PCAOB Staff Report: Auditors must respond to Unique Risks of Crypto Assets

The use of crypto assets presents unique audit risks to public companies and broker-dealers and requires an appropriate risk assessment and audit response by audit firms, according to a report from the US’ Public Company Accounting Oversight Board (PCAOB). 

Since 2017, PCAOB inspectors have been reviewing audits of public companies where transactions or holdings associated with crypto assets were material to the financial statements. In its 2023 inspections, the PCAOB is continuing to prioritise risks related to material digital assets. 

As detailed in the report, Inspection Observations Related to Public Company Audits Involving Crypto Assets, PCAOB inspections have identified common audit deficiencies related to crypto assets in the auditor’s procedures for the following areas: 

  • Fraud and significant unusual transactions 
  • Ownership of crypto assets 
  • Relevance and reliability of information used as audit evidence 
  • Revenue recognition in crypto asset transfer 
  • Arrangements with mining pool operators

In addition to inspection observations, the staff report discusses good practices that some audit firms have implemented and that may enhance audit quality. These good practices include the following: 

  • Consultations – Engagement teams at some firms are encouraged to consult with the members of the firm’s professional practice group and/or subject-matter specialists related to crypto assets. 
  • Subject-matter specialists – Certain firms have established centralised groups related to distributed ledger technology (e.g., cryptography, blockchain technology). 
  • Technology-based tools – To support public company audits involving crypto assets, some firms have developed proprietary, technology-based tools.

Earlier this month, the PCAOB issued for public comment a proposal that would amend PCAOB auditing standards related to the auditor’s responsibility for considering a company’s noncompliance with laws and regulations, including fraud.

AICPA awards more than $900,000 in scholarships to aspiring CPAs

The American Institute of CPAs (AICPA) Foundation awarded $970,000 in academic scholarships to 195 students for the 2023-2024 academic year through the AICPA Legacy Scholars Programmeme

The AICPA Foundation was established in 1922 to advance the science of accountancy and accounting education. For more than 100 years, the Foundation has focused on supporting the next generation of CPAs through accounting education and outreach, scholarships and fellowships, and diversity and inclusion. 

AICPA VP of cpa examinations and pipeline Mike Decker said: “The AICPA is committed to enhancing and diversifying the pipeline of new students and Exam candidates entering the profession. Our Legacy Scholars Programme provides talented students from a wide range of backgrounds with financial assistance to complete their education, along with resources and guidance to help them get started on their career path.” 

The AICPA Legacy Scholars Programmeme consists of five distinct scholarships: 

  • AICPA Scholarship for Future CPAs 
  • AICPA Scholarship Award for Minority Accounting Students 
  • AICPA Foundation Two-year Transfer Scholarship Award 
  • AICPA John L. Carey Scholarship Award 
  • AWSCPA Scholarship Award

The AICPA Foundation also offers educational funding to CPAs pursuing accounting doctoral studies. The AICPA Fellowship for Minority Doctoral Students aims to foster racial and ethnic diversity and inclusiveness among accounting educators at colleges and universities. Additionally, the William (Bill) Ezzell Scholarship provides aid to Ph.D. candidates who demonstrate significant potential to become mentors for the next generation of CPAs. The 2023-2024 recipients of both programmemes will be announced later this year.

HMRC specialist team targets ‘Wealthy North’

HMRC’s specialist ‘Wealthy North’ team brings in more extra tax from investigating wealthy people in the North than its specialist wealth investigation teams anywhere else in the UK, according to Pinsent Masons

In 2021/2022, the Wealthy North team collected £138m ($164.5m) in compliance revenue, compared to £82m collected by each of the ‘Wealthy Central & South’ and ‘Wealthy Wider UK’ teams. This is a trend that has continued since 2017/18. 

HMRC has made a large investment in its investigation capabilities in the North in recent years as pockets of significant wealth have developed.  The best-known of these areas is the ‘Golden Triangle’, a small area of affluent towns and villages including Alderley Edge, Wilmslow and Prestbury in Cheshire. 

The Golden Triangle has become known for its community of north-west based footballers, with many household-name players from clubs including Manchester United, Manchester City and Liverpool calling the areas home. The area is also popular among high-earning central Manchester financial and professional services workers. 

When investigating wealthy individuals living in the UK, HMRC often focuses on their ownership of undeclared overseas assets such as property, bank accounts and investments. The tax authority now receives data from tax authorities in more than 100 countries and uses it to target its investigations on those it believes are evading tax on assets overseas. 

