Senior Managing Director and the National State and Local Tax Practice Leader at CBIZ
Washington State offers voluntary disclosure programme to international remote sellers
December 5, 2025
Washington State will open a temporary amnesty route, known as a voluntary disclosure programme, for international businesses that sell to customers in the state but have not met their tax obligations. The initiative, aimed at non-US companies, will run from 1 February to 31 May 2026 and gives qualifying businesses the chance to settle past liabilities on more favourable terms than usual.
Who the programme is for
The disclosure option is designed for foreign companies that have created a tax presence—known as nexus—either by operating in Washington physically or by generating more than USD 100,000 in annual sales to customers there, with Business & Occupation tax and potentially sales tax filing obligations in the state. To join the programme, a business must satisfy several conditions:
It must be based outside the United States.
It must not have registered or filed tax returns in Washington during the current year or the previous four years.
The Department of Revenue must not have contacted the business for compliance or enforcement during that same period.
The business must not have taken steps to conceal or misstate its tax position.
What participants gain
Businesses accepted into the programme will only need to address unpaid business and occupation (B&O) tax for the current year and the four years before it, plus one year of uncollected retail sales tax, if sales tax applies to their goods and/or services. Businesses that do not use the programme and are later identified by the state face a standard seven-year lookback for both taxes.
Penalties— which can normally reach 39%—will be waived. Interest still applies at statutory rates.
Washington’s B&O tax applies broadly to businesses with nexus, even where no retail sales tax is due. It is charged on gross income at rates between 0.471% and 2.1% and is paid by the business, not passed to customers.
Applying to the programme
Applications must be submitted online once the window opens on 1 February 2026. Businesses should prepare:
Basic business details. Anonymous submissions may be made initially, but the company must reveal its identity within 15 calendar days or restart the process.
A gross income schedule in the Department’s required format.
A completed Washington Business Activities Questionnaire.
An authorisation allowing the Department to communicate with the business or its representative by email or fax.
Any supporting documents, such as exemption certificates or reseller permits.
Next steps and timelines
After applying, businesses will need to register formally with the Department through the online Business Licensing Wizard to ensure future reporting is in place.
If the Department accepts an application, it will issue an agreement that must be signed and returned within 30 days. Missing this deadline may cancel the application and reinstate the usual seven-year lookback and penalties.
If additional information is needed, the examiner will request it. Any outstanding documents must be provided within 60 days of the original application. Once everything is complete, the Department will issue a draft assessment, followed by a final assessment through the applicant’s online account. Payment must be made by the deadline shown to avoid extra charges.
If an application is not approved
Applicants who do not meet the programme criteria will receive written reasons and advice on alternative routes. Businesses that already have a Washington registration may still qualify for a small (5%) penalty reduction, and those with unregistered activity predating their initial registration may receive some programme benefits if the other rules are met.
Foreign businesses selling to customers in Washington should first check the Department of Revenue’s website to confirm whether they are already listed.
Global vacancies
U.S. R&D Tax Relief Regime
October 9, 2025
The U.S. federal R&D tax credit was established in 1981 under Section 41 of the Internal Revenue Code. It provides businesses with a tax credit for qualified research expenses (QREs) incurred during R&D activities. This incentive is aimed at promoting innovation, improving productivity, and increasing the competitiveness of U.S. businesses in a global market.
The R&D tax credit is one of the most significant incentives for U.S. businesses conducting R&D. The credit helps reduce a company’s overall tax burden, enabling it to reinvest in further research or business operations.
In 2025, the China-US trade relationship—one of the most significant bilateral economic ties globally—underwent substantial turbulence. Tariff policies emerged as a central instrument in the strategic rivalry between the two nations. Over the year, these policies transitioned from a phase of intense confrontation to a period of temporary easing, marked by a series of rapid and substantial adjustments. The frequency and magnitude of these changes represent a rare chapter in global trade history.
The evolution of China’s retaliatory tariff measures
A review of China’s official announcements throughout 2025 highlights the escalation and subsequent de-escalation of tariff measures imposed in response to US actions.
On February 4, China issued Announcement No. 1 of 2025, which took effect on February 10. This policy imposed additional tariffs ranging from 10% to 15% on US imports including coal, liquefied natural gas, crude oil, agricultural machinery, and automobiles. This move was a direct response to the US tariff hike in January.
On March 4, Announcement No. 2 of 2025 followed, coming into effect on March 10. This round targeted US agricultural products such as chicken, wheat, corn, and cotton (15% tariffs), as well as soybeans and pork (10% tariffs), retaliating against a new wave of US tariffs issued in March.
The escalation continued in April. On April 4, Announcement No. 4 imposed an additional 34% tariff on all US imports, in retaliation to the US’s “equivalent tariffs.” This was swiftly followed by Announcement No. 5 on April 9, raising tariffs from 34% to 84%, with particular focus on agricultural products, energy, and automobiles.
Just days later, on April 11, Announcement No. 6 increased tariffs further to 125% on all US goods, matching the US’s own 125% tariff hike.
However, a turning point came on May 13 with Announcement No. 7, effective from May 14. In this statement, China reduced tariffs from 125% to 10%, suspending a 24% portion of the tariff for 90 days. This adjustment was aligned with the terms of the Geneva Agreement, marking the first significant sign of de-escalation.
Outcomes from the London negotiations
Further progress was made in June during negotiations held in London, building on the Geneva Agreement. Two major outcomes emerged:
The 90-day ceasefire on tariff escalations was extended until August 12, maintaining the 10% base tariff. The future of the suspended 24% tariff remains undecided.
The United States reduced tariffs on small cross-border e-commerce packages (valued under $800) from 120% to 54%, offering some relief to e-commerce platforms and traders.
While these developments provided temporary relief for Chinese enterprises, fundamental disagreements persist. The US maintains a 20% tariff on fentanyl and continues to apply a 10% base tariff across the board. Meanwhile, China upholds restrictions on rare earth element exports. Underlying technological competition between the two countries also remains unresolved.
Impacts on Chinese enterprises
The ongoing tariff conflict, marked by both escalation and partial resolution, has had far-reaching effects on Chinese businesses. These effects vary by industry and company size and have influenced areas ranging from financial performance to operational strategy. Key impacts include:
1. Export challenges and operational strain
Rising costs: Elevated tariffs have raised the cost of exporting goods to the US, eroding the price competitiveness of Chinese products and reducing profit margins for export-driven firms.
Fewer orders: Demand from the US has declined, especially impacting small and medium-sized, labor-intensive enterprises that rely heavily on the US market. Many of these companies now face serious survival threats.
2. Supply chain realignments
Production relocation: To sidestep high tariffs, some Chinese firms have moved parts of their manufacturing operations to countries such as Vietnam, Thailand, and Mexico.
