Audit

Why Your Audit Fails Before Fieldwork Even Starts

Earmark Team · September 16, 2025 ·

“Some audits are doomed before the fieldwork even begins.”

In Episode 2 of Audit Smarter, Sam Mansour cuts to the heart of a problem many audit professionals face but don’t fully understand. You’ve been there: an experienced team, solid procedures, and a reasonable budget. Yet somehow, the engagement still feels like constantly playing catch-up. Testing seems disconnected. Risks surface at the worst possible moment. Partners ask questions during review that should have been answered weeks ago.

The culprit? Poor risk assessment that undermines everything that follows.

Most audit professionals understand risk assessment is important, but few realize how dramatically it shapes their engagement. Mansour explains, “The risk assessment drives the entire audit approach. And if we misidentify or overlook specific audit risks, your testing could be misaligned, and you could waste time. But even more concerning, you might miss material misstatements.”

Here’s what’s happening across the profession and, more importantly, what you can do about it.

Why Risk Assessment Gets the Short End of the Stick

The problem isn’t that auditors don’t know how to assess risk. It’s that firms have systematically devalued this critical phase, treating it as administrative overhead rather than the strategic foundation it actually is.

“Many teams view planning just as a compliance step and not as a strategic one,” Mansour observes. Budget pressures and efficiency demands create an environment where teams feel pushed to rush through risk assessment. “We devalue the risk assessment phase. We think of it as a textbook thing. Let’s just check some boxes and move on.”

This leads to what Mansour calls “pencil whipping,” mechanically completing checklists without genuine thought or analysis. The evidence shows up everywhere in audit files: work paper references that don’t make sense, incorrect years, or references to people who no longer work at the organization.

“It’s pretty clear it’s been rolled forward,” Mansour notes. “And it’s also very clear no one read through it.”

When external reviewers, whether peer reviewers or regulators, see this kind of documentation, it immediately raises red flags. “As a peer reviewer, you look at some of these risk assessments, and it’s crystal clear they just rolled this from last year and they didn’t even look at it,” he explains. “You’re probably going to be pretty strict when you’re looking at the rest of that file because clearly these guys are just rolling from the prior year.”

The pressure to be “efficient” in planning creates a dangerous cycle where the foundation of the audit becomes weaker, making it much harder to execute proper testing throughout the engagement.

5 Common Mistakes That Derail Audits

Understanding where things typically go wrong helps you avoid these pitfalls in your own engagements. Mansour identifies several patterns that consistently create problems.

Generic, Template-Driven Approaches

When risk assessments are generic and not customized to the specific client, the walkthroughs and procedures that follow suffer. “If we are general or vague in our identification of risks, it results in generic audit procedures,” Mansour explains.

Copying Prior Year Without Thinking

Using prior-year documentation as a starting point makes sense, but many teams go too far. They simply copy everything over with minor adjustments, becoming “a little complacent, a little lazy” in the rollover process. A better approach is to use prior-year information as a guide but take a fresh perspective on the current year.

Failing to Link Risks to Procedures

One “gut-wrenching” moment in an audit review happens when the audit team identifies risks in checklists, but no corresponding procedures address them. “You identified this risk, but what did you do about it?” This mistake exposes fundamental gaps in audit logic.

Superficial Inquiries

Take related party transactions, for example. Many auditors accept a simple “we have none” from the client and move on. But as Mansour points out, “that’s not sufficient.” Instead, “auditors should dig into board minutes, vendor relationships, and ownership records” to understand whether related parties exist and what transactions might occur.

Misusing Junior Staff

Sending inexperienced team members to conduct walkthroughs without proper guidance is a recipe for problems. Junior staff might identify three issues out of ten while missing critical problems that experienced auditors would catch immediately. “Sometimes you need experience to tell you, you’re looking at ten different things and eight of them are going to be a problem and two of them are not,” Mansour explains.