Pinsent Masons partner, Steven Porter, said: “HMRC has made investigations of wealthy people in the North a real focus in recent years. These figures show that its investments are now paying dividends. 

“While people often assume London and the South East is the UK’s centre of wealth, parts of the North are now every bit as well-off. Income tax bills in parts of Cheshire and North Yorkshire are just as high as in many London boroughs and the home counties. 

“HMRC believes that where there is concentrated wealth, there tends to be high-value tax evasion and avoidance. Wealthier people are more likely to have assets offshore and HMRC sees that as a particularly high-risk area for unpaid tax.”

Survey: Transparency and accountability key to ethical behaviour

Transparency and accountability are the strongest indictors of ethical behaviour by businesses, according to an international survey conducted by Harris Poll on behalf of AICPA & CIMA. 

When it comes to specific business practices, however, the data reveals some generational differences. For example, Gen Z and Millennials say it is even more crucial for companies to take meaningful, measurable action when faced with a dilemma.  

Future talent aged 20-30 also prioritises behaving responsibly toward the local community, protecting customer data, and following all laws and regulations. While 70% of future talent says business ethics is more important now than five years ago, this group is less optimistic that compliance rules will be more stringent in the future.  

The survey of 1,820 adults in the US and UK was conducted to understand shifting definitions and expectations around ethical behaviour, as well as highlight where further research may be needed.   

The workforce generally agrees that business ethics means “abiding by moral principles; doing the right thing; and being honest, truthful, and transparent.”  

While all respondents agreed that diversity, equity, and inclusion (DEI) is one of the top three ethical challenges companies face, future talent is equally concerned about corruption and discrimination/harassment. For comparison, business leaders call out environmental responsibility and technology/privacy practices as top concerns.   

To younger employees in particular, ethical behaviour is rooted in measurable action, not words. Only 6% of future talent says that “statements from their CEO” are the most meaningful evidence of business ethics, compared to 16% of business leaders.   

Future talent also finds traditional ethics training to be less effective and does not feel as prepared to navigate ethical issues at work. Just over 1 in 4 (26%) younger workers say their company’s ethics training is very effective, compared to nearly half (48%) of business leaders.   

AICPA & CIMA CEO of public accounting Sue Coffey said: “Leaders in every industry must ensure that we’re not just leading by example, but empowering our people to become ethical leaders themselves. As ethical challenges become more complex, effective leaders must be prepared to encourage accountability, navigate competing pressures, and manage shifts in generational expectations.”  

To learn more about the findings, read the executive summary and explore AICPA & CIMA’s resources on ethical leadership. During June, CIMA appointed Sarah Ghosh as its 90th president.

IPSASB develops Climate-Related Disclosures Standard for the Public Sector

Respondents to IPSASB’s May 2022 consultation paper on Advancing Public Sector Sustainability Reporting agreed that the public sector urgently needs its own sustainability reporting standards and that the IPSASB, with its 25 years of standard setting experience, should lead their development. 

Public sector specific sustainability reporting standards will equip governments and other public sector entities to provide better transparency, accountability, and comparability of their efforts to combat the climate crisis and other sustainability challenges.  

Following a scoping and research phase, the IPSASB has decided to move forward with the development of a public sector specific Climate-Related Disclosures standard and has published a project brief for this major new piece of work. Reporting on climate change is one of the most important issues in sustainability reporting, which also encompasses environmental, social and governance issues.  

IPSASB chair Ian Carruthers said “The IPSASB’s decision to develop a public sector specific Climate-Related Disclosures standard is a huge first step in addressing the public sector’s need for sustainability reporting standards. The Board is delighted to be able to respond to stakeholder calls in this way and hopes to be able to initiate other projects in this critical area in the coming months.”  

With this launch, the IPSASB will establish a Climate-related Topic Working Group to provide climate-related expertise and advice to support delivery of the project. The IPSASB will also set up a Sustainability Reference Group to provide advice on its overall sustainability reporting standards development programme.   

Global community engagement is essential to developing sustainability reporting standards for the public sector. The IPSASB continues to seek support for its sustainability reporting standards development programmeme and requires additional resources to be able to scale up its efforts and move with pace. 

The Consultative Advisory Group (CAG) of the International Public Sector Accounting Standards Board (IPSASB) elected Fabienne Colignon as its chair to lead its advisory efforts for the next three years.