Industrial upgrading: The pressure of tariffs has spurred innovation and encouraged businesses to invest more in R&D, upgrade production processes, enhance product value, and boost overall efficiency and competitiveness.
Market diversification: Many enterprises are seeking to reduce dependency on the US market by expanding into other global markets.
3. Heightened uncertainty and compliance burdens
Unpredictability: The volatile nature of trade policy makes long-term planning difficult, increasing business risks.
Rapid policy adjustment: Companies must remain agile, adapting quickly to new rules and avoiding losses caused by regulatory non-compliance.
Contractual risks: Sudden changes in tariff policy can disrupt existing contracts, necessitating renegotiations and increasing the potential for legal disputes.
Conclusion
The China-US tariff fluctuations in 2025 posed serious challenges for Chinese enterprises, but they also acted as a catalyst for growth and adaptation. Businesses responded with innovation, supply chain transformation, and market diversification—strategies that will serve them well in an unpredictable global trade landscape.
Looking ahead, it is vital for both China and the US to enhance communication and cooperation. By doing so, they can promote a stable and mutually beneficial trade relationship and contribute to broader global economic prosperity and order.
Chris Spurio has over three decades of experience in accounting, financial management, and leadership within the professional services industry. He has been with CBIZ, Inc. since 1998, serving in various high-level roles. In January 2014, Chris was appointed President of the Financial Services Group, overseeing the strategic direction, growth, and performance of CBIZ's financial services division. His expertise lies in driving operational efficiencies, financial strategy, and fostering client relationships across the Midwest region. Before becoming President, Chris held the position of Chief Operating Officer of the Financial Services Group, after successfully leading as the Group’s Executive Managing Director for the Midwest. Prior to joining CBIZ, Chris spent nearly a decade at KPMG LLP, where he developed his foundational skills in accounting and financial advisory services.
Chris is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA), and he maintains memberships with the American Institute of Certified Public Accountants (AICPA) and the Ohio Society of CPAs. His leadership and extensive industry knowledge have been instrumental in CBIZ's financial services success.
CBIZ to acquire Marcum, strengthening market position
August 5, 2024
CBIZ’s acquisition of Marcum will open new territory for Kreston members while furthering its technology offerings. The CBIZ/Marcum deal will make the company the seventh-largest accounting services provider in the US, surpassing Grant Thornton. The merger will bring 35,000 new clients to CBIZ, as well as new services through innovative technology.
‘Marcum has solid industry expertise, bolstering our knowledge in key industries,’ said Chris Spurio, President of Financial Services at CBIZ. ‘This means our ability to provide solutions for clients along industry lines is greatly enhanced. We can expand our footprint in terms of the kind of clients we can service.’
Marcum’s clients new to CBIZ will need the services that Kreston members can provide. ‘Marcum has a strong growth culture, and it has been at the forefront of technology innovation,’ said Spurio.
Upon close, the acquisition will also put CBIZ back into the public company sector. CBIZ exited this area as it simply did not have the scale, but through Marcum, it will have a USD 150 million practice that has the scale and expertise to make the combined company a major player.
Joining forces with Marcum will also help CBIZ win the war for talent. A skills shortage is dogging every accountancy market worldwide. Firms need to be as innovative with what they offer their staff as they do their clients and elevating the CBIZ brand is going to make the firm much more appealing to talent. ‘We are now going to be able to provide enhanced career paths and more opportunities to new and existing staff,’ said Spurio. ‘We are offering technology and offshore resources that other firms will find very hard to match and this is key, because a lot of people are leaving because of burnout.’
Spurio pointed out that both CBIZ and Marcum have an excellent staff retention rate, which he attributes to a good corporate culture of valuing their teams. Both companies plan to combine their training programmes and take the most effective strategies they have to help staff improve their skills. ‘Ultimately, a stronger brand means better opportunities for our staff,’ said Spurio.
‘They are now going to be able to branch out into more sectors and use a wider skill set that will give them much more career satisfaction.’
The Marcum acquisition is the most significant transaction in CBIZ’s history. At closing, the company will have a combined annual revenue of approximately USD 2.8 billion, more than 10,000 team members and over 135,000 clients.
If you want to speak to one of our experts in the North American market, please get in touch.
Chief Innovation Officer for CBIZ Financial Services, USA
CBIZ launches AI-powered data analytics and automation service, D@taNEXUS
July 15, 2024
CBIZ, Inc. has taken a significant step forward in empowering business leaders with the launch of its latest innovation, CBIZ D@taNEXUS. This new suite of data analytics and automation services is designed to help businesses, particularly in the mid-market segment, transform complex, multi-source information into actionable insights. By enabling faster, more informed decision-making, CBIZ D@taNEXUS is set to redefine how companies manage their data and operations.
Addressing the challenge of information complexity
One of the key benefits of CBIZ D@taNEXUS is its ability to simplify the overwhelming complexity of business data. In today’s fast-paced environment, companies often struggle to maintain a clear understanding of their operational and financial standing due to the sheer volume and variety of data they generate. This challenge becomes even more pronounced when businesses operate across multiple systems, such as financial, CRM, production, inventory, and personnel management platforms.
Rob McGillen, Chief Innovation Officer at CBIZ Financial Services, highlights this issue,
“All companies struggle with comprehension of where the business stands week to week, and how efforts are trending against targets and goals. This challenge becomes even more complex when multiple business systems are at play, especially when a consolidated or acquired entity joins the company structure and reporting complexity doubles or triples. The risks of misstep, misunderstanding, or misstatement are high.”
CBIZ D@taNEXUS addresses these complexities by normalising and standardising reports and forecasts across various systems, providing business leaders with clear, actionable insights.
“This insight provides client leadership with the confidence and ability to make better decisions faster,” McGillen added. By offering a clearer picture of a company’s performance, D@taNEXUS enables leaders to focus on strategic growth initiatives rather than getting bogged down in data management.
Giving clients a strategic edge
CBIZ’s launch of D@taNEXUS also signals a broader shift in the accounting and advisory industry towards greater reliance on advanced data analytics and automation.
McGillen envisions these technologies playing a pivotal role in shaping industry standards and expectations in the coming years. “Data is the lifeblood of any business, so making things more efficient and more athletically ‘fit’ enables our clients to be higher performers in their chosen markets.” McGillen . “We see it as a necessary capability to remain valuable to our clients as they, and we, grow.”
Ensuring data security and compliance
In an era where data security and compliance are paramount, McGillen is confident about the platform’s security measures, “D@taNEXUS solutions have been built to conform to U.S. privacy standards and have received a thorough review by CBIZ information security personnel. Furthermore, the platforms are GDPR-compliant and leverage industry-leading cloud technologies to deliver services.”
Expanding international capabilities
While CBIZ D@taNEXUS is currently available to businesses across the United States, plans are already in place to expand its reach to multinational clients by 2025.
