Volume 3, Issue 11

November 2009

I. CAQ Joins With Investor and Business Groups in Support of Standard-Setting Independence

On November 5, 2009, the Center for Audit Quality (CAQ) along with capital markets stakeholders the Council of Institutional Investors, the U.S. Chamber of Commerce Center for Capital Markets Competitiveness and the Investment Company Institute sent a joint letter to leadership of the House Financial Services Committee in support of accounting standard-setting independence.

Expressing concern over proposals that would realign the oversight of the Financial Accounting Standards Board (FASB) within the structure of a systemic risk counsel, the organizations explained that, “By placing the FASB under the jurisdiction of a structure charged with managing systemic risks to the financial markets, accounting rules will be viewed through the narrow lens of a few large companies from specific industries, rather than considerate of the applicability of financial reporting policies to over 15,000 public companies. Such a narrow focus can skew standards such that it makes understanding of transactions that businesses engage in on a daily basis more difficult and undermine the confidence of investors.”

The four groups, representing institutional investors, investment companies, business and public company auditors, stated unequivocally, “We believe that the SEC has been and continues to be best suited to provide the oversight of the FASB for such a broad and diverse economy. As such, we strongly support an independent standards-setting process, subject to public scrutiny and free of undue pressures.”

II. CAQ Expresses Support for SOX Section 404(b) in Letter to Lawmakers

In an October 26 letter to leaders of the House Financial Services Committee, the CAQ expressed support for Section 404(b) of the Sarbanes-Oxley Act of 2002 (SOX) in the context of efforts to exempt smaller public companies from the requirement.

“We believe the reforms under SOX have contributed significantly to restoring investor confidence and in particular, that Section 404 has played a critical role in promoting high quality financial reporting, which is vital to the successful operation of our capital markets,” CAQ Executive Director Cindy Fornelli stated. “Reporting under Section 404 provides investors with meaningful information regarding a company’s internal control over financial reporting (ICFR). In addition, we believe that the required independent audit of management’s assessment of the effectiveness of ICFR, as required by SOX Section 404(b), has been integral to the achievement of the intended objectives of ICFR reporting under SOX Section 404.”

According to Fornelli, investors and other users of financial information have consistently expressed the view that the independent audit of management's assessment of ICFR provides significant benefits to them when making their investment decisions. “This feedback illustrates the significant benefits investors derive from the Section 404(b) requirements, which we believe are particularly meaningful given the fact that well over half of the financial statement restatements have traditionally been by smaller public companies, which represent over half of the public companies listed in the U.S. As such, we support the SEC’s position that there will be no further delay in Section 404(b) compliance for smaller public companies,” she wrote.

III. Fornelli to Lead Discussion of Auditor-Board Interactions at NASDAQ Event

On December 11, Cindy Fornelli will moderate a panel discussion on the relationship between boards of directors and their external auditors during the NASDAQ OMX event The High-Performance Director: Navigating 2010, a leadership event for directors of public companies. The CAQ is a sponsor of this event, which will feature regulators, government officials, corporate executives and top scholars providing their thoughts on the most challenging problems and current issues that corporate board members will face in 2010.

Fornelli will moderate “Number Crunching: The Key Questions that Board Members Should be Asking their Auditors.” Panelists including Bob Kueppers, Deputy Chief Executive Officer of Deloitte LLP; Cynthia Glassman, former SEC Commissioner; and Jeff Wilks, Associate Professor of Accounting at Brigham Young University will offer their views on the questions directors should be asking their external auditors as they focus on the financial performance of their companies.