The solution isn’t to avoid using junior staff. It’s to pair them with experienced team members who can provide real-time guidance and fill in the gaps.

Practical Tools to Strengthen Your Risk Assessment

The good news is that these problems are entirely fixable with the right approach and tools. Here’s what works:

Dynamic checklists. Move beyond simple checkbox exercises to checklists that challenge teams to collect new information and think deeply about what they find. Ask different types of questions that force auditors to go beyond surface-level inquiries.
Structured brainstorming sessions. Don’t just conduct one brainstorming session and call it done. Mansour recommends peppering collaborative discussions throughout the engagement. “Have the engagement team go out to lunch and consider that part of your brainstorming activity,” he suggests. These sessions force teams to share knowledge and often uncover overlooked areas.
Early data analytics. Instead of treating analytics as nice-to-have add-ons, deploy them “immediately after engagement acceptance,” Mansour advises. His approach: “Give me your trial balance, and I will do some data analytics on it right from the get-go.” This generates specific issues to investigate before client meetings, allowing you to connect numbers to client stories strategically.
Simple intelligence gathering. Something as basic as Googling your client’s name can reveal critical information, yet “a lot of auditors won’t even do that,” Mansour observes. “You’d be shocked at some of the stuff” these searches uncover. Review prior audit findings, look for industry changes, and stay current on client updates.
Collaborative team approach. Instead of having one person update risk assessment documentation alone, assign different sections to different team members. This ensures multiple people read through and think about the content, rather than having it all flow through one person who might miss important details.

What Separates Top Performers

Firms that consistently execute superior risk assessments share several key characteristics that set them apart.

They Treat Risk Assessment as a Mindset

“Top performers treat risk assessment as a mindset, not just a task,” Mansour explains. “They understand that there’s value in risk assessments. It’s not just a checkbox on their list.” Their teams are intellectually curious rather than robotic, but this requires giving people adequate time and breathing room to think deeply.

They Create Collaborative Environments

These firms don’t silo team members into individual sections. Instead, they “connect the dots between client goals, internal controls, and audit processes with purpose.” Team members actively consider how discoveries in one area impact testing in others, creating a comprehensive understanding that reduces risk while improving efficiency.

They Invest in Proper Mentorship

Rather than throwing junior staff into complex situations alone, top performers create systematic mentorship structures. They pair junior staff with experienced seniors who provide real-time guidance, immediate field discussions, and progressive responsibility increases.

They Focus on Custom Solutions

Elite performers avoid generic approaches entirely. They tailor audit plans to each client and engagement year. Their team members can explain their logic clearly without defaulting to “it’s what we were told” or “it’s what we did last year.”

Three Changes to Make Right Now

If your firm wants to improve immediately, Mansour recommends focusing on these three foundational changes:

Slow down in the planning process and allow for deeper team discussions. Invest upfront time that prevents downstream scrambling and quality issues.
Ensure walkthroughs include a formal evaluation of control effectiveness with documentation customized to the specific client and current year rather than generic templates.
Critically assess each risk and match it to custom procedures designed to address it, eliminating the disconnect between identified risks and actual testing approaches.

How You Know You Got It Right

Success in risk assessment is measurable through specific indicators. Your audit plan should be tailored, not generic. This demonstrates genuine client-specific thinking rather than template dependency. Your team members should be able to explain their logic clearly and provide substantive reasoning for their approaches.

Most importantly, when partners or regulators review your documentation, they should be able to “read your risk assessment and understand the rationale,” as Mansour puts it. They should see a clear narrative and strategic thinking rather than dry, templated responses.

If your team can’t explain their logic, or if external reviewers see obvious evidence of rolling forward prior year templates, you’re still in checkbox mode rather than strategic thinking mode.