McGillen explained, “We have envisioned release in multinational scenarios in 2025 as business demand increases. The technologies themselves support all of the typical business systems found and used multinationally.”
As CBIZ continues to innovate and expand, D@taNEXUS is yet another tool that provides a point of difference for the US mid-market looking to make smarter decisions, drive growth, and achieve long-term success.
If you want to learn more about CBIZ D@taNEXUS, please get in touch.
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Geoff Christian
Managing Director, National State and Local Tax, CBIZ MHM and Regional Director, North America, Kreston Global Indirect Tax Group
Geoff is a Senior Managing Director and the National State and Local Tax Practice Leader at CBIZ MHM.
He has been in his current role for 10 years and before that his experience includes several years within a Big 4 accounting firm and in industry in the retail/hospitality sector.
Geoff has been a participant in the VAT/indirect taxes group for a number of years, having presented to the group on US Sales Tax in Zurich in 2018. Since then, having raised awareness of catches for overseas businesses trading with the US he has developed many client relationships through European Kreston associates.
US sales tax nexus
July 11, 2024
Sales tax implications of providing services to US customers – part 1
US sales tax nexus is a peculiar feature of the American tax system, referring to the conditions that create an obligation to pay state and local sales tax. Unlike the consumption-based value-added taxes (“VAT”) commonly utilised worldwide, their American counterparts have some distinguishing features that often catch non-American businesses off guard. Companies are often unaware that they have a “nexus” or a filing obligation in a particular state. Therefore, it is important for companies selling into the United States to have an understanding of the following:
What types of activities create sales tax nexus;
How sales tax applies to certain transactions and services;
Applicable sales tax exemptions;
Which states tax all services as opposed to which states only tax certain enumerated services; and
The most common services that are subject to sales tax in many states.
In Part 1 of CBIZ ‘s eight-part series on sales and use tax, we look at ways in which a taxpayer will create a sales tax nexus with a state, which will require the taxpayer to register and collect and remit sales tax to that jurisdiction. Part Two will focus on a general overview of sales tax and how it applies to certain transactions as well as applicable exemptions from sales tax.
What is sales tax nexus?
Nexus is the connection or “minimum link” between a taxpayer and a state that requires the taxpayer to register, collect, and remit sales tax to the state. Two general types of nexus will require a taxpayer to collect and remit sales tax: physical presence nexus and economic nexus.
What is a physical presence nexus?
Historically, the physical presence standard was the long-standing principle of sales tax nexus in the United States for close to a half-century. The most common form of physical presence in a state is a brick-and-mortar location or retail store. However, a taxpayer may also have a physical presence in a state due to the following:
Owning/leasing real property in the state (i.e., retail store, warehouse, factory, office, manufacturing facility, etc.)
Owning/leasing tangible personal property in the state (i.e., machinery, equipment, products, etc.)
Having inventory in the state (for most states this includes goods owned by Fulfillment by Amazon merchants in the state in a warehouse owned or operated by Amazon)
Having employees/independent representatives in the state including remote employees
Attending trade shows in the state
Performing services in the state
Delivering merchandise in the state
Once a taxpayer engages in one or more of the activities described above in a state, the taxpayer establishes a physical presence nexus and must register to collect and remit sales tax in that state.
What is an economic nexus?
On June 21, 2018, the United States Supreme Court turned the sales tax world on its head and overturned more than 50 years of legal precedent that required a taxpayer to have a physical presence within a state before that state could assert sales tax nexus. The Court ruled in South Dakota v. Wayfair, 138 S. Ct. 208, that the long-held physical presence standard was an “unsound and incorrect” interpretation of the U.S. Constitution’s Commerce Clause in light of the current economic realities.
The Court, in rendering its decision, upheld a broader “economic nexus” standard based on sales volume and number of transactions in a state. The Court’s decision was based on the premise that an economic nexus standard would level the playing field between traditional brick-and-mortar retail operations and the growing eCommerce industry. It is important to note that the Wayfair decision did not eliminate the physical presence standard in determining whether a sales tax nexus exists. It merely added the broader economic nexus standard.
From a sales tax perspective, economic nexus, simply stated, requires sellers to collect sales tax in states where the seller’s sales exceed the state’s sales or transactional threshold. All states that have a statewide sales tax have adopted economic nexus rules for sales tax purposes. However, there is no uniformity among the states in terms of sales volume threshold, number of transactions, the type of sales that are included in the threshold, etc. Most states have taken the legislative position that a company has economic nexus for sales tax purposes if:
It has annual sales of goods or services into the state that surpass a dollar threshold, e.g., $100,000; or
It undertakes a specified number of sales transactions, e.g., 200 or more, into the state.
Some states have eliminated the number of transactions threshold and have enacted only a sales dollar threshold standard such as California and Texas, e.g., the company’s annual sales into California/Texas exceed $500,000.
In determining whether the sales threshold is met, the states utilise the following three types of sales:
gross sales which includes all sales including sales for resale, taxable, and exempt sales;
retail sales which do not include sales for resale;
taxable sales which excludes any nontaxable sales regardless of reason.
The majority of states utilise the “gross sales” threshold stated above which includes transactions that are not typically subject to sales tax, such as sales for resale, in determining whether the economic presence threshold has been met. Accordingly, a company that sells both goods via wholesale as well as sells goods directly to customers online may find its direct consumer sales are subject to a state’s sales tax even where the direct-to-consumer sales themselves do not exceed the established threshold amounts. For example, ABC company makes annual wholesale sales of books in Colorado for $50,001 and also makes annual sales of books directly to customers online in Colorado of $50,000. Since ABC’s company’s gross sales exceed $100,000 in Colorado ($50,001 wholesale sales + $50,000 direct-to-consumer online sales), ABC company will need to register and collect and remit Colorado sales tax on the $50,000 annual sales of books made directly to customers online.
It is important to note that the Wayfair economic nexus standard applies to all companies, including foreign companies with no presence in the United States such as online retailers and service companies. Accordingly, service companies that provide software as a service (SaaS), information services, data processing services, repairs and maintenance services, etc., are also subject to the Wayfair economic nexus rules and should review their sales in each state to determine whether economic nexus has been met and sales tax collection is required.
Conclusion
In recent years, states have become much more aggressive in pursuing sales tax audits even with foreign businesses. Therefore, it is important for all companies selling to the United States to be proactive in identifying where they have sales tax nexus and begin filing in those states, which could help reduce the imposition of tax, penalties and interest if they are selected for audit. Taxpayers who determine they have had sales tax nexus and corresponding exposure for several years should be proactive and take advantage of the states’ Voluntary Disclosure Programmes and/or Tax Amnesty programmes in order to reduce penalties and in some cases, interest as well.
If you need assistance evaluating whether your company has sales tax nexus or have any questions, please get in touch.
