October 1, 2025
Group Audit Standards Are Changing. Are You Ready?
Generally speaking, group audits should be far more common than they actually are!
On top of that, the new group audit requirements kick in next year, with some major changes: They have created a whole new class of “referred-to” auditors that must be considered when performing a group audit. And it’s time and past time to start preparing for that now.
The American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB) issued SAS 149 that revises the definition of a “component auditor” and takes an updated risk-based approach to planning and performing a group audit. Issued in March 2023, SAS 149 goes into effect for audits of group financial statements for periods ending on or after December 15, 2026.
Before we get into that, it’s vital to know that numerous times, auditors miss the fact that a group audit is necessary in the first place. That’s because determining what is and isn’t a “component” can be simple, but it’s not always obvious.
Depending on how management runs its operations, a company can be a single entity with two or more different business activities means a group audit is necessary.
When dealing with a single entity, many times, auditors see a single business or business line and miss what is really a separate “component” requiring a group audit, unless they have a consolidation of two or more subsidiaries staring them in the face.
The question you should be asking yourself is, does the company have multiple product lines, service lines, branches, or anything else where the CFO and the CEO of the company manage their operations by tracking the performance of those multiple product or service lines? Are there multiple locations or divisions?
It doesn't necessarily mean the company has to have a subsidiary or another legal entity that they control. Auditors are required to use professional judgment to determine whether a business activity represents a component, regardless of whether it is a separate legal entity.
The current standard
Group financial statements can include aggregated financial information from entities or business units like branches or divisions. If business units with separate management, locations, or information systems are aggregating financial information, you need a group audit. Here are some examples:
- Combined financial statements, when for example two companies are owned by the same person
- Consolidated financial statements, in which a company owns another company
- A joint venture
- A company organized by geography, for example American, Canadian and European units, each with their own general ledger
- A company with different business activities where performance is tracked separately
- A company that reports an equity method investment on its balance sheet
Look at business activities first and determine if they are significant in terms of dollar amounts, or materiality, or if there’s a high risk in that part of the operations. Follow the flow of the numbers!
SAS 149 kicks in
Alongside the work of component auditors cited — for whose work the group auditor is responsible — there’s a new category: Referred-to auditors
These are secondary auditors, brought in to issue their own opinion on a particular part of the operations that the group auditor will reference in their work. The new group audit standards make clear that the work of the referred-to auditor is relied upon in the final group audit, but was not carried out by the group auditor.
These referred-to auditors are not component auditors under the terms of SAS 149, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors).
SAS 149 is effectively telling group auditors to say very clearly, “Hey, we didn’t look at this part of the operation but we are referring to and relying upon this opinion.”
The new standards also make clear that component auditors are part of the engagement team, whereas referred-to auditors are not.
Risks grow
For all that, the addition of referred-to auditors is not SAS 149’s most significant change: It provides an updated risk-based approach to planning and performing group audits.
Under the existing standard a group engagement team is required to identify significant components at which to perform audit work.
However, SAS No. 149 directs the group auditor to use professional judgment in determining the components at which to perform procedures, based on assessed risks.
Just like the auditor is required to use professional judgment in determining what should or shouldn’t be a group audit.
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.
Once you reach a certain point in your career, say five to ten years in, it’s a good time to start getting involved with professional organizations ranging from associations, not-for-profits and state boards and committees. There are a lot of benefits to getting involved in professional organizations that start with making new relationships and even getting new clients, but go far beyond that. There are plenty of soft skills to be learned from being active in your profession. One is simply learning how to deal with businesses, professional boards and with non-profits. These are organizations that will ultimately be important to you and your practice, and knowing how to navigate them is a skill that will stand you in good stead throughout your career. A good place to start is with your local chapter of your State Society, the National Society of Accountants (NSA) and American Accounting Association (AAA), as well as your state board of accountancy . But there are others as well, even local and state Chambers of Commerce . Benefits include: Refining existing skills: You will utilize skills like financial management, budgeting and bookkeeping in new contexts. Gaining leadership and project management experience: Volunteering often means taking on leadership roles and overseeing projects. Staying current with industry trends and regulations: Staying up-to-date is a byproduct of getting involved. Expanding professional networks: Volunteering provides the opportunity to meet and build relationships with other accountants and business executives, work with leaders in your field, and meet potential mentors. Building a strong reputation: Actively contributing to a board or committee can enhance your standing within your field, which can be valuable for gaining new clients and career advancement. Increasing visibility: getting involved in projects and committees distinguishes you from peers and can demonstrate a commitment to your career. Professional development : Many organizations offer professional education courses, workshops and conferences that go beyond your required continuing professional education (CPE) requirements. Credentials and certifications: Many industry organizations offer professional certifications and credentials that can help differentiate you from your peers. All of these benefits can be tied back into your career and professional development. As your involvement grows over time, so will the benefits. You’ll develop a professional network of likeminded leaders in their fields of expertise that will help you advance your career both inside and outside of the organizations for which you volunteer. And as your commitment to these organizations grows over time, so will your leadership in them. Committee memberships will become committee leadership, with the resulting increase in visibility and prestige. Participation at events will turn into speaking opportunities and a higher professional profile. You’ll have the opportunity to influence policy and the direction of your whole industry. Your professional network will expand with higher-level and more advanced professionals within your field over time. You’ll also build a stronger resume, one that demonstrates both your commitment to your field and your expertise in it. Working with organizations outside your professional field like a chamber of commerce or local/state government can bring many of these benefits as well: Networking and meeting potential new clients, raising the profile of yourself and your firm, and simply learning how to interact with businesspeople and executives outside the profession. Five or ten years into your professional life is a good time to start branching out a little bit and do work that’s outside your firm. Beyond all this, there is a sense of personal fulfillment that giving back to your profession and community can bring. It’s important to get involved in issues that are important to you. 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.
