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CAQ Snapshot: March 2014

Wednesday, March 26, 2014

I. CAQ Issues Member Alert on Cybersecurity

In response to increasing concerns in the business, investment, and regulatory communities around cybersecurity risk management, the Center for Audit Quality (CAQ) issued to its nearly 600 public company auditing firm members an alert which summarizes the responsibilities of the independent external auditor with respect to cybersecurity matters.

“Cybersecurity is no longer viewed as just an ‘IT’ issue. Rather, it is being treated as a broader business issue,” according to the member alert, released in advance of the Securities and Exchange Commission’s March 26 Cybersecurity Roundtable.

“Cybersecurity is one of the most complex and evolving issues facing public companies,” said CAQ Executive Director Cindy Fornelli in a statement accompanying the alert’s publication. “All players in the financial reporting supply chain, including of course independent auditors, have an important role to play.”

II. Fornelli Urges Effective Disclosure at Capital Markets Summit

Beyond simply satisfying compliance requirements, disclosures to investors must be effective communications documents, said the CAQ’s Cindy Fornelli at the U.S. Chamber of Commerce’s 2014 Capital Markets Summit on March 19.

“You’re always going to have a legal aspect to it,” said Fornelli, “but we also have to communicate.”

CAQ Executive Director Cindy Fornelli (center) participates in a March 19 panel on disclosure at the Capital Markets Summit

Fornelli made her remarks in a panel discussion on “disclosure overload and the future of corporate governance reform.” Joining her were Amy Borrus, Deputy Director, Council of Institutional Investors; Bob Fatovic, Executive Vice President, General Counsel and Corporate Secretary, Ryder System; Darla Stuckey, Senior Vice President, Policy and Advocacy, Society of Corporate Secretaries; and moderator Troy Paredes, a former Commissioner at the U.S. Securities and Exchange Commission and current senior strategy and policy advisor in the financial services regulatory practice at PwC.

Fornelli urged a flexible approach to disclosure reform, one that takes into account the fact that different companies and investors may need different levels of information. “I’m wary of the term ‘disclosure overload,’” she said. “We should think about it in terms of disclosure right-sizing, or disclosure effectiveness.”

III. CAQ Work on Main Street Investor Survey Recognized by PR News

PR News, an important provider of services and thought leadership in communications, has recognized the CAQ for its efforts to promote the 2013 Main Street Investor Survey. The CAQ’s efforts merited honorable mention in the 2014 PR News Non-Profit PR Awards.

CAQ’s Main Street Investor Survey provides valuable information to the public company auditing profession and other stakeholders about the views and needs of investors. Given the federal government’s fiscal situation at the time of the most recent survey’s release in October 2013, the CAQ supplemented its traditional survey with a “pulse poll” to gain fresh insight into exactly how the federal government shutdown and looming debt crisis were impacting investor confidence.

The survey findings served as a springboard for the CAQ to foster a robust dialogue with the media, policymakers, academics, investors, and financial services professionals through social media channels and at an event hosted by the CAQ in October.

IV. CAQ Perspective: “Auditors Caught Between a Rock and the Great Wall of China”

Coordinated global interaction by regulators is critical when it comes to how China-based audit firms can share information with U.S. regulators, writes Cindy Fornelli in a March LinkedIn Influencer column.

“Chinese audit firms find themselves in a very difficult position, stuck between regulations that conflict internationally,” Fornelli notes. In her view, much is at stake in this issue for U.S. investors, multinational companies doing business in China, and Chinese companies selling shares on U.S. exchanges.

 Fornelli welcomes progress by U.S. and Chinese regulators on this issue, notably an agreement between the China Securities Regulatory Commission and the Public Company Accounting Oversight Board regarding enforcement cooperation. Furthering such progress is important, as U.S. investors in China-based companies could be affected if those companies are unable to obtain the audit work needed to continue to access the U.S. capital markets. Moreover, she notes, U.S. investors in multinational companies with operations in China also could be negatively affected if a company’s signing auditor is unable to rely on a Chinese firm’s work to complete a consolidated audit.

“Continued government-to-government discussions—and resulting cooperation—are key to resolving this issue as quickly as possible,” says Fornelli.

V. Reminder: CAQ and AAA Auditing Section Seek Proposals for Access to Audit Personnel Program

Last call: The CAQ and the Auditing Section of the American Accounting Association (AAA) have issued a request for proposals for their joint program to facilitate accounting and auditing academics’ ability to obtain access to audit firm personnel. The CAQ and the AAA Auditing Section established the program in 2013 to generate research on issues that are relevant to audit practice, while providing doctoral students and those professors seeking tenure with access to audit firm personnel to complete the research study protocols. The deadline for submissions is April 21, 2014.