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Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C, Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herbert sits on MHM’s Attest Methodology Group and is the Deputy Technical Director of the Kreston Global Audit Group.
PCAOB proposes replacing interim standard on substantive analytical procedures
June 17, 2024
On June 12, 2024, the U.S. PCAOB proposed replacing an interim standard on substantive analytical procedures in place since 1989 with a new standard, AS 2305, “Designing and Performing Substantive Analytical Procedures”. Public comments on the proposal are open until August 12, 2024.[1]
The proposed new standard on substantive analytical procedures
According to the PCAOB, the proposed standard covers:
Requirements for determining whether the relationship(s) to be used in the substantive analytical procedure is sufficiently plausible and predictable;
Requirements for dealing with differences between the auditor’s expectation and the company’s amount;
The persuasiveness of audit evidence obtained from a substantive analytical procedure; and
The elements of a substantive analytical procedure, including the distinction between substantive analytical procedures and other types of analytical procedures.
With this proposal and these objectives in mind, a discussion of substantive analytical procedures might be helpful, especially as technology and data analytics tools are increasingly being used to enhance the effectiveness and efficiency of audit procedures.
What are Substantive Analytical Procedures (“SAP”)?
Substantive analytical procedures (“SAP”) and tests of details are substantive audit procedures. A substantive analytical procedure, also known as substantive analytical review, is an auditing procedure used to gain assurance about the financial statements by comparing recorded amounts or ratios derived from them to expectations developed by the auditor.[2]
They are designed to address the risks of material misstatement for relevant assertions for each account and disclosure. Depending on the account, the auditor may select which substantive procedure to perform to gain such assurance. (SAPs are more effective for some accounts than other. For example, they are often more effective for income statement accounts than balance sheet accounts.)
Developing an appropriate expectation is a key aspect of an effective SAP. The development includes the uses of internal and external data, and the determination of plausible relationships. The precision of the expectation then leads to the evaluation of differences between the expectation and the recorded amount and what must be performed based thereon.
Developing a precise expectation – the key to an effective standard analytical procedure
The auditor may develop an expectation for a specific account or disclosure based on:
Knowledge of the client: Understanding the drivers of the client’s operations (e.g., revenue streams) provides a basis for establishing plausible relationships and meaningful expectations.
Historical Data: Comparing current figures to previous periods’ financial statements, considering known changes like growth or acquisitions.
Industry Benchmarks: Benchmarking the client’s performance against industry averages to identify significant deviations.
Ratio Analysis: Calculating ratios using the client’s financial data to assess relationships between accounts and identify potential inconsistencies.
External Information: Considering relevant economic data, industry publications, or management forecasts.
Identifying key factors: Understanding factors that significantly affect the account, like changes in pricing, production volume, or economic conditions.
Using appropriate data level: Aggregating or disaggregating data depending on the level of detail needed for a meaningful comparison.
Data considerations
Auditors have a responsibility to ensure the underlying client data used to develop expectations is reliable, accurate, complete and relevant.
This involves considering:
Source of Data: Is it from a reliable internal system or an external source prone to manipulation?
Conditions of Data Gathering: Were proper controls in place to ensure data accuracy during collection?
Auditor’s Existing Knowledge: Does the auditor have prior knowledge suggesting potential data issues?
Understanding data gathering methods: Knowing how the data was collected and processed to ensure its accuracy and completeness
Auditors may perform additional procedures, like testing the accuracy and completeness of the data and testing the controls over financial reporting, to verify data integrity.
Analysis of results
Once the expectation has been developed, the auditor compares the recorded amount with the developed expectation. Significant differences (i.e., greater than a determined “threshold” of acceptance) require further investigation to determine if they represent a potential misstatement. Considerations may include:
Materiality: Determine if any identified differences between recorded amounts and expectations are significant enough to potentially affect the overall financial statements.
Plausible Explanations: Investigate potential reasons for any significant differences. These could be legitimate business developments or require further audit testing.
Risk Assessment: Consider how the identified differences relate to the assessed risks of material misstatement in the audit.
Conclusion
Substantive analytical procedures can be a valuable tool for auditors, if designed and executed appropriately. As a substantive audit procedure, it not only addresses the risk of material misstatement, but can enhance the auditor’s knowledge of the client and its operations – but only if the expectation is precise enough, is based on reliable, accurate, complete and relevant data, and differences are appropriately analysed.
[1] Both the International Auditing and Assurance Standards Board (ISA 520) and the Auditing Standards Board of the AICPA (AU-C Section 520) also have standards addressing substantive analytical procedures
[2] This differs from analytical reviews performed as a part of the planning and overall review stages.
According to the AICPA, in the planning stage, the purpose of analytical procedures is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. In the overall review stage, the objective of analytical procedures is to assist the auditor in assessing the conclusions reached and in evaluating the overall financial statement presentation. These do not provide audit assurance as substantive audit procedures.
If you would like to speak to one of our experts about standard analytical procedures in the United States, please get in touch.
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Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C, Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herbert sits on MHM’s Attest Methodology Group and is the Deputy Technical Director of the Kreston Global Audit Group.
Enforcement actions and the quality imperative in auditing
May 13, 2024
Lessons from recent SEC Sanctions on US Audit firm
The past 12 months have seen a notable uptick in SEC and PCAOB enforcement actions against audit firms, their personnel, and their networks. As if to put an exclamation point to this statement, in May 2024, the SEC took a sledgehammer to a firm that audited a significant number of smaller and medium-sized registrants and those in the registration process. While this was clearly an egregious breach of professional responsibilities, and the actions related solely to the public company practice of the firm, there are important considerations for firms as they attempt to differentiate themselves from competitors.
What is the enforcement action about?
On May 3, 2024, the SEC announced settled enforcement proceedings against audit firm BF Borgers CPA PC (Borgers) and its owner, Benjamin F. Borgers, charging them with deliberate and systemic failures to comply with PCAOB standards in their audits of approximately 350 public companies and broker-dealers, which were incorporated in more than 2,000 SEC filings from January 2021 through June 2023 (the Order).[1]
The SEC imposed severe penalties, including a $12 million civil penalty against the firm and a $2 million civil penalty against its owner, in addition to permanent suspensions against both parties from appearing and practising as accountants before the agency, effective immediately. Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, noted that “… Borgers and his sham audit mill have been permanently shut down.” (emphasis added)
What are the charges?
The SEC found that BF Borgers failed to perform its audit and review engagements in accordance with PCAOB auditing standards, including by failing to adequately supervise the engagements, failing to obtain engagement quality reviews in connection with the engagements, failing to prepare and maintain sufficient audit documentation, and fabricating certain audit documentation.
