying to roll it all into one giant document. It’ll be too confusing, especially for people who might not have to audit both public companies, broker-dealers and private companies. We also advise you to appoint a separate champion within the firm for each of the two different sets of standards. Otherwise it just gets too complex. Like we said, time is running out. It’s time to get it done or get help doing it. Collemi Consulting leverages over three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101. 

Being an active listener takes a lot more than just paying attention. It requires understanding the other person, and then conveying that you understand them, are interested in what they are saying and are engaged in the conversation. There’s never been a more important time to be an active listener. With the post-COVID world making remote work conversations a daily occurrence, it’s harder than ever to make — or pick up on — subtle clues that your partner in the conversation is making. As a leader, it’s vital to make sure your reports feel listened to and your clients feel their needs and concerns are being heard. If they don’t they’ll stop sharing information with you — or stop working with you. Participants in a conversation have two goals. The first is to understand what the person is saying, both in terms of the content and the emotion behind it. The second is to convey interest and engagement in what they are saying. As a general rule of thumb, as an active listener you’ll want to spend 80% of the conversation listening and 20% talking. Active listening has three components. The first is paying attention to what is being said and comprehending it. The second is to stay calm and engaged during the conversation, not letting emotional responses break up the flow. The third is conveying that you are interested in what the speaker has to say and understand it, both verbally and non-verbally. Perhaps the most obvious — and possibly the hardest — rule is to actually stay focused on the conversation: Don’t multitask and don’t put yourself in a position to be interrupted or distracted. Here are six tips that will help you become a better listener: A simple but important technique is to repeat people’s last few words back to them. It makes people feel listened to and keeps the conversation on track while giving the speaker and listener a pause to regroup and collect their thoughts. At the same time, avoid interrupting the speaker. Keep your break-ins natural and brief. Don’t try to immediately fill a void while the speaker is collecting their thoughts. Putting what has been said in your own words shows comprehension. Paraphrasing is an effective way of being sure you actually understand what they are saying, and makes clear to the speaker that you are paying attention. Non-verbal clues are vital, both giving and receiving. As the listener you want to nod, use a facial expression, make and maintain eye contact, and use open body language to convey that you are interested in what is being said. At the same time, pay attention to the unspoken part of the conversation. Look for body language and tone of voice to see what the motivation is and what emotions are behind it. Ask questions. Then ask more questions. This not only conveys that you are listening and comprehending, it helps ensure that you actually are understanding what’s being said. Try not to ask questions with a simple yes or no answer as that can break the conversation’s flow. Instead ask open-ended questions like “can you tell me more about that?” or “what do you think is the best path moving forward?” Don’t be judgemental, display emotion or interrupt with counter-arguments, which can be frustrating to the speaker. Let them finish. Be open to new ideas. Becoming a good active listener takes time and practice, but you’ll find the benefits are worth the effort. Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies. To schedule an appointment, contact us at (732) 792-6101.

The wave of mergers and acquisitions in the accounting industry over the past five years or so shows no sign of abating as small and mid-size public accounting firms seek to gain the size that lets them invest in new technology and recruitment, and gain other advantages of economies of scale. While there are lots of arguments to be made in favor of joining forces with other CPA firms, it’s still a fraught process with many potential hurdles. And it’s not just other public accounting firms doing the merging and acquiring. The private equity firms that have been rolling up small and mid-size CPA firms into larger ones come with plenty of benefits, notably the ability to make the investments needed to compete at a time when automation and artificial intelligence (AI) are bringing a sea change into the accounting business, and competitors are getting bigger. But they also come with their own baggage, such as questions of conflicts of interest and compliance with the auditor independence rules, as well as a focus on the more profitable tax and advisory service side of the firms. The money from an acquisition can be enticing, but it’s important to go into it knowing that there’s a price to be paid for it, and what that price is. And how to go about paying it if you do decide to join forces with a private equity firm. Private equity pros Private equity firms have been competing to invest in large public accounting firms, but also to buy out and roll up small and mid-size firms for two core reasons. One is a steady and predictable revenue stream, particularly on the audit side, which is very enticing to them. The other is the revenue potential of expanding the more lucrative tax and consulting side of the business. But they also see the opportunity to grow the CPA firms and make them more profitable by investing in things like staff training, recruitment and cutting edge technology like AI that can transform the accuracy and efficiency of audit processes. And, of course, strategic acquisitions that can further strengthen the business. Another thing they can do is centralize certain auditing tasks like data processing or routine testing, even moving it offshore for cost efficiency. This can give the core auditing team more time for the deep dive and the ability to focus on more value-added services. Private equity cons On the con side, the focus on consulting can lead to the auditing quality side being given less priority for investment and growth. With a focus on short-term profit, private equity funding can come with pressure to focus attention on the higher margin consulting side of the business. Private equity firms are often eager to scale up the tax and consulting sides of the business, to the point of sometimes creating an alternative practice structure (APS) by investing in or acquiring just those parts of a firm and leaving the audit side, with its need for independence and smaller margins, alone. Which calls into question the benefits of a private equity investment, at least on the auditing side of the business. Then there’s the threat to auditor independence of having an owner or partner with a large portfolio of companies like tech firms that can provide other services to audit clients. And even when there is no actual threat, these perceived conflicts of interest can be a red flag to audit regulators and standard-setters. Private equity questions When you’re looking at an investment or acquisition by private equity there are questions to be asked that aren’t always obvious, or at least that don’t have simple answers. It’s easy enough to start a conversation about auditor independence and the appearance of impairment or conflicts of interest with the auditing side of the business, but it’s also easy enough to promise that these issues won’t be a problem. You have to be aware of the other types of services that they're planning to provide to that same client, because that could have an impact on whether or not you can perform the audit or the review work that you’re doing without violating the AICPA’s Code of Professional Conduct. That’s particularly true with small CPA firms focused on the auditing side of the business instead of consulting, which will suddenly find themselves paired with a large and aggressive tax and consulting business. But whatever size your practice is, you’ll have to update policies and procedures and be cognizant of the need to create an infrastructure that acknowledges the potential conflicts that come with a private equity firm’s offer. Collemi Consulting leverages nearly three decades of experience to provide trusted technical accounting and auditing expertise when you need it the most. We regularly work with CPA firm leadership to help them reduce risk and maximize efficiencies.