The Foundation Makes the Difference

Risk assessment isn’t preliminary work that happens before the “real” audit begins. It’s the foundation that determines whether your entire engagement succeeds or struggles. As Mansour explains using a gardening analogy, if the risk assessment seed “doesn’t get planted properly, if it’s not cared for properly, it sets you up for failure.”

Firms that recognize this and invest accordingly create sustainable competitive advantages through systematically superior approaches to this critical phase.

The strategies and tools we’ve covered are proven approaches to transform your risk assessment process from liability into a strategic advantage. However, implementation requires commitment to changing how your firm approaches and uses its resources for this foundational work.

Ready to dive deeper into these risk assessment strategies and discover the specific frameworks top performers use? Listen to the full episode of Audit Smarter for Sam Mansour’s complete insights on transforming your approach to risk assessment and elevating your audit practice.

PCAOB Board Member Reveals Why 46% Audit Deficiency Rate Is Misleading

Blake Oliver · April 1, 2025 ·

When Senator Elizabeth Warren publicly accused PCAOB Board Member Christina Ho of “downplaying atrocious findings” about audit quality, it got me thinking: Do these alarming statistics about audit deficiencies really tell the full story?

The numbers definitely grab attention: Audit deficiency rates rose from 29% in 2020 to 46% in 2023. These figures from the Public Company Accounting Oversight Board (PCAOB) suggest that nearly half of all audits reviewed contained deficiencies so severe that “the audit firm had not obtained sufficient appropriate audit evidence to support its opinion.” At face value, these statistics paint a troubling picture of the accounting profession.

In a conversation on the Earmark Podcast, I asked Christina to help me understand these numbers. Christina explained the gap between headline statistics and meaningful measures of audit quality.

Understanding the PCAOB’s Role

Before getting into deficiency rates, it’s essential to understand what the PCAOB does. Christina explains, “The PCAOB is responsible for making sure auditors who check the publicly traded companies’ financial disclosures are doing their job well.”

The PCAOB fulfills this mission by registering audit firms, inspecting their work, and enforcing standards through sanctions when necessary. The inspection program represents the largest part of the PCAOB’s operations, with different firms facing different inspection frequencies:

The “Global Network Firms” (Big Four plus Grant Thornton and BDO) are inspected annually, with about 50 audits reviewed for each of the largest firms.
Firms with more than 100 public company clients are inspected annually, with about 10% of their audits reviewed.
Firms with fewer than 100 public company clients are inspected every three years.

The Misleading Mathematics of Deficiency Rates

When the PCAOB announced that 46% of audits reviewed in 2023 contained significant deficiencies, it received considerable attention. In our discussion, Christina pointed out several critical issues with how these numbers are presented and interpreted.

First, these audits aren’t randomly selected. The PCAOB uses a “risk-based approach” that deliberately targets audits they believe are likely to have problems.

This selection bias fundamentally changes how the statistics should be interpreted. Christina pointed out, “We really can’t extrapolate the deficiency rate to the entire population of all audits because we did not take a statistical sample.”

Even more revealing is what these deficiencies actually mean. Despite the alarming definition, the PCAOB’s own reports include a critical disclaimer that Christina highlighted: “It does not necessarily mean that the issuer’s financial statements are materially misstated.”

In fact, less than 5% of these so-called deficient audits resulted in incorrect audit opinions—the outcome that would truly matter to investors. This stark contrast between the headline figure (46%) and the rate of consequential errors (under 5%) reveals how statistics without proper context can give the wrong impression.

Another significant issue is the PCAOB’s failure to differentiate between levels of deficiency severity. “Our deficiencies… we put everything in the same bucket,” Ho explained. “And in reality, not everything is the same in terms of impact and materiality.”

Unlike internal control evaluations, which distinguish between material weaknesses, significant deficiencies, and minor deficiencies, the PCAOB’s inspection reports do not make such distinctions. This makes it nearly impossible for investors to understand which deficiencies truly matter.