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.
When questions or technical issues arise, it’s important that they be resolved in a timely and efficient manner. That means consulting with other members of the engagement team or someone either in the firm or outside of the firm with more expertise or experience. This is especially important when there is a difference of opinion or uncertainty about a technical question, the application of Professional Standards procedure, the application of firm policy, or the application of a rule, regulation, or procedure from a regulatory agency. First off, a CPA firm should have an up-to-date library, as well as industry and other specialized materials related to their client’s industry. This is an important tool for answering questions or settling differences of opinion. As there are many issues/challenges that can cause this kind of question or difference of opinion to arise, and in many cases in-house library resources won’t be enough. When differences arise These difficult or contentious issues begin with any engagement in which a modified or adverse report is likely to be issued. Then there’s any engagement involving material litigation of a first-time or complex technical pronouncement. Other issues that can arise include industries with specialized accounting treatments, auditing or reporting requirements, or with complex or unusual transactions. Emerging practice problems also fall into this category. Having choices among accounting principles generally accepted in the United States of America (U.S. GAAP) either initially or when an accounting change is made is another situation in which questions can arise. So is the need to reissue an audit report, consider omitted procedures after a report has been issued, or the discovery of facts that were not known when the report was issued. More serious issues include any restatement to financial statements upon which a report was issued. These cases require consultation with the managing partner and quality control partner and their approval of the resolution. Restatements are considered contentious or difficult issues, and must be carefully documented at every stage. Then there are questions or differences of opinion about documents to be filed with a regulatory agency, and especially meetings with regulatory agencies in which the firm will be called upon to defend the application of U.S. GAAP or auditing standards generally accepted in the United States of America (U.S. GAAS) that have been questioned. When questions arise First of all, anytime there is a question requiring consultation or a difference of opinion arises either within the engagement team, or between the engagement partner and the engagement quality control reviewer (EQCR), the issues must be discussed between the parties involved. If any member of the team disagrees with the resolution, it should be escalated based on the CPA firm’s quality control policies and procedures. Second, look for people within the firm with the knowledge, seniority or experience to bring expertise to the question. The quality control partner will be a good resource for finding these experts. Third, if someone with the requisite know-how can’t be found within the firm, or that person is unable to satisfy the difference of opinion, it’s time to look outside the firm. CPAs at other firms, consultants, the AICPA Technical Hotline, AICPA Audit Quality Centers,and other professional and regulatory bodies are all sources of quality control services and expertise. When looking for an outside subject matter expert (SME), consider their professional certifications, licenses or other qualifications that demonstrate expertise. Also look at the reputation and standing of the person in question. Of course, look for any relationship with the client. Consulting specialists Certain audit or attestation engagements may require the firm to consult with specialists including actuaries, appraisers, attorneys, and even engineers or geologists, among others. Following the guidance in AICPA Professional Standards at AU‐C 620A and AT‐C 105 when such consultations are necessary is vital. The nature and scope of consultations on contentious or difficult issues should be agreed-upon by all parties. The results of those consultations must be well-documented so as to ensure that the issue which required outside expertise is clearly stated. So must the results of the consultation, the decisions made and the basis upon which they were made, and how those decisions were implemented. The documentation must show that the conclusions reached were understood by both the persons consulting and the consultant. When escalating isn’t enough If the difference of opinion cannot be resolved by any of the aforementioned steps, it’s time to bring the matter to the managing partner and/or quality control partner. The managing partner and/or quality control partner will resolve the dispute, possibly in consultation with other experts or regulatory entities. The resolution must be documented, and the report should not be released until differences of opinion are resolved. At this point, anyone who still disagrees with the outcome will document their difference of opinion on the matter. At every stage of this process, it is the engagement partner who has responsibility for ensuring that differences of opinion are resolved, and that they are properly documented. 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.