Specifically, the SEC found that at Benjamin Borgers’s direction, Borgers’ staff simply “rolled forward” work papers from previous engagements, changing only the relevant dates, and passed them off as work papers for current period engagements. These work papers documented engagement planning meetings that did not occur and falsely represented that Benjamin Borgers and a separate engagement quality reviewer had reviewed and approved the work.
Additionally, the SEC found that electronic “sign-offs” on the firm’s engagement workpapers that were attributed to the engagement partner, engagement quality reviewer, and staff auditor were in fact all applied by a single staff person within seconds of one another, using usernames provided by Benjamin Borgers himself.
Finally, Borgers did not have the required engagement quality review (EQR) on approximately 75% of the SEC filings (annual and quarterly filings, registration statements, registered broker-dealer filings, and OTC company annual reports), failing to have an EQR performed in 1,625 out of 2175 filings, in violation of PCAOB standards.[2]
How are Borgers’ clients affected?
Because Borgers has been denied the privilege of appearing or practising before the SEC, issuers that have engaged Borgers to audit or review financial information to be included in any Exchange Act filings to be made on or after the date of the Order (May 3, 2024) will need to engage a new qualified, independent, PCAOB-registered public accountant. Additionally, broker-dealers, investment advisers subject to the custody rule, and even private companies that engaged Borgers as their independent auditor will presumably need to find a replacement auditor.[3]
Each impacted registrant will need to file Form 8-K with the SEC when BF Borgers resigns or is dismissed. Issuers that are currently in the registration process will need to file a pre-effective amendment with a new auditor before their registration statements can be declared effective.
Finding a replacement auditor may be difficult due to reputation spillovers from being associated with the firm and a possible classification as a “higher-risk audit”. Additionally, there will be higher audit costs (including potential reaudits of prior periods), a “cost of switching” and disruption, and timing issues if SEC filings are required in a short time frame.
What are the key takeaways?
Bad actors taint the profession, networks and firms … and the clients they serve.
Networks and firms must thus differentiate themselves from other networks and firms by their commitment to quality throughout their organisation. While the Borgers matter is an egregious example, there is no doubt that clients will carefully scrutinise whom they engage to be their auditors and will ask the tough questions on a firm’s system of quality management: how it is designed, implemented and operating. Their culture of quality will be assessed. Boards and audit committees will wonder, and rightfully ask, “Could this happen to us based on our auditor selection?”. Their choice sends signals to stakeholders and the public.[4]
Now, more than ever, the audit industry must be associated with quality and consistency of service. Our stakeholders and clients demand it…and will increasingly require attention to quality and the assurance it brings them that a quality firm (and network) has effectively performed the audit. Their reputation is also on the line.
[1] The SEC’s order can be found here. It should be noted that the SEC’s order focused only on the firm’s public company audit and review engagements and did not address the firm’s work for private companies.
[2] PCAOB Auditing Standard 1220: Engagement Quality Review
[3] The SEC Division of Corporate Finance and Office of the Chief Accountant issued a “Staff Statement on Issuer Disclosure and Reporting Obligations in Light of Rule 102(e) Order against BF Borgers CPA PC” on May 3, 2024. It can be found here.
[4]Signaling theory suggests that firms and individuals send signals to the market to convey information about their quality or trustworthiness. In this case, being associated with a sanctioned auditor like Borgers sends a negative signal to investors and potential auditors, suggesting potential financial risks.
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Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C, Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herb is a member of MHM’s Attest Methodology Group and serves as Deputy Technical Direct of Kreston Global’s Global Audit Group.
Auditing standards: Unpacking SAS 143 and SAS 145 updates
March 12, 2024
In his comprehensive overview, Herbert M. Chain from MHM explores the recent updates to SAS 143 and SAS 145, which signify significant milestones in auditing standards. Read the full article here, or the summary below.
Overview of SAS 143 and SAS 145
The issuance of SAS No. 143, focusing on Auditing Accounting Estimates and Related Disclosures, and SAS No. 145, centered on Understanding the Entity and Its Environment and Assessing Risks of Material Misstatement, represents a significant advancement in auditing standards. These standards offer auditors extensive guidance for testing accounting estimates, particularly those involving fair value, and outline essential requirements for grasping the entity’s internal control system. This is crucial in navigating the complexities of the contemporary economic, technological, and regulatory accounting environment.
SAS 143: Auditing accounting estimates
Effective for audits of periods ending on or after Dec. 15, 2023, SAS 143 mandates a deeper examination of uncertainties in accounting estimates, focusing on potential management bias. This involves a thorough evaluation of assumptions, especially for significant judgments like fair value measurements. The standard necessitates a detailed risk assessment tailored for complexities in auditing accounting estimates, providing guidance on responsive audit procedures, including assessing the suitability of valuation models and data integrity for fair value estimates. SAS 143 aims to enhance transparency and accountability in fair value estimation, ultimately improving the quality and reliability of these estimates for increased stakeholder trust.
Key changes from SAS 143
Key changes to auditing standards in SAS 143 include a heightened emphasis on auditors addressing estimation uncertainty and exercising professional skepticism in evaluating fair value estimates. The standard mandates a more detailed risk assessment process tailored for complexities in auditing accounting estimates, particularly fair value estimates. Additionally, auditors must assess the reasonableness of accounting estimates within the financial reporting framework, ensuring compliance with permitted methods, assumptions, and data.
SAS 143impacts
SAS 143 brings substantial changes to the audit process in assessing fair value estimates. The focus now shifts to understanding factors and assumptions behind estimates, demanding greater transparency and accountability from management. Auditors, in response, perform the following procedures:
Method Assessment: Evaluate if the method aligns with the financial reporting framework and remains consistent. Changes prompt scrutiny for potential bias.
Significant Assumptions: Ensure suitability of assumptions within the financial reporting framework, considering both positive and negative outcomes. Evaluate consistency with prior periods and other business activities, considering potential bias.
Data Evaluation: Assess data reliability, understanding sources and consistency with prior periods. Verify relevance in the context of the chosen method and assumptions, addressing potential bias.
Management’s Point Estimate: Scrutinise alternative outcomes and assumptions when management opts for a precise value (point estimate), evaluating potential bias.
Enhancing controls with SAS 145
SAS 145, also effective for audits for periods ending on or after Dec. 15, 2023, revises aspects of the risk assessment process, focusing on an entity’s internal control system. Notably, it enhances auditor responsibilities related to evaluating the design and implementation of controls, including IT general controls (ITGC). The standard recognises the increasing significance of an entity’s IT environment, requiring auditors to identify and assess ITGCs, categorised into four domains:
Security and Access: Controls ensuring appropriate user access, segregation of duties, and ongoing authorisation for IT applications and cloud providers.
Systems Change: Controls over designing, testing, and migrating changes into a production environment, with segregation of access to prevent unauthorised changes.
System Development: Controls over initial IT application acquisition, development, or implementation, including data conversion and creation of new reports.