The Disproportionate Burden on Smaller Firms

Christina argued that the current inspection approach unfairly burdens mid-sized audit firms. While the largest firms have a smaller percentage of their audits inspected, firms just above the 100-client threshold face much more scrutiny.

“I personally think that our inspection program is disproportionately burdensome on these firms,” Christina said. This burden is so significant that some firms are intentionally reducing their client base: “They are trying to get rid of their audit clients to get under 100” to qualify for inspections every three years instead of annually.

This creates a troubling situation where firms avoid growth to escape regulatory burden. “I just don’t think it’s good for a very important part of an ecosystem to try to not grow,” Christina said. “We need to make sure we have resilience in the audit marketplace.”

The impact extends beyond individual firms to affect market competition and, ultimately, the capital markets themselves. When mid-sized firms deliberately avoid growth, it concentrates the market among the largest firms—limiting options, especially for smaller public companies.

The Political Fallout

Christina experienced firsthand how deficiency statistics can become political weapons when Senators Elizabeth Warren and Sheldon Whitehouse publicly accused her of “downplaying atrocious findings” after she questioned these metrics in a speech.

“I was very upset about being accused of lying,” Christina told me. “I thought it was very hypocritical of the senators, especially Senator Warren, to essentially bully me because I had a different view from her.”

Rather than reaching out for discussion, the senators sent a letter to the PCAOB Chair, which Christina said left her without “a proper avenue to respond.” This prompted Christina to respond via LinkedIn, where she received significant support from accounting professionals.

This incident highlights how statistics without context can be weaponized in ways far beyond academic disagreements about methodology.

The Search for Better Measures of Audit Quality

Given the problems with the PCAOB’s deficiency rate figures, how should audit quality be measured? Christina suggested several approaches that might be more meaningful:

Look at trends rather than isolated annual statistics. Christina said, “The best way to look at the deficiency rate is not by each year. The best way to look at that data is to be looking at a trend.”
Focus on restatements. Christina said, “Restatements is a much better metric…because that really measures the true impact to investors.” Restatement rates have declined over the past decade, suggesting improvement rather than deterioration in audit quality.
Consider greater transparency. When asked if revealing the names of companies whose audits contained deficiencies would be beneficial, Christina was open to the idea, though she acknowledged the need for broader stakeholder input.
Develop severity ratings. Creating a framework distinguishing between technical violations and substantive errors would provide context for interpreting deficiency findings.

Christina noted that measuring audit quality has been challenging because “audit quality is not quantitatively easily measurable.” And yet, the PCAOB’s approach to deficiencies is to treat all issues identically—regardless of severity or impact.

The PCAOB has been exploring “audit quality indicators” for approximately 15 years but has yet to develop more meaningful metrics. This lack of meaningful data makes it difficult to evaluate the effectiveness of the PCAOB’s oversight or the true state of audit quality.

Has Audit Quality Improved?

Christina believes the PCAOB has helped improve audit quality over the past two decades despite the challenges in measurement. When asked about evidence for improvement, she pointed to declining restatement rates and feedback from audit committee chairs and controllers who report improvements in audit and financial reporting quality.

“If you look at the data on the number of restatements and you look at the last ten, twenty years… restatement has been on the decline,” Christina said. “If you look at the AICPA/CAQ study that they released last year… if you talk to [audit committees], they feel that the audit quality has been improving.”

This more nuanced perspective indicates that, despite the worrying headlines about deficiency rates, the overall reliability of financial reporting might be improving.

Looking Ahead: The Future of Audit Oversight

As artificial intelligence and other technologies transform audits, Christina argues for “a more agile approach” to quality measurement—one that can adapt to technological change and focus on outcomes rather than inputs.

After talking with Christina, it’s clear to me that to move forward, we need to find a balance between regulatory oversight, an understanding of how audits work, and what affects the reliability of financial statements. If we don’t, the profession will get bogged down by misleading metrics that only check compliance boxes rather than enhancing what counts: protecting investors through trustworthy financial reporting.

