Volume 4, Issue 5

May 2010

I. CAQ Participates in Anti-Fraud Panel Discussion During FEI’s Leadership Summit

In a collaborative effort with key stakeholder groups, the CAQ is taking part in a number of events focusing on the shared responsibility to more effectively deter and detect financial statement fraud.

During Financial Executives International’s (FEI) 2010 Leadership Summit in Las Vegas on April 27, Executive Director Cindy Fornelli appeared with FEI President and CEO Marie Hollein, National Association of Corporate Directors President and CEO Ken Daly, Crowe Horwath Partner-in-Charge of the Audit and Financial Advisory Practice Rick Ueltschy, and MGM Vice President, Internal Audit, Bob Rudloff for a lively 50-minute panel discussion. Fornelli and her fellow panelists focused on ways to improve the dialogue about enhanced fraud deterrence and detection among audit committees, management and auditors – both internal and external.

Meanwhile, during the final segment of a three-part interview on WebCPA, Fornelli told Accounting Today’s Bill Carlino that a number of themes emerged from the profession’s anti-fraud dialogue with others in the financial reporting supply chain, including the importance of a strong ethical tone throughout an organization. “One of the things we’ve heard is that nobody starts out saying ‘I’m going to commit fraud.’ It’s actually a slippery slope,” Fornelli explained. “They start down a path and they do things that maybe aren’t right, but they’re not sure. And then they go a little further, and they may realize after the fact that they’ve done something wrong and need to cover it up. So if you have this robust dialogue, and this freedom in the boardroom, in the audit committee and when you’re talking with your auditor, to ask questions, maybe you nip that in the bud.”

II. In Support of SOX

During the course of Congress’ debate over financial regulatory reform, the CAQ and other stakeholder groups have been steadfast in their support of investor protection provisions in the Sarbanes-Oxley Act of 2002 (SOX).

In an April 22 letter to U.S. Senators, the CAQ, CFA Institute and Council of Institutional Investors urged lawmakers “to resist efforts to weaken protections for investors in [SOX]. Specifically, we oppose exempting smaller public companies from compliance with Section 404(b) of the Act. Further, we are troubled by evidence of a proposal to roll back to an arbitrary market capitalization point strengthened internal controls requirements for larger companies that are already in compliance with the provision.” The groups went on to write, “There is no compelling or credible reason to create a dual class system of investor protection in the United States. By waiving Section 404(b) compliance for all but the largest public companies, however, Congress sets us on a path to do just that. We urge you maintain to the benefits of Section 404 to investors in all public companies.”

A few days later, Politico published Cindy Fornelli’s letter to the editor in which she countered criticism of Section 404(b)’s benefits. Pointing out that reforms under SOX have helped restore investor faith that had been shaken by corporate scandals earlier this decade, Fornelli wrote, “Without this requirement, there may be little independent scrutiny of financial reporting safeguards at an estimated 6,000 small public companies. As Dow Jones forecast, ‘it’s more likely that errors and fraud will make their way onto small companies’ financial statements and that they won’t be found until it’s too late to avoid hurting investors’ (“Small Co’s Win Sarbanes-Oxley Help; Investors Lose,” Nov. 9, 2009)."

III. CAQ Grant Recipient Presents at Kansas Audit Symposium

University of Georgia Assistant Professor Jacqueline Hammersley, whose research project was one of five selected for funding by the CAQ’s Research Advisory Board (RAB) last year, on April 30 presented her paper during an audit symposium hosted by the University of Kansas. Hammersley’s research topic is “A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks.”

During the same event, the CAQ’s Cindy Fornelli moderated a panel discussion on what auditors observe happening in the new public policy environment. Participating in the dialogue were Bill Ezell, Deloitte’s National Managing Partner for Legislative and Regulatory Relations, and Randy Fletchall, who serves as Ernst & Young’s Americas Vice Chair – Quality and Risk Management. Both Ezell and Fletchall serve on the RAB.