Volume 7, Issue 1

January 2013

I. The FASB and the CAQ Issue Report on Financial Statement Disclosure Effectiveness Forums

The Financial Accounting Standards Board (the FASB) and the Center for Audit Quality (CAQ) recently issued a report on Disclosure Effectiveness Forums co-sponsored by the FASB and the CAQ in October. The forums were designed to encourage a dialogue among financial reporting stakeholders on improving the effectiveness of disclosures in footnotes of financial statements and other financial information released by public companies.

The forums were held at Columbia University’s Center for Excellence in Accounting and Security Analysis in New York City on October 4, 2012, and at Stanford University’s Graduate School of Business in Stanford, California, on October 8, 2012. Discussion focused on the FASB’s Disclosure Framework project, as well as financial reporting issues beyond the scope of the project.

Forum participants – including investors, company management, board and audit committee members, external auditors, academics and regulators and standard setters – provided insight on a number of topics, including:

• Flexibility of disclosure requirements
• Role of the footnotes
• Disclosure relevance to investors and creditors
• Effect on the assessment of future cash flows to the investor
• Streamlined disclosure in the current environment
• Prescriptive nature of current accounting guidance
• Overlap of footnotes and Management’s Discussion and Analysis (MD&A)
• Costs, benefits, and incentives for change

Financial Statement Disclosure Effectiveness: Forum Observations Summary highlights key observations from participants at the FASB-CAQ co-sponsored meetings.

II. Fornelli Addresses AICPA Conference on SEC and PCAOB Developments

CAQ Executive Director Cindy Fornelli provided an update on key CAQ initiatives during her opening remarks at the December AICPA Conference on Current SEC and PCAOB Developments in Washington, D.C.

Addressing an audience of more than 2,000 attendees on the conference’s first day, Fornelli provided an overview of the CAQ’s major activities on behalf of the public company auditing profession in 2012. Detailing a number of initiatives the profession has undertaken to enhance auditor independence, objectivity and skepticism, Fornelli stated that the profession and the CAQ “share with the PCAOB and others, the goal of continuously strengthening these and all drivers of audit quality.”

Among the highlights from the CAQ’s activities in 2012, Fornelli outlined the CAQ’s many endeavors designed to enhance audit committee effectiveness and to foster auditor-audit committee communication, including the “Audit Committee Annual Evaluation of the External Auditor”; the CAQ Practice Aid on “Discussions with Audit Committees About Inspection Findings and Quality Control Matters”; and an October CAQ webcast on auditor-audit committee communications featuring PCAOB board member Jay Hanson, Deloitte LLP's Joe Ucuzoglu and CAQ Governing Board Member Michele Hooper.

Fornelli also discussed the CAQ’s new initiative to measure and define indicators for audit quality, and new developments from the Anti-Fraud Collaboration, featuring the CAQ, Financial Executives International, The Institute of Internal Auditors and the National Association of Corporate Directors.

III. CAQ Issues RFP to Fund Academic Research Funding in 2013

The CAQ issued a December request for proposals (RFP) to fund independent academic research on audit-related topics. The RFP seeks research proposals on several critical policy issues that are priorities for the CAQ and the public company auditing profession, including Going Concern and Audit Quality Indicators.

Additional research topics the CAQ is interested in funding are:

• Professional Skepticism: What would enhance the application of skepticism in the field? What are effective ways to document the consideration of alternatives and evidence in order to demonstrate skeptical thinking in the assessment of audit evidence?
• Professional Judgment: The RFP requests research that focuses on the evaluation of the reasonableness of estimates of fair values and impairments, the auditability of accounting estimates, and the effects of a principles-based versus a rules-based approach to accounting and auditing standards.

Other topics identified in the RFP include financial reporting fraud deterrence and detection, the impact of communication and information technologies on the audit, and the value of the audit.

The CAQ, through its Research Advisory Board (RAB), annually funds academic research as part of its commitment to providing opportunities for the academic community to work closely with the profession. The RAB has provided funding for 18 independent academic research projects since 2009. To receive consideration by the RAB, research proposals must be submitted to researchproposals@thecaq.org by March 1, 2013. The CAQ expects to announce new projects selected for funding on or about May 31, 2013.