Want to hear the entire conversation with Christina Ho about PCAOB deficiency rates, audit quality measurements, and her experience with political criticism? Listen to the complete episode of the Earmark Podcast.

Beat Spreadsheet Chaos and Improve Audit Efficiency

Blake Oliver · February 18, 2025 ·

If you’re running an accounting firm, one statistic should be on your radar: 30% of audit engagements fail to stay on time and within budget. In an era of talent shortages and rising client expectations, this isn’t just a scheduling issue—it threatens profitability and long-term client relationships.

The Frustrations of Manual Approaches

Anyone who has worked in public accounting knows how messy things can get trying to manage work with Excel spreadsheets, SharePoint folders, and long email threads. You may try to keep everything in one email, but it often becomes too cluttered. If you create several threads for each request, you can easily lose track of them. This confusion can lead to clients forgetting which documents they have sent, and the audit team spends too much time trying to find out what is still missing.

Many firms face challenges with low realization rates and delayed projects, largely due to cumbersome manual workflows. As a result, client experience can also suffer. Keep in mind that your client contact has a full-time job, and sifting through emails to locate the correct request only adds to their frustration.

Enter Suralink: Reinventing the PBC Process

In a recent Earmark Expo, Ryan Smith showcased Suralink, describing it as the industry’s leading “Provided by Client” (PBC) solution, serving over 1,100 CPA firms and 6,500 client users, including 60% of the top 200 CPA firms. Suralink was born from a CPA’s firsthand frustration with spreadsheets and email threads. The goal? Streamline client collaboration so that everything—document requests, file uploads, comments, and status updates—happens in one secure portal.

Key Features for Modern Audit Workflows

Here’s how Suralink helps to address the challenges of manual processes and reimagine client engagement for faster and more profitable audits:

Single Source of Truth

All request items are tracked within one platform—no more scouring inboxes, no more juggling Excel checklists.
Color-coded statuses (Outstanding, Fulfilled, Returned, Accepted) make it easy for clients to see what’s pending. Turning “boxes” yellow or green creates a sense of progress and gamification.

Assignment and Permissions

Each request can be assigned to a firm user or a specific client contact. Users see only the items relevant to them, reducing confusion.
Sensitive requests (e.g., payroll data) can be “locked,” so only designated individuals see those documents. Clients appreciate the added confidentiality.

Consolidated Communication

Instead of cluttered email threads, each request includes its own dedicated comment section. Conversations stay in context; everyone can refer to them as needed.
Daily digest notifications keep the engagement team updated on new uploads or comments, while an “escalate” feature sends real-time alerts for mission-critical deadlines.

Roll-Forward Simplicity

For recurring engagements—like annual audits—Suralink’s roll-forward function saves last year’s request structure and assignments. When the new cycle begins, your client can see what was provided before, drastically reducing guesswork and set-up time.

Secure File Sharing and eSignature

Documents are uploaded directly into a secure portal, eliminating the need for unencrypted email attachments.
A built-in eSignature feature allows firms to send engagement letters, Form 8879, or other documents for electronic signatures. Clients receive an automated prompt and can sign right into the platform.

Dashboard and Visibility

Partners and managers get an at-a-glance view of every active engagement. They can filter by department, office, or individual staff member to see where bottlenecks occur.
A complete audit trail logs every upload, download, comment, and status change, ensuring full transparency.

Efficiency, ROI, and Client Satisfaction

When CPA firms switch to Suralink they see up to 40% time savings in managing document requests alone. Instead of struggling through manual checklists and email clutter, engagement teams focus on higher-value tasks—like analyzing data and advising clients.

Clients also notice a major improvement in service quality. Everything is in one place, and they can easily upload or view what’s needed. Ryan Smith mentioned that some clients have explicitly told their CPA firms, “If you ever leave Suralink, I’ll find another firm that uses it.” That’s a telling endorsement for any technology investment.

