Read the day one recap here.

Day two of the 44^th Annual USC & FEI SEC and Financial Reporting Conference built on day one’s themes, shifting focus from regulatory priorities and emerging accounting issues to the practical implications for the profession. Discussions throughout the day explored how accounting firms, preparers, auditors, regulators, and educators are adapting to rapid technological, regulatory, and workforce change. While technology continues to transform financial reporting and auditing, speakers consistently emphasized that professional judgment, accountability, and trust remain essential to maintaining investor confidence and effective capital markets. Across sessions, panelists returned to a common challenge: how to develop people, processes, and controls that keep pace with innovation while preserving the judgment and skepticism that underpin the profession.

Chief Accountants’ Roundtable on the Future State of the Profession

Moderated by Landon Westerlund, Partner and Deputy Chief Accountant at KPMG, this session featured Paul Beswick, Partner and Chief Accountant at EY LLP, Adam Brown, Principal and Chief Accountant at BDO, and Brandon Coleman, Partner and Chief Accountant at Deloitte. The discussion focused on how technology, regulatory change, and workforce dynamics are reshaping the profession and the skills needed to succeed in it.

Key Takeaways

• AI may accelerate professional development rather than replace it: By reducing routine work, artificial intelligence (AI) lets professionals engage earlier with analysis, judgment, and problem-solving. Firms must ensure that skepticism and technical competence develop alongside increased automation.
• AI governance requires a structured, enterprise-wide approach: As AI becomes more embedded in financial reporting and audit, organizations will need clear governance, documentation, and oversight.
• Changes in reporting frequency may affect auditor-client interactions: The U.S. Securities and Exchange Commission’s (SEC) semi-annual reporting proposal could alter expectations around interim reporting, reviews, and investor communications, requiring companies and auditors to adapt.
• Continuous assurance is emerging as a future direction for auditing: Technology is enabling more real-time connectivity between audit firms and issuer systems. Panelists noted that audit standards may eventually need to evolve alongside these approaches.
• The talent pipeline remains a profession-wide challenge: Rather than rebranding the profession, panelists emphasized correcting misconceptions and highlighting the analytical, strategic, and judgment-based nature of modern accounting and auditing roles.
• The profession’s greatest opportunity is also a key risk: Technology creates an opportunity for the profession to demonstrate its value in producing and assuring reliable financial information. At the same time, overreliance on AI without sufficient skepticism and technical judgment could undermine the trust that is central to the profession’s role in the capital markets.

Current Auditing Practice Issues

Moderated by Brian Croteau, U.S. Chief Auditor and Auditing Services Leader at PwC, this session featured George Botic, Board Member at the Public Company Accounting Oversight Board (PCAOB), Jennifer Cavanaugh, Chief Auditor and Partner, Audit Methodology & Standards at Grant Thornton LLP, Michal Dusza, SEC Deputy Chief Accountant of the Professional Practice Group, and Daniel Murdock, EVP, CAO & Controller, Corporate Accounting & Reporting at Comcast. The discussion focused on the PCAOB’s modernization efforts, evolving audit risks, auditor independence, and the role of professional judgment in an increasingly technology-enabled audit.

Key Takeaways

• The PCAOB is pursuing a more transparent and stakeholder-focused approach to modernization: Panelists discussed the PCAOB’s efforts to increase stakeholder engagement, modernize inspections, and improve transparency around future standard-setting priorities.
• A quality control-focused inspection model is gaining support: As firms prepare to implement QC 1000, panelists generally viewed a greater focus on quality control systems as a positive step toward identifying and addressing systemic issues.
• Auditor independence questions are becoming more complex in an AI-enabled environment: Growing use of AI, commercial technology arrangements, and third-party relationships raises new independence considerations for firms and their clients.
• Risk assessment must become more dynamic: Rapidly changing economic, geopolitical, and technological conditions require organizations and auditors to reassess risk continuously, not just annually.
• AI is changing how audits are performed, but not who is responsible: AI improves the ability to analyze large data populations and identify anomalies more efficiently. Professional skepticism, judgment, and accountability remain inherently human responsibilities.
• The profession continues to evaluate how audit quality should be defined and measured: Panelists discussed whether a more explicit articulation of audit quality could help guide future standard-setting, inspections, and policy decisions.
• The “clearly trivial” threshold remains an important audit committee communication issue: Panelists discussed whether current PCAOB standards require communication of matters that are immaterial in practice, potentially creating noise that distracts from more meaningful governance discussions.

SEC Enforcement Update

Moderated by Matt Jacques, Partner and Managing Director at AlixPartners, this session featured Jennifer Leete, Partner, Litigation at Cravath, Swaine & Moore LLP, and Ryan Wolfe, Chief Accountant, Division of Enforcement at the SEC. The discussion focused on current enforcement priorities, recent accounting and disclosure cases, AI-related risks, and practical lessons for financial reporting professionals.