FRC Fair Value Measurement Review

The UK’s Financial Reporting Council (FRC) has published its thematic review of fair value measurement. 
Many IFRSs require or permit fair value measurements. The challenging economic environment and the risks posed by climate change may increase the degree of estimation uncertainty and management judgement in this area. Consequently, clear and transparent disclosures of fair value measurements are likely to become increasingly important says the FRC 
The review highlights: 

  • Fair value measurements should use market participants’ rather than the company’s own assumptions. Whilst the transaction price usually reflects fair value, there may be circumstances where this is not the case, for example, in transactions with related parties. Companies should ensure that appropriate adjustments are made to the transaction price to ensure it reflects fair value in such cases. 
  • There is scope for improvement of the disclosures provided by many companies. The transparency of reporting about the valuation approach, underlying assumptions, management judgement and estimation uncertainty is key. 
  • Companies should consider using specialist third party advice when valuing a material item and where there is no internal expertise. 

Although the review focuses on disclosure matters, it includes two case studies to highlight measurement issues the FRC found in its routine monitoring of corporate reporting.

To encourage improvement in the general quality of company disclosures, the review also includes examples of good practice, each of which demonstrates a particular characteristic of a better disclosure. 

Last month, the FRC announced the launch of an initiative to assist smaller firms in conducting high-quality audits in the Public Interest Entity (PIE) market. The Scalebox initiative aims to promote competition and choice in the PIE audit market and support the FRC’s role as an Improvement Regulator.

CT: Evolve brings ‘Big Four’ approach to help SMEs thrive

Accountants and advisers CT have launched a new consulting division which aims to bring a ‘Big Four’ approach to support SME clients within a rapidly changing environment.

Led by consulting partner David Shadwell, CT: Evolve draws on the expertise of CT’s full team of 180+people and their combined experience in supporting clients across key industry sectors throughout Scotland and across the UK. The new division will provide a wide range of solutions focused on sustainability, innovation, technology, data and strategy tailored to a client’s specific needs to help them develop and create a clear competitive advantage.

CT: Evolve’s programmes will include those which support clients in their transition towards a low carbon economy, help build brand value, and safeguard against core risks. The team will also work closely with business leaders to help develop a culture of innovation to drive growth, productivity and profitability. 

The launch of the new division is part of a wider rebrand and restructuring programme at CT aimed at reshaping the firm to best support its growing and evolving client base. 

David Shadwell brings over 20 years of experience working within ‘Big 4’ and other leading business advisory firms to his role as CT:Evolve lead consulting partner. He said: “The launch of CT: Evolve acknowledges the fast-changing business landscape and growing demand amongst SME clients who are searching for a trusted partner to help them successfully navigate these challenges. 

“This new division is backed by our diverse and experienced team of colleagues across CT, who have a deep understanding of the risks, uncertainty and opportunities facing businesses today. While disruption and change are now a constant, we will help businesses solve issues, create value, improve performance and ultimately maximise their growth.” 

CT partner and Executive Committee member Neil Norman said: “This new service is part of the ongoing evolution of our firm, continuously innovating our service offering to ensure our clients can grasp new opportunities and continue to thrive. We remain focused on ensuring the firm is ideally placed to support our clients for the modern economy.” 

“Is ChatGPT Safe?” Google searches up 614%

Searches for “is ChatGPT safe?” have skyrocketed in the past few days as people worry about the impact of AI on their future

The Google Trends data, discovered by leading Crypto education platform Cryptomaniaks.com, reveals that people all around the world are unsure how safe ChatGPT is, with searches for “is ChatGPT safe?” increasing by a massive 614% since 16 March. 

A spokesperson for Cryptomaniaks.com commented on the data: “As AI technology like ChatGPT continues to advance and integrate into our daily lives, it’s vital to address the safety concerns that are emerging. This surge in searches highlights the need for greater public education and transparency around AI systems and their potential risks. 

“It’s important to recognize that AI, like ChatGPT, holds immense potential for revolutionizing various industries, but it’s essential to strike a balance between innovation and safety. Developers, users, and regulators must work together to create guidelines that ensure responsible development and deployment of AI technology. 

“As AI systems become increasingly sophisticated and integrated into society, it is our collective responsibility to stay informed about potential risks and actively engage in discussions about AI safety. We must embrace the benefits of AI while diligently mitigating potential harm, ensuring a secure and beneficial future for all.”