Laying the Groundwork for an AI-Driven Future

The future of audit and assurance services will undoubtedly involve artificial intelligence. Suralink is already preparing to add document preview and AI-driven checks—so the platform can verify whether clients have uploaded the correct file or automatically flag mismatched data.

Behind the scenes, an extensive API allows firms to integrate Suralink with other core systems, from CRM platforms that create new engagements automatically to document storage solutions for archiving. This open architecture paves the way for AI tools that handle basic document verification, sampling, and initial quality checks. Think of it as building a modern foundation that supports the next wave of innovation in accounting tech.

Fast Implementation and Transparent Pricing

Beyond the technology itself, Suralink stands out for its rapid onboarding:

Implementation: Firms with hundreds of users have gone live in about a week or two.
Training: Options range from weekly webinar sessions to dedicated Customer Success Managers under the Professional plan.
Pricing: Typically per firm user (around $29 per month under the Standard plan). All clients, engagements, and storage are included, so there’s no added cost per client or per project.

Why Now Is the Time to Innovate

With talent shortages squeezing firms, rising client demands for better digital experiences, and a 30% risk of engagements blowing past budgets, now is the moment to rethink your PBC process. Modern collaboration tools like Suralink eliminate inefficient back-and-forth, keep data secure, and free your team to focus on what really matters—delivering high-quality audit and advisory services.

And this is just the beginning. As AI capabilities expand, the right platform will let you tap into automated reviews, faster document verification, and other efficiencies we’re only starting to imagine. By choosing a solution designed for the future, you’ll protect the investment you make today and position your firm for years of innovation and growth.

To learn more about how Suralink can transform your engagements and improve client collaboration, check out the Earmark Expo. Whether you’re a solo practitioner or part of a top 25 firm, it’s time to break free from the old way of doing things—and close the door on that 30% problem for good.

Audit Crisis: How Flawed Incentives and AI Are Reshaping the Accounting Profession

Blake Oliver · October 25, 2024 ·

In a recent episode of The Accounting Podcast, we explored alarming trends in audit quality shaking the foundations of our profession. The numbers are stark: the Public Company Accounting Oversight Board (PCAOB) found that Ernst & Young (EY), one of the Big Four firms, has a staggering 37% deficiency rate in its audits. Even PricewaterhouseCoopers (PwC), the “best” performer among the Big Four, has an 18% deficiency rate. These deficiencies are so significant that, according to the PCAOB, the auditors should not have issued their opinions.

As audit deficiency rates remain stubbornly high and scandals shake investor confidence, the accounting profession must confront systemic issues undermining audit quality—including misaligned incentives, inadequate staffing, and outdated practices—to restore trust in financial markets and secure their future relevance.

The Alarming State of Audit Quality

When we discuss a crisis in audit quality, we’re not exaggerating. The deficiency rates reported by the PCAOB paint a troubling picture of the state of auditing in the United States:

EY has a 37% deficiency rate—the highest among its peers.
PwC, despite performing “best” among the Big Four, still has an 18% deficiency rate.
BDO, a top 10 firm, has an alarming 86% deficiency rate.

But what do these numbers mean? A Part 1.A deficiency indicates that the auditor “had not obtained sufficient appropriate audit evidence to support its opinion(s) on the issuer’s financial statements and/or ICFR.” In other words, it means the auditor should not have issued their opinion, and potentially, investors should not rely on it.

This is not just a minor oversight—it’s a fundamental audit process failure. When nearly four out of ten audits at a Big Four firm like EY are deficient, or when 86% of BDO’s audits fail to meet standards, we’re looking at systemic issues that threaten the foundation of our financial markets.

The most common deficiencies relate to basic audit tasks:

Performing substantive testing.
Testing controls over data accuracy.
Evaluating the effectiveness of internal controls.

