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CAQ Snapshot: June 2015

Tuesday, June 30, 2015

CAQ Funds New Round of Independent Academic Research Projects

The Center for Audit Quality (CAQ) announced funding for three new academic research projects as a part of its continued support for independent auditing-related research. In response to the December 2014 request for proposals, the CAQ received 34 research proposals. The CAQ’s Research Advisory Board, comprised of members from the auditing profession and academia, selected the following projects to receive funding:

  • “Auditing Internal Controls: The Interactive Effects of Auditor’s Involvement in the Audit and Client’s Cooperation” by Tim Brown, University of Illinois at Urbana-Champaign; Christopher Agoglia, University of Massachusetts-Amherst; Eldar Maksymov, Arizona State University; and Ryan Guggenmos, Cornell University
  • “How Does the Timing of Companies’ Annual Earnings Releases Influence Auditors’ Judgments?” by Patrick Hopkins, Lori Shefchik Bhaskar and Joseph Schroeder, Indiana University 
  • “The Elaboration Likelihood Model: A Meta-theory for Understanding and Predicting Divergent Effects of Situational Variables on Auditors’ Attitudes of Professional Skepticism and Independence” by Emily Griffith, University of Wisconsin-Madison; Christine Nolder, Suffolk University; and Richard Petty, Ohio State University

“The CAQ is pleased to continue its support for this highly competitive process,” said CAQ Executive Director Cindy Fornelli in a statement. “I commend the awardees for addressing these important issues that will inform the profession’s efforts to continuously improve audit quality.” 

CAQ and Partners Offer Recommendations to SEC for Improvements to EDGAR

Given its broad mission of enhancing public trust in the capital markets, the CAQ has been an active participant in the ongoing dialogue around improving financial disclosure. In late May, the CAQ joined key financial and business policy organizations—the Business Roundtable, Financial Executives International, and the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness—to file a comment letter offering a range of recommendations on the U.S. Securities and Exchanges Commission’s EDGAR system of company filings.

a March 2015 LinkedIn Influencer postThe letter outlines recommendations that could incrementally improve EDGAR filing information on the SEC’s website in the near-term, prior to implementation of other enhancements and without the need for SEC rulemaking. The recommendations focus on consolidating and updating current EDGAR search features by improving their visibility and organization, along with additional enhancements to EDGAR, which include improvements to the company search page, filings detail screen, and output functionality. 

These recommendations, as noted in the letter, would only be a first step in the SEC’s EDGAR modernization initiative. As the SEC continues its efforts in this and other disclosure areas, the CAQ will remain engaged to ensure that contemplated improvements address the needs of investors and other key market participants.

Commentary: Fornelli on the State of the Auditing Profession

The state of the public company auditing profession is strong, says Cindy Fornelli in a contribution to LinkedIn’s “state of my industry” package, but the profession must continue to focus on reinforcing profession fundamentals, investing in technology and talent, and engaging actively with key stakeholders.

On talent, for example, Fornelli notes that auditing firms are establishing themselves as leaders when it comes to flexibility and family friendliness, but “there’s work to be done.” In her view, “firms will need to continue to explore nontraditional career models and ways to provide employees freedom to move between career paths.”

Regarding engagement with stakeholders across the financial reporting supply chain, Fornelli says it will remain critical as a means for the profession “to stay responsive to stakeholder needs – to learn and adapt as they evolve in a dynamic marketplace.”

Profession in Focus: Vodafone Audit Committee Chair Discusses Enhanced Reporting, AQIs

New requirements for audit committee and auditor reporting in the United Kingdom have already had a beneficial impact, according to Nick Land, Chairman of the Audit and Risk Committee at Vodafone Group, in a June 2015 episode of the CAQ’s “Profession in Focus.” Land was interviewed by CAQ Executive Director Cindy Fornelli. 

“From an audit committee point of view, [the new requirements have] made us even more engaged,” said Land. “It’s made us think much more carefully about how we interact with the auditor.” Additionally, he added, the reaction from investors to the new reporting at Vodafone and elsewhere has been “very positive.” 

Land and Fornelli also discussed the development of audit quality indicators (AQIs) in both the United Kingdom and the United States. “The work you are doing is very timely,” said Land, referring to the CAQ Approach to Audit Quality Indicators. “I and many of my colleagues chairing audit and risk committees are struggling with how do we, in a more organized and systematic way, assess the effectiveness of the auditor.”

Launched in May 2015, “Profession in Focus” features interviews with thought leaders from the auditing profession and other important constituencies with a connection to the financial reporting process. The series can be found at the CAQ’s website and its YouTube channel.

Audit Committee Collaboration Updates External Auditor Assessment Tool

The Audit Committee Collaboration has released two new versions of its External Auditor Assessment Tool. The Tool is designed to assist audit committees, or their counterparts, in evaluating the external auditor to assess the quality of the audit, or select or recommend the retention of the audit firm. Available in versions for U.S. audit committees and audit committees worldwide, the Tool contains 18 sets of sample questions that the audit committee, or its counterpart, could consider asking to gauge the quality of: 

  • services and sufficiency of resources provided by the auditor;
  • communication and interaction with the auditor; and
  • the auditor’s independence, objectivity, and professional skepticism. 

The Tool also includes a sample form and rating scale for obtaining input from company personnel about the external auditor, and resources for additional reading that can benefit audit committees and others charged with corporate governance. The updated U.S. version of the External Auditor Assessment Tool contains a detailed appendix that highlights relevant U.S. requirements and standards.

Members of the Audit Committee Collaboration include the Association of Audit Committee Members, Inc., Center for Audit Quality, Independent Directors Council, National Association of Corporate Directors, NYSE Governance Services, and Tapestry Networks. The assessment tools and other resources from the Collaboration can be found at

July 16 Webcast to cover Anti-Fraud Lessons from SEC Enforcement Proceedings

These days, most people understand that a company’s financial reporting environment and culture can act as a strong deterrent to fraudulent financial reporting. But beyond the right “tone at the top,” what else can be done? In a July 16 webcast from the Anti-Fraud Collaboration, a panel of experts will discuss lessons learned from recent SEC enforcement proceedings, providing concrete, action-oriented steps that governance professionals can take to deter and detect fraud. All participants in the financial reporting supply chain are encouraged to register. 

Register here for the webcast, which is free of charge and eligible for 1.5 CPE credits and 1.5 NACD skill-specific credits. The webcast will be archived on the Webcasts page of the CAQ website for those unable to participate on July 16.