Computer Operations: Controls monitoring financial reporting program execution, ensuring backups, and enabling timely data recovery in case of outages or cyberattacks.
While not all domains may be applicable annually, SAS 145 mandates evaluating design and implementation for relevant ITGCs within the applicable domain for each identified significant IT application. The standard also introduced the concept of a continuum of inherent risk as well as other changes.
If you are interested in doing business with Kreston Global, contact us here.
Gary Klintworth, a seasoned financial executive with 25+ years of experience in industry, accounting, leadership and business development, currently serves as Senior Managing Director at CBIZ ARC Consulting. In this role, he leads multiple engagement teams and provides technical expertise to pre-IPO and public companies across various industries.
How to prepare your company for the IPO window
February 9, 2024
The initial public offering (IPO) window offers a pivotal opportunity for companies aiming to go public. With the market showing signs of revival, businesses must ensure their financial foundations are robust and ready for the challenges and opportunities of going public. This guide, authored by Gary Klintworth, (a Senior Managing Director at CBIZ), has extensive experience in financial consulting and IPO preparation. This brief guide outlines essential steps to ensure your company is well-prepared for the IPO window.
What is an IPO window?
The IPO window refers to the period when market conditions are favourable for companies to go public. Investor optimism, stable economic conditions, and a receptive stock market characterise it. During this window, companies can achieve higher valuations and receive a warm welcome from investors. Timing the market correctly is crucial, as the window can close due to economic downturns, regulatory changes, or shifts in investor sentiment.
Preparing for the IPO window
Key steps to financial readiness
1. Assemble the right team early
Before embarking on the public path, it’s imperative to gather a team capable of managing the new demands of public company operations, including SEC filings, financial projections, and audits. In an inflationary environment, starting early with the right advisors can save costs and build a strong foundation for your public journey.
2. Enhance financial reporting and compliance
Transitioning to public company standards requires a rigorous approach to financial reporting. Closing the books with precision and preparing for SEC filings demand a level of accuracy and timeliness unfamiliar to most private companies. Implementing software tools and conducting dry runs of reporting processes can smooth the transition.
3. Secure accurate and timely data
For a company preparing to go public, the integrity of its data is paramount. Efficient systems and reliable APIs are crucial for managing the volume of post-IPO data and ensuring accurate forecasting and reporting to the market.
4. Communicate effectively with the market
A successful IPO is not just about the numbers; it’s about telling your company’s story compellingly. Aligning key metrics with the narrative of your business’s current and future success is essential for engaging investors and underwriters.
5. Explore strategic growth opportunities
The period leading up to an IPO is an ideal time to explore growth strategies and cost-saving measures. Balancing the pursuit of growth with the necessity of profitability and positive cash flow is vital in today’s cautious investment climate.
The importance of long-term strategy
“Preparing for an IPO isn’t just about getting it right for day one,” notes Bradley Coleman, underscoring the importance of strategic planning for the days following the IPO. A successful transition to a public entity involves a continuous commitment to strategic growth, operational excellence, and financial integrity.
Conclusion
As the IPO window reopens, the readiness of your company plays a critical role in seizing the opportunities ahead. By focusing on financial fundamentals, strategic planning, and effective communication, businesses can navigate the complexities of going public with confidence. Gary Klintworth’s insights provide a valuable roadmap for companies aiming to thrive in the public market.
For more insights and guidance on navigating the IPO process, get in touch.
Herbert Chain is a highly experienced author is a financial expert with 40 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance, and experience with SPACs.
US issues final accounting standards for (certain) Crypto Assets
January 23, 2024
On December 13, 2023, the US issued the final accounting standards for Crypto Assets. The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-08, titled “Accounting for and Disclosure of Crypto Assets”, an amendment of FASB Codification Intangibles—Goodwill and Other— Crypto Assets (Subtopic 350-60), to address the accounting challenges posed by cryptocurrency. The ASU aims to enhance accounting procedures and disclosure requirements for certain crypto assets, providing a more transparent view for investors, creditors, and other users of financial statements prepared by organizations with holdings of crypto assets.
Cost less impairment
As desired by many users and preparers of such financial statements, the new standard departs from the historical “cost less impairment” accounting model for crypto assets, requiring entities to measure qualifying assets at fair value with changes recognized in net income. In the ASU, the FASB noted that “accounting for only the decreases, but not the increases, in the value of crypto assets in the financial statements until they are sold does not provide relevant information that reflects (1) the underlying economics of those assets and (2) an entity’s financial position.”
Crypto Asset disclosures
The ASU also mandates disclosures about significant crypto asset holdings, contractual sale restrictions, and reporting period fluctuations to provide investors with comprehensive insights. To be subject to these amendments, crypto assets must meet specific criteria, including meeting the definition of an intangible asset as defined by FASB, not providing the asset holder with enforceable rights to or claims on underlying goods, services, or other assets, being created or residing on a distributed ledger based on blockchain or similar technology, being fungible, secured through cryptography, and not created by the reporting entity.
Fair value measurement
There are certain implications on businesses’ operations and recordkeeping resulting from the pronouncement. Fair value measurement introduces the need to stay informed about market prices and markets, and to report the impact of price fluctuations on financial performance. The detailed disclosures now mandated will require organizations to maintain comprehensive records of crypto transactions, and real-time tracking and valuation systems will be necessary to meet reporting demands.
2024 deadline
Entities are expected to comply with the new standards for fiscal years starting after December 15, 2024, with early adoption permissible for yet-to-be-issued financial statements. The changes, if adopted in an interim period, must be retroactively applied from the start of the fiscal year.
For more advice on the recent update from the FASB, please get in touch.
News
Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C. Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance. Herb is a member of MHM’s Audit Methodology Steering Committee.
Guillermo Narvaez is a Tax Partner at Kreston FLS Mexico City Office and the Technical Tax Director, Global Tax Group, Kreston Global and member of the International Fiscal Association (IFA). Guillermo is a tax expert on international taxation, corporate taxes, transfer pricing, mergers and acquisitions, corporate reorganisations and litigation.
Within international taxation, Guillermo specialises in the analysis and interpretation of treaties to avoid double taxation applied to international transactions.
Global cryptocurrency accounting and tax standards
September 8, 2023
In a recent article exploring global cryptocurrency accounting and tax standards in Bloomberg Tax, Herbert M. Chain, Deputy Technical Director of Kreston Global Audit Group and Shareholder, Mayer Hoffman McCann P.C., and Guillermo Narvaez, Technical Tax Director at Kreston Global Tax Group and Tax Partner, Kreston FLS, delve into the difficulties of codifying digital assets within the scope of existing accounting standards. You can read the full article on Bloomberg Tax, or read the summary below.
