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CAQ Snapshot: August 2014

Thursday, August 28, 2014

I. Spirit of Collaboration on Display at Sixth Annual CAQ Symposium

Top practitioners from the public company auditing profession gathered with leading academics at the Center for Audit Quality (CAQ)’s Sixth Annual Symposium, held this year on August 3 in Atlanta. The event, which coincides with the American Accounting Association’s Annual Meeting, is a key part of the CAQ’s ongoing dialogue with the academic community on how research can inform audit practice.

“This is a profession that believes in collaboration,” said Stephen R. Howe, Jr., Americas Managing Partner and Managing Partner of the U.S. Firm at EY, in his opening remarks. “We believe in collaboration among practitioners, regulators, researchers, teachers, audit committees, investors and others—and just about all are represented here today,” he added. EY hosted this year’s Symposium.

Stephen R. Howe, Jr. of EY delivers opening remarks at the CAQ Symposium.

As in past years, the 2014 Symposium included panel discussions on critical issues, with each panel featuring a mix of accounting professors and auditing professionals. The first discussion addressed developments of efforts to identify audit quality indicators (AQIs), including the CAQ’s recent paper on the topic, as well as the expected concept release from the Public Company Accounting Oversight Board.

The second panel examined the topic of auditing internal control over financial reporting (ICFR). “It’s an area that has been a challenge,” noted moderator Frank Mahoney, Americas Vice Chair of Assurance Services at EY. The panel discussed the reasons why ICFR has posed such a challenge, recent research findings of interest, and how college and university accounting programs can help to better prepare future auditors in this area.


Video from the Symposium panel discussions will be available on the CAQ’s website and YouTube channel in early September.

II. CAQ Provides New Tool to Help Auditors Avoid Judgment Tendencies, Traps, and Biases

The CAQ recently issued the Professional Judgment Resource, designed to provide auditors with an example of a decision-making process to facilitate important auditing and accounting judgments in a professionally skeptical manner. The publication is aimed at assisting auditors who are responding to judgment challenges arising from the increasing complexity of business transactions, the development of principles-based (or objectives- based) auditing and accounting standards, the increasing focus on estimates, and other highly subjective elements.

The Resource outlines an example of a decision-making process grounded in five essential actions that include identifying and defining the issue, and reviewing and completing the documentation and rationale for the conclusion.

Additionally, the Resource identifies several of the more common judgment tendencies and traps that can potentially lead to bias and weaken professional skepticism, and includes illustrative examples of these tendencies, as well as strategies to avoid them.

While the Resource was developed with auditors in mind, it can be a useful tool for all capital markets participants.

III. Fornelli Discusses What Makes a Strong Audit Quality “Ecosystem”

A strong commitment to continuous improvement, robust collaboration among important stakeholders, and active engagement in the policy process are essential elements in strengthening the ecosystem for audit quality, said CAQ Executive Director Cindy Fornelli in an August 27 keynote address to Public Accountants Conference in Singapore.

Hosted by Singapore’s Accounting and Corporate Regulatory Authority, the Public Accountants Conference brings together hundreds of public company accountants working in the island nation, a hub for Asian finance. Following her keynote, Fornelli participated in a panel discussion on what must be done to ensure delivery of high quality financial information to investors.

In addition to her appearance at the Public Company Accountants Conference, Fornelli also visited with policymakers, trade associations, and investor groups in both Singapore and Australia to discuss issues of importance to the profession and investors.

IV. “Rethinking Financial Disclosure” Teams Meet with SEC Commissioners

Graduate students at George Washington (GW) University School of Business are hard at work on the Initiative on Rethinking Financial Disclosure. The program, a joint effort between the CAQ and GW’s Institute for Corporate Responsibility, harnesses the power of team competition to uncover ways to make financial disclosure more effective and useful for investors and others.

Initiative co-chairs Cynthia Glassman (center) and Cindy Fornelli (third from left) with GWU students at the SEC.

At the end of July, several students from the team visited the U.S. Securities and Exchange Commission (SEC) to consult with Commissioners Michael S. Piwowar and Kara M. Stein. They were accompanied in their visit by the co-chairs of the Initiative: the CAQ’s Cindy Fornelli and Cynthia A. Glassman, Senior Research Scholar at the Institute for Corporate Responsibility.

This fall, the students’ findings and recommendations will be judged by a panel of experts, then presented to SEC Chair Mary Jo White.