A&A Focus recap: FASB updates, BOI, busy season tips

Produced by the AICPA’s audit team, the new A&A Focus series is a monthly newscast dedicated to providing practitioners with the latest news in accounting, auditing, assurance, and financial reporting.

The inaugural broadcast, which drew more than 1,800 attendees, featured experts providing insights and tips for auditors across a range of issues. Co-hosts Carl Mayes, CPA, vice president–A&A Quality at the AICPA, and Robert Durak, CPA, CGMA, director–A&A Technical Services at the AICPA, covered issues including:

• New requirements for beneficial ownership information (BOI) reporting to combat money laundering;
• Changes to the definition of public-interest entities;
• Results from the AICPA Business and Industry Economic Outlook survey, showing business executives’ continued uncertainty regarding the U.S. economy; and
• Recent FASB Accounting Standards Updates (ASUs) on financial reporting (ASU No. 2023-07), crypto assets (ASU No. 2023-08), and income taxes (ASU No. 2023-09) and other FASB changes effective for calendar year 2023.

A&A Focus, which is modeled after the popular AICPA Town Hall series, featured four expert guests: Liz Gantnier, CPA, CGMA, A&A director for the mid-Atlantic region at FORVIS; Danielle Supkis Cheek, CPA, vice president for strategy and industry relations at MindBridge; Debbie Smith, CPA, a partner at Grant Thornton LLP who specializes in employee benefits plan audit services; and Michael Valenza, CPA, senior manager at KPMG.

Advice for busy season audits

Gantnier gave recommendations for busy season audits. She emphasized the importance of engagement teams thoroughly understanding their clients and how economic shifts are impacting risk assessments. With major new accounting standards such as the current expected credit losses (CECL) model now effective, Gantnier said that auditors should ensure they are properly applying changes.

Also, proper execution of analytical procedures remains an issue, she said, and auditors should be sure to tailor risk assessments and audit plans individually for each client. For example, with respect to procedures being performed over revenue, she said that she often sees “very basic analytics around revenue that do not qualify as a test of details and sometimes hardly qualify as an analytical procedure.” Additionally, auditors will want to ensure they are meeting the design and implementation of controls testing requirements of SAS No. 145. In a follow-up with Gantnier, she noted that a walk-through, while not required, remains an effective procedure to meet those design and implementation testing requirements.

Gantnier said she sees an increased use of the modified cash-basis of accounting. Durak agreed, saying, “In my work with the Center for Plain English Accounting, we do get the questions about the modified cash-basis of accounting.”

Analysis of DOL’s employee benefit plan audit report

On the heels of the release of the Department of Labor’s (DOL’s) audit quality study in November 2023, Smith reviewed the results. The study showed improvement. The percentage of EBP audits with major deficiencies dropped from 39% to 30% of audits, but Smith stressed that much work remains. The study reinforced that firms focused on employee benefit plan audits perform far better than “dabblers.”

To define “dabblers,” Smith said, the size of the employee benefit plan practice is important, not total practice size. “If you’re a small firm but you do 30 of them a year, generally, what DOL is finding is you do better work than a large firm that might do one,” she said.

Also, she added, “The DOL unequivocally says that audits from firms that are members of the [AIPCA Employee Benefit Plan Audit] Quality Center have significantly fewer deficiencies. In fact, non–Audit Quality Center members have a nonconformity rate that is over two times higher than Audit Quality Center members selected for the study. I believe that is a direct reflection of the resources the AICPA has continued to invest in this area.”

Commercial real estate update

Valenza provided an overview of issues in commercial real estate, including rising interest rates, valuation declines, especially for office buildings, and an upcoming wave of debt maturities that will need refinancing. He covered factors that auditors should consider related to going concern assessments, impairment analysis, and key triggers calling for close attention.

The combination of higher interest rates, lower valuations, and the glut of upcoming debt maturities “is creating that perfect storm that I think practitioners are going to need to focus on as they go through their risk assessment or audits in the current year,” Valenza said.

Insights on AI

Supkis Cheek explained the basics of artificial intelligence (AI) to help auditors differentiate between hype and reality. She noted that AI tools currently handle narrow, limited tasks and that significant human supervision remains essential.

“The humans are minding the shop,” Supkis Cheek said. “That’s what’s really important for auditors to understand.”

She recommended auditors review existing AICPA and CPA Canada resources to build understanding of AI risks and opportunities.

The next A&A Focus broadcast is Feb. 7 from 1 to 2 p.m. ET. AICPA members can enroll for free, and all participants will receive CPE credit for attending. Those who registered for the first newscast are automatically registered for future episodes, including Feb. 7, and don’t have to register again.

— Dave Arman, CPA, MBA, is senior manager–Audit Quality at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.