Cryptocurrency accounting and tax standards in the United States
On September 6 2023, the Financial Accounting Standards Board (FASB) approved new rules for accounting for cryptocurrencies. The standard requires crypto assets to be measured at fair value each reporting period, while also requiring enhanced disclosures for annual and interim reports. The rules will be effective for 2025 annual reports, but may be adopted for earlier periods. The FASB expects to formally issue the standard by year-end. On the taxation front, crypto assets are considered personal property, subject to capital gains tax. The U.S. Internal Revenue Service recently proposed new regulations set to come into effect in 2026, with a focus on simplifying tax filings and curbing evasion.
Global accounting and tax standards for cryptocurrency
The authors highlight that there is currently no unified global framework to govern cryptocurrencies due to the divergence in local criteria, with China, Japan, Canada and the EU offering no classification. The tax treatment varies from jurisdiction to jurisdiction, often classifying crypto as personal property, intangibles, or other asset classes for tax purposes. The lack of consensus extends to valuation models, though countries like the U.S., UK, and Australia propose fair value accounting.
Cryptocurrency regulatory challenges
When it comes to regulation, the global scene is diverse and regulators worldwide find themselves in a difficult position. Guidelines must be robust enough to address the inherent risks of this fast-evolving sector, without curbing its innovative potential. The urgency of these efforts has been underscored by recent setbacks in the crypto space, including the collapse of the FTX digital currency exchange platform. Such incidents have heightened concerns and accelerated regulatory initiatives.
In the United States, the government has released “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks,” a comprehensive guide addressing issues surrounding protection and enforcement. Meanwhile, the European Union has made strides in creating a unified regulatory framework through its recently adopted Markets in Crypto Assets (MiCA) rules. Not to be left behind, Canada has also stepped into the regulatory arena by issuing its first set of federal guidelines.
As nations continue to take individualistic or collective strides, the onus remains on stakeholders to remain updated and adaptable, ensuring compliance while optimising opportunities.
Double taxation challenge for cross-border activity
Cross-border transactions of crypto assets also present unique tax implications. With no uniform classification of digital assets as currencies, existing double taxation treaties play a pivotal role in determining tax liability.
Navigating the maze of global tax and accounting rules for cryptocurrencies is not straightforward, but Double Tax Treaties (DTAs) offer some guidance. These treaties, modelled on a global standard, contain Articles 7 and 12, which help determine whether income from selling a crypto asset counts as a “business profit” or a “royalty.”
Establishing the application of Article 7 and Article 12
Article 7 applies when you Are making money from ongoing operations in another country, but only if you have a stable, permanent business there. Article 12 comes into play when you get paid for allowing, among others, the use of an intangible asset like a cryptocurrency.
Countries often hold back some tax right at the source when a royalty payment is involved. So, figuring out whether your crypto sale is a business profit or a royalty is crucial. Business profits are usually taxed in your home country unless you have a permanent operation in a foreign country. Royalties, on the other hand, can be taxed right where the payment originates.
Considering cryptos under Article 12
Cryptos are intangible, just like a piece of copyrighted software. However, there is debate around whether just using the software counts as “use of copyright,” which is what traditionally triggers a royalty tax. Typically, you would need to have in-depth control or rights over the software for it to be considered a royalty.
Think of it like this: If you buy off-the-shelf software, you are paying for the use of the software itself, not the underlying algorithms or any other intellectual property. Therefore, this payment is not considered a royalty. Likewise, if you are simply buying or selling cryptocurrencies, and not tapping into its underlying algorithm for further financial gains, it may not count as a royalty either.
What is the practical impact? If your crypto income is not a royalty, you might escape withholding tax in the other jurisdiction, as per Article 7. This is especially significant given crypto assets’ growing market capitalisation, which currently hovers around $1.2 trillion.
As cryptocurrencies continue to disrupt traditional financial systems and gain economic relevance, the regulatory landscape is ever-changing. Whether it is accounting standards or tax treatments, differences exist across countries—from complete bans to open-armed acceptance. It is crucial, then, to consult experts to understand how each jurisdiction treats crypto assets, as global policies are far from settled.
As the regulatory landscape for crypto assets is still developing, with very different positions being taken across jurisdictions. Accordingly, seeking expert advice from accounting and/or tax advisors is vital.
If you have questions about crypto assets, accounting and taxation challenges and would like to speak to an expert, please get in touch.
News
Kreston BSG to host webinar on U.S. market expansion for Latino entrepreneurs
August 30, 2023
Kreston BSG is hosting a webinar on U.S. Market expansion for Latino entrepreneurs with guest speaker Veronica Quintana, Leader of the Latin-Owned Business Practice at CBIZ MHM. The webinar is on 7 September 2023 at 16:30 (Mexico Central Time) and will be held in Spanish.
Latinos own nearly 5 million businesses in the U.S. and account for over $800 billion in revenue. If you’ve ever thought about taking your business across borders and stepping into the lucrative U.S. market, now is the perfect opportunity. Kreston BSG is thrilled to partner with CBIZ in the United States for a webinar aimed at guiding entrepreneurs through the tax and legal implications of starting or expanding a business in North America.
Event Details:
Date: September 7
Time: 16:30 pm (Mexico Central Time)
Language: Spanish
Audience: Open to the general public, clients, and collaborators of Kreston Global and CBIZ
Leader of the Latino-Owned Business Practice at CBIZ & MHM, Veronica Quintana brings a wealth of knowledge and experience in navigating the U.S. market.
Understanding the U.S Tax system: Navigating the complex U.S tax landscape
Legal requirements: What are the do’s and don’ts when expanding or starting a business in the U.S?
Cultural considerations: Unpack the nuances of doing business in a diverse market.
Why Should You Attend?
Informative: The comprehensive coverage of the tax and legal aspects will equip you with the right tools to set up your business successfully in the U.S.
Networking: Opportunity to interact with experts and like-minded entrepreneurs.
Free of charge: Knowledge, insights, and an array of business benefits, all at zero cost to you.
News
Herbert M. Chain
Shareholder, Mayer Hoffman McCann P.C. Deputy Technical Director, Global Audit Group, Kreston Global
Herbert M. Chain is a highly experienced auditor and is a financial expert with over 45 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance.
How audit companies can support staff to better detect financial fraud
August 18, 2023
Recently, Herbert M Chain, Deputy Technical Director at Kreston Global Audit Group and Shareholder at Mayer Hoffman McCann P.C. spoke to Bloomberg Tax about a holistic approach audit companies must employ to support staff to identify financial fraud effectively. Read the full article or the summary below.
Increasing risk in the audit process
Recent data from the Public Company Accounting Oversight Board in the U.S underscores the correlation between firm culture and audit quality. The study highlights an alarming increase in audit deficiencies, set to climb for a second consecutive year. A significant 40% of these deficiencies in 2022 are linked to cultural aspects such as leadership’s commitment to superior audits, compliance, and staff churn.
