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CAQ Snapshot: June 2016

Thursday, June 30, 2016

Business School Dean and Policy Expert Joins CAQ Governing Board

Jeffrey Brown, the Josef and Margot Lakonishok Professor of Business and Dean of the College of Business at the University of Illinois at Urbana-Champaign, has been named to the Center for Audit Quality’s (CAQ) Governing Board. Brown will serve as one of the CAQ’s independent board members.

“Jeff brings a wealth of capital markets and policy expertise to the Board,” said CAQ Governing Board Chair and Deloitte LLP CEO Cathy Engelbert. “He will provide significant value to the CAQ as it seeks to generate and support research that can enhance audit quality and continues to work with the academic community to develop the next generation of talent in the profession.”

“The CAQ will benefit greatly from Jeff’s deep understanding of economic research,” said CAQ Executive Director Cindy Fornelli. “Our independent board members bring insights that provide critical context to the CAQ’s important policy work, and we welcome Jeff to the Board.”

Jeffrey Brown
Jeffrey Brown

Professor Brown holds a PhD in economics from the Massachusetts Institute of Technology, a Master of Public Policy degree from Harvard University, and a BA from Miami University. He also serves as the Director of the Retirement Research Center at the National Bureau of Economic Research (NBER) in Cambridge, MA. He has served as a Trustee for TIAA since 2009 and serves as Chair of the Audit Committee.

“Public company auditors play a critical role in our capital markets system,” said Dr. Brown. “I am honored to work with this esteemed group of individuals to help guide the CAQ in its mission to serve investors, public company auditors, and the markets at a critical time in the profession’s evolution.”

Dr. Brown will fill the board seat vacated by Harvard Business School Senior Associate Dean Lynn Paine, whose term has ended. During her tenure she chaired the CAQ’s Research Advisory Board, a group that oversees CAQ research initiatives and its academic grant programs.

CAQ Tool Helps Audit Committees Examine Use of Non-GAAP Financial Data

The CAQ has released a new tool to help audit committees continue to assess management’s presentation, outside the audited financial statements, of performance metrics that do not conform to Generally Accepted Accounting Principles (GAAP). The publication, Questions on Non-GAAP Measures: A Tool for Audit Committees, can assist in the determination of whether non-GAAP indicators provide investors with meaningful financial information.

“Concerns and questions from regulators and investors have grown around the use of non-GAAP measures in communications such as regulatory filings and press releases,” said the CAQ’s Fornelli. “This tool can help audit committees probe whether such measures are accurate, appropriate, and useful to investors.”

Questions on Non-GAAP Measures groups its questions under three core categories: transparency, consistency, and comparability. Additionally, the tool reviews current regulation governing non-GAAP information, as well the auditor’s role in this area.

New CAQ Publication and Video Address Audit Committee Financial Expertise

The U.S. approach to audit committee composition and expertise has been successful, but it can be improved, says the inaugural edition of a new publication series from the CAQ, CAQ Insights. The report synthesizes observations made at an April 2016 event, hosted by the CAQ and the John L. Weinberg Center for Corporate Governance at the University of Delaware, exploring the issue of the composition of the audit committee of the future, with a particular focus on financial expertise among committee members.

Accompanying this edition of CAQ Insights is a new video on the topic of the audit committee financial expert. In addition to providing an overview of the financial expertise requirement for audit committees, the video features commentary on the issue from audit committee chairs at Microsoft, Walmart, and other leading companies. The video is the first in a series on key topics for audit committees.

CAQ Funds New Round of Independent Academic Research

The CAQ demonstrated its continued support for independent auditing-related research with the selection of two new academic research proposals for funding. The CAQ’s Research Advisory Board (RAB), comprised of members from academia and the auditing profession, selected the following projects:

  • Are Auditors’ Judgments Adversely Affected by the Money Illusion? Patrick Hopkins, Spencer Anderson, Lori Shefchik Bhaskar, and Leslie Hodder, all from Indiana University
  • Is Audit Firm Commitment to Work-Life Balance Reflected in Supervisor Perceptions and Decisions Impacting Subordinate Career Progression?Mary Sasmaz, Case Western Reserve University

“The CAQ recognizes the importance of independent research to the profession and we are pleased to support these researchers as they embark on their projects,” said CAQ Executive Director Cindy Fornelli in a statement. “The RAB has done a commendable job of conducting a thorough review and identifying outstanding projects to support.”

This is the eighth year that the CAQ has funded scholarly academic research. Since 2009, the CAQ has provided 30 grants to fund academic research.

“Profession in Focus” Features Croteau, Berson

In June, the CAQ added two new episodes in its “Profession in Focus” video series. The first episode features Brian T. Croteau, Deputy Chief Accountant at the U.S. Securities and Exchange Commission. Among other topics, Croteau discusses implementation of new accounting standards, internal control over financial reporting, and the state of audit quality generally. On the latter, he notes that while “audit quality has improved dramatically,” all stakeholders must remain focused on continuous improvement.

In the subsequent episode, Wayne Berson, CEO of BDO USA and member of the CAQ Governing Board, provides views on talent in the auditing profession, the role of technology, growth of his firm, and the significance of BDO’s charitable endeavors. “We have to create a buzz around the profession,” he says, suggesting that attracting the best and brightest to public company auditing should be a top priority.

All episodes of “Profession in Focus” can be found at the CAQ’s YouTube channel.

New Report Captures Global Insights on Ethics Risks for Business

While workplace misconduct is a constant challenge across the globe, organizations can reduce it through robust ethics and compliance programs, the Ethics & Compliance Initiative (ECI) says in a new study co-sponsored by the CAQ. The report, available for free download at, presents findings from ECI’s Global Business Ethics Survey (GBES), which polls workers in 13 countries.

According to the ECI report, employees in Brazil, India, and Russia—the three countries with the highest overall ethics risks—reported experiencing pressure to compromise standards with greater frequency than their counterparts in the ten other countries surveyed. Among other key takeaways are the following:

  • In the private sector, employees of multinational companies are more likely to both feel pressure to compromise standards and to observe misconduct than employees at companies that operate in a single country (differences of 7 percentage points each).
  • Across all sectors, on average, the greatest declines in key measures occurred at organizations undergoing profound organizational change.
  • High rates of pressure and retaliation tend to foreshadow rules violations and future ethics breakdowns.

To address such challenges, according to the report, organizations should take steps such as encouraging employee reporting, implementing strategies to protect against retaliation, and considering systems that monitor the long-term success of employees who report concerns.

Commentary: Sunlight through the ICFR Clouds

While effective internal control over financial reporting (ICFR) is a keystone of investor confidence, writes the CAQ’s Fornelli in a June 2016 LinkedIn Influencer commentary, challenges related to ICFR are “both shifting and persistent.”

The good news, in Fornelli’s view, is that stakeholders from across the financial reporting supply chain have elevated the debate and dialogue around ICFR to new heights. “Through this interaction,” she says, “they are taking control of internal control—identifying ways to enhance our approach to this critical safeguard for investors.”  

The post, also published in the second quarter edition of Ethisphere magazine, discusses specifics of this improved stakeholder interaction, including enhanced communication, recognition of the proper use of checklists, and leveraging the audit committee’s vital role as a hub in the financial reporting process.