In essence, auditors are failing to perform the core responsibilities that investors rely on them to perform. These high deficiency rates directly erode investor confidence. When investors can’t trust the audited financial statements, the entire financial reporting and investment system becomes compromised.

Why are these deficiency rates so high? We need to examine the business models and incentives driving audit firms to answer that.

Misaligned Incentives and Flawed Business Models

At the heart of the audit quality crisis lies a troubling truth: audit firms’ business models are fundamentally misaligned with the goal of producing high-quality audits. Instead, they incentivize practices that prioritize profit over thoroughness and accuracy.

One primary strategy audit firms employ to maximize revenue is understaffing. Having the fewest people work on the audits leads to overworked staff and rushed audits, increasing the likelihood of errors and oversights.

EY provides a stark example of this strategy in action. The firm boasts the highest revenue per employee among the Big Four at $383,900. While impressive from a business perspective, it raises serious questions about the firm’s ability to allocate sufficient resources to each audit.

Another concerning practice is the lack of transparency around materiality thresholds. Auditors use these thresholds to determine what issues are significant enough to report. However, these standards are not publicly disclosed and can be manipulated. It’s possible to cover up something undesirable by deeming it “immaterial.” This lack of transparency allows auditors to ignore or downplay significant issues, further undermining the reliability of their opinions.

However, the biggest problem is that auditors lack the financial incentive to detect fraud or significant issues. They have every incentive to do the audit quickly, even if it means overlooking critical problems.

These misaligned incentives and flawed business models directly contribute to the high deficiency rates. They create an environment where cutting corners is rewarded, and thoroughness is penalized, contradicting the fundamental purpose of an audit.

The Supermicro Scandal: A Case Study in Audit Failure

The recent Supermicro scandal provides a vivid example of how systemic auditing issues can lead to significant market disruptions and erode investor confidence.

Supermicro Computing, a major player in the tech industry, recently announced an accounting delay that caused its stock to plummet 19% in a single day. This followed a report by Hindenburg R e search, which alleged dubious accounting practices at the company.

Based on a three-month investigation, the Hindenburg report uncovered glaring accounting red flags, including:

Undisclosed related-party transactions involving nearly $1 billion were paid over three years to suppliers partly owned by the CEO’s brothers.
Rehiring executives involved in previous accounting scandals less than three months after paying a $17.5 million SEC settlement for widespread accounting violations.

But where was Deloitte, Supermicro’s auditor, in all of this? Despite charging $4.5 million annually for their services, Deloitte failed to identify or report these significant issues. Their audit letters for 2022 and 2023 were nearly identical, focusing only on inventory valuation as a critical audit matter.

Adding to the concern, an AI system developed by Hudson Rock had identified potential accounting risks at Supermicro two years before these issues came to light. As my co-host, David Leary, points out, “If AI can surface these audit problems before companies can, people aren’t going to want to pay $4.5 million for an audit.”

The emergence of AI challenges the traditional audit model and demands a reevaluation of how we approach financial oversight.

A Call for Reform

The audit profession stands at a crossroads. The alarming PCAOB deficiency rates, misaligned incentives driving audit firm business models, and high-profile failures like the Supermicro scandal all point to a systemic crisis in audit quality.

This isn’t just an issue for accountants and auditors—it’s a threat to the integrity of our entire financial system. Investors rely on audited financial statements to make informed decisions, and when those audits fail, the consequences can be catastrophic.

The emergence of AI as a potentially more effective tool for detecting accounting irregularities further challenges the traditional audit model. Significant changes are needed—from realigning incentives to embracing new technologies—to restore trust in the audit process and secure the future relevance of the profession.

But change won’t happen without a concerted effort from all of us in the accounting world. We must confront these challenges head-on, push for meaningful reforms, and reimagine what high-quality auditing looks like in the 21st century.

To hear our full analysis, including potential solutions and ways you can make a difference, listen to this episode of The Accounting Podcast.