CAQ Snapshot: June 2014
Friday, June 27, 2014
I. CAQ Provides Auditor Reporting Field-Testing Findings to PCAOB
The Center for Audit Quality (CAQ) released key findings from a collaborative effort by members of the public company auditing profession to field test certain aspects of the Public Company Accounting Oversight Board’s (PCAOB) auditor’s reporting model proposal. The release of the field-testing results follows up on the CAQ’s December 2013 comment letter on the auditor’s report.
“We hope observations from the profession’s field-testing initiative can provide valuable insights to the PCAOB as it contemplates next steps in this important effort,” said CAQ Executive Director Cindy Fornelli.
Public company accounting firms of various sizes participated in the field-testing initiative, which has gathered first-hand observations about the effects of the proposal and perspectives on the time and effort that may be involved in implementation. Field testing of the proposal as it relates to Critical Audit Matters (CAMs) included 51 companies representing diverse industries and market capitalizations. Testing of the proposed Other Information (OI) standard included 15 companies, and additional input from five audit partners.
Among other findings, field-testing revealed that explicitly including materiality relative to the financial statements as a factor to be considered in the determination of CAMs may help to narrow the population of potential CAMs. In the field testing, the number of CAMs identified varied significantly from engagement to engagement, with the number of potential CAMs per issuer ranging from one to 45, while the number of actual CAMs per issuer ranged from zero to eight.
“Changes to the auditor’s reporting model will have significant impacts on issuers, investors, auditors, and the markets,” added Fornelli. “The CAQ believes that certain enhancements would make the PCAOB proposal more practical and better aligned with the Board’s stated objectives.”
II. CAQ Salutes New Auditing Standard on Related Parties
In early June, the CAQ applauded the PCAOB’s adoption of a new auditing standard on related parties. The CAQ has been engaged with regulators on this issue, including the filing of a comment letter in July 2013. “The CAQ continues to support the PCAOB’s efforts to improve audit quality through strengthening the requirements relating to the auditor’s evaluation of a company’s identification of, accounting for, and disclosure of its relationships and transactions with related parties,” said CAQ Executive Director Cindy Fornelli in a statement. Fornelli acknowledged in particular the Board’s efforts throughout the process to examine the potential costs and benefits of the standard and implementation issues. The new standard is subject to approval by the U.S. Securities and Exchange Commission.
III. Access to Audit Personnel Program Awards Announced
The CAQ and the Auditing Section of the American Accounting Association (AAA) announced four awards as a part of their joint Access to Audit Personnel program. Established in 2013, the program helps generate research on issues that are relevant to audit practice while providing doctoral students and tenure-track professors with access to audit firm staff to complete data collection protocols.
From the nearly 36 proposals received in response to a January 2014 request for proposals, the Review Committee selected four projects to support:
- Benjamin P. Commerford, University of Alabama, Do Auditors Constrain the Earnings Impact of Real Earnings Management? An Experimental Examination, (with Rick Hatfield and Rich Houston, University of Alabama)
- Emily Griffith and Patrick Hurley, University of Wisconsin-Madison, Ego Depletion and Evidence Integration While Auditing Complex Estimates (with Jacqueline Hammersley, University of Georgia)
- Jon Pyzoha, Case Western Reserve University, Can an Audit Firm’s Tone at the Top Messaging Attenuate Confirmation Bias in Audits of Fair Value Measurements? (with Mark Taylor and Yi-Jing Wu, Case Western Reserve University)
- K. Kelli Saunders, University of South Carolina, Examining the Impact of Offshoring and Level of Preparer Judgment on the Audit Review Process
“We are pleased to provide these academics with important access to audit personnel for their research projects,” said CAQ Executive Director Cindy Fornelli. “This program is a valuable partnership that can benefit the audit profession and the academic community.”
IV. July 1 Webcast: Get Best Practices for Effective Whistleblowing Programs
All publicly traded companies are required to have a process that employees can use to report occupational misconduct—i.e., the whistleblower program. How do you know if your company has an effective program? At this July 1 webcast, hosted by the Anti-Fraud Collaboration, experts will provide insights into how leading organizations have successfully integrated the whistleblower hotline into the corporate culture. They will provide actionable recommendations that all companies can use to retool their existing programs.
Moderated by the CAQ’s Fornelli, the panel will include: Patricia Harned, President of the Ethics Resource Center; Kristin Rivera, Partner of Forensic Services at PwC; and Janice Innis-Thompson, Senior Managing Director, Chief Compliance and Ethics Officer at TIAA-CREF. Running from 2:00 p.m. to 3:30 p.m., this program is free of charge and eligible for 1.5 CPE credits and 2 NACD skill-specific credits. Register for the webcast here.