March 30, 2015

CAQ Snapshot: March 2015

New Report Highlights Ways to Strengthen Key Relationships in Auditing

Stronger communications and cooperation among three key players in the financial statement auditing process could help avoid potential tensions and pay big dividends in improved risk management, according to a report released jointly in March by the Center for Audit Quality (CAQ) and The Institute of Internal Auditors (The IIA). 

Intersecting RolesIntersecting Roles: Fostering Effective Working Relationships Among External Audit, Internal Audit, and the Audit Committeehighlights examples of such strong communications and cooperation from organizations across the country, with a focus on building a clearer understanding of what external auditors require to be able to use the work of internal audit, and when it is not appropriate to use that work. 

The report, based on a series of autumn 2014 roundtable discussions, shares best practices and strategies in three important areas:

  • Creating a more productive and efficient external audit process within the constructs of regulatory requirements; 
  • Fostering better communication between internal and external auditors to build more effective working relationships; and 
  • Introducing enterprise risk management to an organization. 

For more on the report, see related coverage from the Journal of AccountancyCompliance Week, and Accounting Today.

Commentary: A High-Tech, Dynamic, Expanding Profession

The public company auditing profession is poised to play a greater and more vital role in our economy and markets than ever before, writes Cindy Fornelli in a March 2015 LinkedIn Influencer post. Fornelli cites "the promise of a new normal for auditing," which is becoming particularly evident in areas such as data analytics and sustainability. 

​Fornelli sees potential positives in this expansion. "For one," she writes, "audit firms can leverage experience and insights to build a broader base of knowledge that can improve the quality of audits." 

As the profession grows and changes, Fornelli suggests it will remain well grounded by key forces. One among them is a regulatory framework featuring "a number of provisions to support auditor independence, objectivity, and skepticism." The profession also benefits, she notes, from the extensive policies, processes, and systems that firms have developed to improve audit quality and monitor for potential conflicts of interest on audit engagements.

CAQ/Weinberg Center Event on the "Auditor of the Future"

The dynamism and potential expansion of the public company auditing profession will be front and center at a May 5 event, "The Auditor of the Future," hosted by the CAQ and the John L. Weinberg Center for Corporate Governance at the University of Delaware. At the event, a panel of top experts will bring to bear regulatory, investor, auditor, audit committee, and legal perspectives on the fundamental question of whether auditors should be asked to provide assurance—or opine to the audit committee and board—on more than financials. How far will the auditor's responsibility go, and at what point do auditors need new skills to provide this assurance? To what extent will the audit committee and board be able to rely on assurances beyond the traditional area of auditors' expertise?

To learn more about the program, please visit the Weinberg Center website.

Fornelli to Keynote at FEI Leadership Conference 

Mark your calendars for another May 2015 event: Financial Executive International's 2015 Summit Leadership Conference, taking place in Boca Raton, Florida on May 17-19. In a keynote session, CAQ Executive Director Cindy Fornelli will survey the financial reporting landscape, discussing key policy developments and CAQ initiatives aimed at enhancing investor confidence in capital markets. In addition to issues such as the development of audit quality indicators, enhancements to the auditor’s reporting model, and effective financial disclosure, Fornelli will cover practical steps that companies can take to demonstrate leadership in the deterrence and detection of financial reporting fraud. Learn more about the event at the FEI website. In registering, be sure to use discount code SUM15-CAQ to receive the reduced FEI member rate.

New Report Shows Value of Effective Ethics and Compliance Programs 

Large companies can dramatically improve their integrity by implementing effective ethics and compliance programs to reduce employee misconduct and improve every key measure of workplace behavior, the Ethics Research Center (ERC) said in a new study sponsored by the CAQ.

As the paper shows, large companies (90,000 or more employees) with effective programs experience half of the rules and standards violations as those without effective programs. Other key takeaways from this report include the following:

  • Implementation of effective E&C programs and strong ethics cultures will result in employees being more likely to report wrongdoing when they see it. 
  • Nearly nine out of ten employees who observe violations in large companies with effective programs report those violations for action by the company compared to those who report wrongdoing when programs are lacking.
  • Reporting misconduct is essential for identifying and eliminating potential ethics risks. 
  • High rates of pressure and retaliation tend to foreshadow rules violations and future ethics breakdown. 

“As an organization that is active in the fight against financial reporting fraud, the Center for Audit Quality is pleased to support The State of Ethics in Large Companies,” CAQ Executive Director Cindy Fornelli said in a press release accompanying the report's release. “We applaud the researchers at the Ethics Research Center, whose work helps illuminate the necessity and impact of robust ethics and compliance programs."

An executive summary of the report can be downloaded, free of charge, at www.ethics.org.

In Case You Missed It: Anti-Fraud Webcast Segments

As reported previously in CAQ Snapshot, The Anti-Fraud Collaboration held a webcast in January to discuss its new report, The Fraud-Resistant Organization: Tools, Traits, and Techniques to Deter and Detect Financial Reporting Fraud. At its YouTube channel, the CAQ has divided the full webcast into shorter segments for easier viewing and sharing.