Key Takeaways

• The accounting talent gap can become a financial reporting risk: Less-resourced companies may struggle to attract and retain personnel with the experience needed to operate as public registrants, increasing financial reporting and control risks.
• The SEC’s enforcement focus remains centered on fraud, investor harm, and control circumvention: Enforcement resources continue to target intentional misconduct, significant investor harm, and deliberate efforts to bypass internal accounting controls, rather than second-guessing reasonable, good-faith accounting judgments.
• Enforcement case volume is down, but case quality remains the more meaningful measure: Wolfe emphasized that what matters more is whether cases clearly explain what went wrong, how issues were corrected, and what lessons market participants can draw from the outcome.
• Materiality requires both quantitative and qualitative analysis: Factors such as management’s public messaging, analyst focus, investor reliance on specific disclosures, and governance considerations can significantly influence materiality assessments.
• AI creates new risks, but human accountability remains unchanged: While AI may improve efficiency, responsibility for financial reporting, internal controls, and disclosure decisions remains with management and those charged with governance.
• AI raises documentation and privilege considerations: Teams should carefully validate and document AI-generated work product, particularly in financial reporting analyses or disclosure drafting. Communications with AI tools generally are not protected by attorney-client privilege in the same way as communications with counsel.
• Recent enforcement actions highlighted a broad range of reporting failures: The panel discussed several recent matters that illustrated the spectrum of conduct attracting SEC attention.
• Fabricated transactions with no economic substance: A special purpose acquisition company (SPAC)-related matter involving transactions that lacked economic substance, a clear example of outright fraud and the conduct that draws the SEC’s strongest remedies.
• Related-party disclosure failures and prohibited executive involvement: An individual served in an officer or director role despite a prior federal court bar, alongside related-party disclosure failures and pervasive reporting errors, including misclassified expenses and incorrectly recorded stock-based compensation. The CEO and CFO were both charged based on certifications of false financial statements.
• Misleading segment reporting and footnote disclosures: Intercompany transactions were not reported at market as the financial-statement notes disclosed, inflating a key growth segment’s apparent performance. The panel emphasized that errors in financial statement footnotes are subject to the same scrutiny as errors on the face of the financial statements. The case also illustrated how management’s public emphasis on a business segment, and analyst reliance on that narrative, can become important qualitative factors in a materiality assessment.
• Control circumvention and post-close adjustments: A subsidiary control circumvention was identified and corrected, but post-close adjustments were not fully communicated to the board before the earnings release, despite auditor objections. The CFO was charged with causing internal accounting control violations. Panelists noted that out-of-period adjustments routinely attract heightened scrutiny and warrant particular care.
• Strong documentation and transparent escalation remain critical: Panelists stressed surfacing difficult facts, documenting judgments fully, and engaging advisors, auditors, and counsel early when concerns arise.
• The distinction between an enforcement matter and a reporting issue often comes down to intent, transparency, and response: Organizations that investigate concerns thoroughly, address issues proactively, and engage constructively with regulators are generally better positioned than those that ignore warning signs or fail to address known issues.

The Mid-Year Resilience Audit: Aligning Human Capital with Q3/Q4 Performance Goals

This session featured Janette Gradney, Regional Vice President at Tatum by Randstad, Gary Lu, Chief Financial Officer at ConsumerDirect, Inc., David Meniane, Chief Executive Officer at CarParts.com, and Neil Stevens, National Practice Director at Tatum by Randstad. The discussion focused on workforce sentiment, leadership communication, AI adoption, and the evolving skills needed to succeed in a rapidly changing workplace.

Key Takeaways

• Workforce optimism and leadership optimism are not always aligned: Panelists discussed the growing gap between organizational enthusiasm for growth and technology adoption and employee concerns about job security, workforce reductions, and career stability. Leaders must clearly communicate how technology fits into the organization’s long-term strategy and what that means for employees.
• Communication is increasingly important during periods of transformation: Panelists stressed that transparency, repetition, and direct engagement build trust as organizations adopt new technologies and adapt to changing workforce expectations.
• AI adoption requires both accountability and education: Providing access to AI tools is not enough. Organizations must help employees understand how AI supports business objectives and develop the judgment needed to evaluate outputs critically.
• The profession must find new ways to develop judgment and critical thinking: As AI automates foundational tasks, firms, companies, and academic institutions must be more intentional about teaching the business context, analytical thinking, and professional judgment behind sound decisions.
• Career development is becoming less linear: Younger professionals increasingly seek diverse experiences, project-based learning opportunities, and exposure to different parts of an organization. Companies that provide those opportunities may be better positioned to attract and retain talent.
• The long-term outlook remains positive: Despite uncertainty surrounding AI and workforce disruption, panelists expressed optimism about the profession’s future and viewed AI as a tool that can increase productivity and unlock innovation when paired with thoughtful talent development.