Volume 1, Issue 6

November 2007

I. CAQ Advises Government Panels

The CAQ outlined the changes and challenges facing the public company auditing profession in a Nov. 30 letter to the Treasury Department's Advisory Committee on the Auditing Profession.

The assessment, submitted at the advisory panel's request, urged committee members to promote "rational and realistic approaches that will result in a more sustainable auditing profession for decades to come." The CAQ is working with member firms on more detailed recommendations for the committee.

The comment letter, signed by CAQ Governing Board Chair, and Ernst & Young LLP Chairman and CEO, James S. Turley and CAQ Executive Director Cindy Fornelli, suggested that the profession has an important role to play in discussions aimed at ensuring the integrity and reliability of financial information and that financial reporting practices keep pace with changing market realities.

"Today, businesses are increasingly complex, contracts and transactions grow more complicated, and financial instruments are continually more sophisticated. ... It is vital that the profession not only be sustained but be able to grow in a manner that will facilitate its participation in meeting these challenges," Cindy Fornelli wrote.

The CAQ is also working with the Securities and Exchange Commission's Advisory Committee on Improvements to Financial Reporting (CIFiR). The panel is tasked with examining the U.S. financial reporting system with two goals: reducing unnecessary complexity and making information more useful and understandable for investors. A representative of the CAQ was among those who testified before a CIFiR subcommittee in early December.

II. CAQ Webcast Offers Help For Smaller Firms

The CAQ hosted a live interactive webcast on Nov. 29 to take a closer look at the PCAOB's recent inspection report on smaller firms. The Oct. 22 report, based on inspections at firms that audited 100 or fewer public companies, cited deficiencies in dealing with revenue, third-party transactions, equity transactions and eight other issue areas.

Webcast participants were able to hear directly from Mark West, regional associate director of PCAOB inspections, who answered questions about the findings. Kurtis Wolff, principal in charge of audit and insurance at the Reznick Group; and Joan Waggoner, partner in charge of quality assurance at Blackman Kallick; represented the auditing profession.

The three panelists were in agreement that audit quality has improved in the last three years, with Waggoner explaining, "First and foremost, I sense that the profession has renewed its commitment to auditing in a big way. ... Secondly, having a regulator looking over your shoulder really gives you that extra bit of energy that you need when the going gets tough out there on the audit trail."

III.CAQ Urges Deadline For IFRS

In a Nov. 13 comment letter to the Securities and Exchange Commission, the CAQ called for adopting International Financial Reporting Standards for U.S. issuers.

"We believe that the Commission should develop a comprehensive plan, with appropriate timetables and a date certain, for moving all U.S. domestic registrants to IFRS," Fornelli wrote. She said the SEC should "accept the use of reasoned professional judgment in the application of IFRS," while ensuring "sufficient transparency for investors."

IV.The Public Dialogue Tour Heads West

The CAQ's Public Dialogue Tour traveled to San Francisco on Nov. 9 for a forum that included a call for more simplicity in financial reports.
 
"We just plain need to simplify across the board — period, end of topic," said panelist Brooke Seawell of New Enterprise Associates, a venture capital firm.
 
The event, which attracted about 50 investors, corporate executives, academics, regulators and public company auditors to the Four Seasons Hotel, was the seventh stop in the CAQ's nationwide Public Dialogue Tour and the final event in 2007. The tour will end next spring.
 
Forum participants suggested that annual reports should include clearly presented information on cash flow and some type of executive summary of the company's prospects.
 
"All of us in the profession need to do a better job of focusing on the things that people really value in this morass of information. That seems to be, in general, those items of information that lead to cash flow analysis," said Don Wort, a finance professor at California State University, East Bay.
 
Wort was one of several audience members who joined a lively discussion with Seawell and the other panelists: California State Treasurer Bill Lockyer; James G. Ellis, dean of the Marshall School of Business at the University of Southern California; and Jeffrey Hall, chief financial officer at KLA-Tencor.

Next stop: Dallas, Texas in February.

The Center for Audit Quality has developed this monthly newsletter, designed to keep you up to date each month on ways the organization is addressing the topic of modernizing business reporting and other critical information facing investors, issuers, company executives and the public company auditing profession.