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CAQ Snapshot: December 2016

Wednesday, December 21, 2016

CAQ Publication Promotes Stakeholder Dialogue on Non-GAAP Financial Measures

When presented appropriately, non-GAAP financial measures can provide useful insights about a company, says the Center for Audit Quality (CAQ) in a new publication: Non-GAAP Financial Measures: Continuing the Conversation. To increase the usefulness of those insights to investors and other users, the paper calls for a robust conversation across the financial reporting supply chain regarding the preparation, presentation, and use of these measures.

“The public company auditing profession is in a unique position to foster a dialogue about non-GAAP financial measures and what might be done to enhance public confidence in them,” said CAQ Executive Director Cindy Fornelli in a statement. “With its focus on the perspectives of various constituencies throughout financial reporting, this new resource can help stimulate that dialogue.”

 Non-GAAP Financial Measures: Continuing the Conversation explores the issue of non-GAAP information, providing context on its definition and use, pertinent regulatory developments, and the current level of auditor involvement. While auditors do not audit non-GAAP metrics, the paper notes, audit committees and management may consider using auditors as a sounding board when evaluating them.

Additionally, the paper compiles sets of suggested questions for each stakeholder group to consider as it relates to the preparation or use of non-GAAP financial measures. These stakeholders include management, investors, investment analysts, securities counselors, audit committee members, internal auditors, independent auditors, regulators, accounting standard setters, and academics.

Non-GAAP Financial Measures: Continuing the Conversation builds on the CAQ’s June 2016 publication, Questions on Non-GAAP Measures: A Tool for Audit Committees, also available free of charge at the CAQ website. The CAQ plans to use the questions in these papers at upcoming roundtables and panels to further the dialogue around non-GAAP financial measures.

Tool Helps Audit Committees Assess Implementation of New Revenue Recognition Standard

The CAQ released a tool to help audit committees assess a company’s implementation of the new revenue recognition standard, which will take effect for many public companies on January 1, 2018.

With little more than a year before the standard takes effect, only 17 percent of public companies report being in the implementation phase, according to a recent survey of executives by PwC and the Financial Executives Research Foundation. Seventy-five percent indicate that they are still assessing the impact of the new standard, while 8 percent report that their company has not begun assessment and implementation.

“Oversight of the implementation of new accounting standards is an important part of the audit committee’s responsibilities, and revenue is one of the most important financial reporting measures,” said the CAQs’ Fornelli. “The CAQ is pleased to provide this tool to help audit committees oversee the implementation of the new standard, including their interaction with external auditors on the subject.”

The CAQ’s Preparing for the New Revenue Recognition Standard – A Tool for Audit Committees is organized into four sections to provide audit committees information that may be helpful. In addition to key questions for audit committees, the tool offers audit committees a list of the resources on revenue recognition that have been developed by CAQ member firms and the American Institute of CPAs.

For more CAQ resources related to audit committees, visit the CAQ’s audit committee resources page.

Speech: Fornelli Gives Seven Reasons for Auditors to Be “Profession Proud”

Robust U.S. investor confidence, increasing transparency around the oversight of the audit process, and the profession’s constructive rapport with policymakers are among the reasons why public company auditors should feel “profession proud,” said Cindy Fornelli in a December 5 speech. Her remarks were given before the AICPA’s 2016 Conference on SEC and PCAOB Developments, held in Washington, DC.

Fornelli opened with reflections on the 10-year anniversary of the CAQ’s founding, which will take place next year. “The CAQ and the public company auditing profession have come a long way since 2007,” she said.

Fornelli then briefed attendees on various initiatives and developments that should be sources of pride for the public company auditing profession. These include the profession’s work to foster conversation around non-GAAP financial measures and other pressing topics, its proactive efforts on cybersecurity, and its global engagement on social media and elsewhere to attract the best and brightest to careers in accounting and auditing.

“Judging by the hard work we are currently doing,” Fornelli said, “10 years from now, the CAQ and the public company auditing profession will be even stronger than we are today, to the benefit of companies, investors, and markets.”

CAQ Issues Alert on Form AP Implementation

A rule from the Public Company Accounting Oversight Board (PCAOB) will require disclosure in 2017 of the audit engagement partner and certain other audit participants on the new Form AP. The CAQ has issued an alert to assist firms with Form AP implementation. In addition to a summary of Form AP reporting requirements, the alert provides a FAQ section covering engagement partner disclosure on Form AP, other accounting firm disclosure on Form AP, and reporting through the PCAOB system.

Anti-Fraud Webcast Focuses on SEC’s Cooperation Program

On December 13, nearly 1,500 people tuned in to another installment in the Anti-Fraud Collaboration’s successful series of webcasts. Featuring a panel of experts, the December webcast explored when to self-report fraud or a potential fraud to the Securities and Exchange Commission (SEC), how companies can benefit from the SEC’s Cooperation Program, and what is considered “cooperation.” An archived version of the webcast can be found on the Anti-Fraud Collaboration website, the CAQ’s YouTube channel, and the Videos resource page of the CAQ website.

“Profession in Focus” Welcomes Caroline Tsay, Sara Mathew

In December, the CAQ released two “Profession in Focus” episodes capturing views from corporate directors. The first episode features Caroline Tsay, Chief Digital Officer and General Manager at Hewlett Packard Enterprise Software. Tsay, who sits on the boards of Rosetta Stone and Travelzoo, discusses innovation, board strategy, diversity, and advice for new directors. “The board needs to be really clear about the direction they’re trying to head in,” she says, “and all the pieces along the way that make it so that they can get there.”

The second episode features Sara Mathew, who serves on the boards of the Campbell Soup Company, Inc.; Freddie Mac; and Shire plc. Mathew—formerly the Chairman, President, and Chief Executive Officer of Dun & Bradstreet—provides views on financial expertise for audit committees, boardroom diversity, and the importance of fresh thinking. “As board members, you have to understand that the person with that contrarian point of view may be the one you have to listen to,” she says.

Join the CAQ at These Upcoming Events

Equilar Board Leadership Forum

The CAQ is pleased to participate in the 2017 Board Leadership Forum where Cindy Fornelli will moderate a panel discussion with David Larcker, Professor & Faculty Director of the Corporate Governance Research Initiative at Stanford Graduate School of Business, Damon Oshita, Senior Analyst of Governance & Proxy at The Capital Group, and Anne Sheehan, Director of Corporate Governance at CalSTRS, on the topic of “Boards that Lead: What Do Investors Want to See from Directors?”

February 2, 2017; San Francisco, CA (Website)

Ethisphere Gender Diversity Forum
The CAQ is proud to partner with Ethisphere on the 2017 Gender Diversity Forum where key thought leaders, including the CAQ’s Cindy Fornelli, will discuss benefits and best practices in gender diversity in the boardroom.
February 7, 2017; New York, NY (Website)

National Press Foundation Annual Awards Dinner
The CAQ is honored to sponsor the 2017 NPF Awards Dinner, celebrating “The Best in American Journalism.” Congratulations to all award winners and nominees!
February 16, 2017; Washington, DC (Website)

CII Winter Conference
As a proud sponsor, we look forward to seeing our corporate governance colleagues at the 2017 Council of Institutional Investors Winter Conference. 
February 27-March 1, 2017; Washington, DC (Website)