Volume 5, Issue 4

April 2011

I. CAQ Launches New Web Page for Investors

The Center for Audit Quality (CAQ) has created a new “For Investors” section on our Web site, highlighted by an informative feature called “Did You Know?” Each week, a brief “Did You Know?” fact about public company auditing will be showcased on our home page. The inaugural “Did You Know?” reminded investors that by law, a public company must have its financial statements examined annually by an independent auditing firm for conformity with U.S. Generally Accepted Accounting Principles. “Did You Know?” will be archived and accessible in the “For Investors” section, along with links to other investor education resources.

II. Senate Hearing Examines Role of Accounting in Preventing Another Financial Crisis

CAQ Executive Director Cindy Fornelli was among those invited to testify before the Senate Banking Committee’s Subcommittee on Securities, Insurance, and Investment during a hearing on “The Role of the Accounting Profession in Preventing Another Crisis” on April 6.

Describing the accounting profession as one of the bedrocks of our financial marketplace in his opening remarks, Subcommittee Chairman Sen. Jack Reed (D-RI) stated that, “A robust and transparent financial reporting system is a key to establishing credibility and confidence in our markets which in the end protects investors and lowers the cost of capital.”

CAQ Executive Director Cindy Fornelli speaks with U.S. Senator Jack Reed following the April 6 hearing

In her testimony, Fornelli observed that while investors greatly value the audit report, they increasingly want it to be supplemented with information about the quality of financial reporting at the company and the scope and quality of the audit. “We support the PCAOB’s consideration of changes to the auditor’s reporting framework,” she stated. “The CAQ has suggested a number of areas where the auditor’s report could be enhanced. These range from providing additional information relating to a particular audit’s scope and procedures to providing assurance in connection with Management’s Discussion and Analysis. There is still more, though, at issue and that is the broader question of whether and how the role of the auditor should evolve.”

Fornelli told Senator Reed that the CAQ’s Governing Board has been thinking for some time about the same questions posed by the Subcommittee. In January, the Governing Board agreed to convene the full range of stakeholders again – this time to discuss how the role of the auditor could evolve to better serve the needs of investors. “Some of the issues we plan to raise include identifying the information most needed by investors and who can best provide that information,” Fornelli explained. She emphasized that any changes to the role of the auditor should reinforce – not undermine – the responsibilities of auditors, CEOs, CFOs and audit committees to assure the integrity of information provided to investors.

III. ICAEW’s Audit & Beyond Features CAQ’s Views on Skepticism

The April edition of Audit & Beyond, a newsletter for Audit and Assurance faculty members of the Institute of Chartered Accountants in England and Wales, features a summary of the CAQ’s views on the importance of skepticism as a deterrent to financial reporting fraud.

In an adaptation of chapter 3 of the CAQ’s report on Deterring and Detecting Financial Reporting Fraud – A Platform for Action, Cindy Fornelli and CAQ Senior Director of External Relations Angela Desmond wrote that, “Skepticism is an important tool in detecting whether a company’s financial statements are free from material misstatement either through error or fraud.” They also noted that, “While the concept of skepticism is primarily used in the context of the external auditor, it is equally important that boards of directors, audit committees, management and internal auditors exercise a questioning mindset in the conduct of their responsibilities.”

IV. Fornelli to Moderate Fraud Risk Panel at AICPA National Audit Committee Forum

Cindy Fornelli will moderate a panel on “Reducing Fraud Risk Through Communication and Collaboration” at the AICPA’s National Audit Committee Forum on Wednesday, June 22 at the Mandarin Oriental in Washington, D.C.

Joining Fornelli as panelists will be Suzanne Hopgood, Dennis Beresford and Rick Ueltschy. Hopgood is President and CEO of The Hopgood Group, LLC, a consulting firm she founded in 1985. Most recently she served as Managing Director of Board Advisory Services of the National Association of Corporate Directors, conducting education and board evaluation services for corporate boards of directors. A former chairman of the Financial Accounting Standards Board, Beresford is Ernst & Young Executive Professor of Accounting at the J. M. Tull School of Accounting in the University of Georgia’s Terry College of Business. Ueltschy is the Partner-in-Charge of the Audit and Financial Advisory Practice at Crowe Horwath. In addition to his practice leadership responsibilities, he is active in profession activities with the CAQ.

The two-day Forum (June 21 and 22) has been developed by experienced audit committee members to address current and emerging issues associated with the best practices of audit committee functions. It will present leading experts who will focus their attention on practical application and implementation, and provide in-depth insights on key issues for audit committees. Keynote speaker Harry Markopolos will present “In a Sea of Red Flags...What Went Wrong with Madoff? Developing & Acting Upon Healthy Skepticism.”

Register by May 7, 2011 to take advantage of the early-bird rate. In addition, CAQ members are eligible to receive an additional $100 off the registration price by using Discount Coupon Code SSM at the registration checkout.