At its essence, the culture of a firm serves as an unseen guiding hand, setting the tone for behavioural norms, professional duties, and interpersonal interactions. A perfect alignment of culture, values, processes, and training is imperative to empower auditors to address potential fraud risks.
In the world of auditing, ensuring that professionals are adept at pinpointing and addressing financial fraud is multifaceted. At its core, each auditor works within a framework of professional standards, controls, and strategies tailored to spot and react to fraudulent financial statements. This system—rooted in the culture of the auditing firm—is a cornerstone of the company’s quality control mechanism.
Auditor toolkit to reduce deficiencies
Scepticism as a daily practice
For auditors, embracing professional scepticism is non-negotiable. It emphasises a probing mindset and a scrupulous assessment of audit evidence—key to recognizing and countering potential fraud risks. Auditors, in every step of the process, are expected by regulators, stakeholders, and the public to apply this scepticism.
Auditors with sharp scepticism are not just passive observers. They actively hunt for signs of fraud and methodically inspect every piece of evidence. Their scepticism also helps in assessing managerial responses, ensuring they are not only rational but also evidence-backed. Both intrinsic scepticism and context-driven scepticism shape an auditor’s approach.
Elevating this sense of scepticism through training, awareness programs, and supervision can significantly enhance the trustworthiness of financial audit reports.
Financial Auditing vs. Forensic Auditing
Drawing a line between financial statement auditing and forensic auditing is imperative. While the former is designed to offer an unbiased opinion on the authenticity of financial records, the latter digs deep into suspicions of fraud for legal documentation.
Auditors in financial audits maintain impartiality, while forensic auditors operate under a presumption of potential misconduct. It’s a delicate act for auditors to maintain objectivity, yet remain alert to discrepancies.
Nurturing staff expertise
“Due care” is a revered principle in auditing, defining the expertise and diligence auditors should bring to the table. For auditors to be effective, they need expertise, awareness, and adequate oversight—this means entrusting complex evaluations to seasoned professionals rather than novices.
Cultivating a culture that champions learning is vital for auditors to counter financial fraud risks. Academic research supports the idea that well-trained auditors, equipped with fraud detection knowledge, are more sceptical, employ advanced methods, and stand a higher chance of identifying deceit.
When developing training programs, audit firms should:
Promote scepticism and analytical thought: Cultivate a culture that values scepticism and analytical thought. Train auditors to challenge assumptions and view evidence with a discerning eye. Offer guidance on how to scrutinize managerial claims and navigate potential biases.
Raise fraud awareness: Educate auditors about different fraud tactics, warning signals, and potential indicators.
Impart forensic accounting skills: Introduce staff to specialized fraud detection and prevention tools and techniques.
Teach control assessment: Instruct auditors on how to spot control vulnerabilities that may elevate fraud risks.
Enhance interview and enquiry skills: Train staff to extract vital details during fraud discussions and guide them on the intricacies of fraud investigations.
Encourage continued learning: Push for ongoing learning in fraud detection and encourage acquiring certifications, attending seminars, or workshops related to fraud.
Embracing Technological Advances
With technology evolving rapidly, auditors can no longer afford to be on the sidelines. Forensic data tools are increasingly finding their place in the auditor’s arsenal, especially in cases with high fraud concerns. Similarly, AI-powered systems, like expansive language models, are being harnessed to spot and analyze potential fraud.
Turning a blind eye to these developments is perilous. It’s imperative for firms to integrate these tools into their strategy and train their team accordingly.
Mastering data analytics is crucial. By scrutinizing transactional data, algorithms can pinpoint anomalies like unforeseen revenue fluctuations or dubious transactions. Alongside this, auditors need a grasp on data visualization, statistical techniques, and data mining.
The power of AI can’t be ignored. AI can process vast data amounts, spot patterns, and offer invaluable insights. It’s essential for auditors to have a robust understanding of AI technologies. But, it’s also vital to be aware of its limitations, ensuring AI is used judiciously and its outcomes critically examined.
Get in touch
If you would like to talk to an Audit expert about Audit, please get in touch.
The US tax incentives process includes four main components: Pre-Proposal Planning, Incentives Proposal, Tax Incentive Application and Multiyear Compliance Process.
Pre-Proposal Planning is the process of determining what the company’s expansion looks like. Will the facility be heavy with capital investment or hire lots of employees? If so, how much investment and how many employees? Or will the US expansion by remote in nature and have a virtual office? The states are looking for a central facility from which the employees and investment will be based. So if the plan is to have minimal office space and for employees to work remotely from across the US, then there would be little if any tax incentives available. So, the company should determine “what are the most important drivers for this expansion?”
Incentives Proposal is where the company’s representative connects with the state tax authorities in the state or states that are under consideration for the project. The states will request fairly extension information from the company about the company’s background and the facts of the project. This negotiation process can take some time, from 2 weeks to 1 year depending on the project.
Tax Incentives Applications is the process after the acceptance of the Incentives Proposal where the company formally applies for participation in the various tax incentive programs.
Multiyear Compliance Process – some companies believe that the states will handle all of the compliance processes for them and just “send the company a check.” This is not the case. These incentive programs can have monthly, quarterly and/or annual compliance reports associated with them. If you miss a report or a deadline, the incentives programs are in jeopardy of being forfeited.
Types of State Tax Incentives
Tax incentives vary widely by state. Some states have very few incentives and some states have very compelling incentive programs. The following is a partial list of incentive programs that may be available:
State income tax credits
Payroll tax rebates or refunds
Training grants
Sales tax exemptions
Property tax abatements
Utility cost reduction
Forgiveable loans
Depending on the company facts, a combination of these incentives can offset the expansion costs of a project by as much as 30%.
Qualifiers
Targeted industries
Manufacturing
Professional / Financial Services
Engineering / Architecture
Technology
Biomedical / Research
Headquarters (regardless of industry)
Businesses that generate greater than 50% of their revenue from outside the state
Non-Eligible – retail, non-profits- casinos, religious or government organizations
High wages
New jobs
Capital investment, and/or
Geographic location
Timing – the earlier the better
Devils in the Details
It’s Never Too Early but Often Too Late
Performance Based
Knowing what is a true incentive
ESG and Tax Incentives
Some tax incentive programs now require hiring a certain percentage of minorities, providing internships, or other charitiable or serviced based activities.
Impact of Remote Work
State and local governments want to incent companies that will make investments in their communities, provide job opportunities for its population, pay higher than average wages and are quality members of the community. With the post-COVID tendency of remote work, this has caused some companies to have a model that doesn’t establish a connection with a particular community, instead having their employees work from home across the US. In the remote worker scenario, there are often few tax incentive opportunities, and if there are, the benefits aren’t typically worth the effort.
If you would like more information on tax incentives in the US, please get in touch.
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