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CAQ Snapshot: May 2014

Thursday, May 29, 2014

I. CAQ Awards Funding for Four Independent Academic Research Projects

On May 19, the CAQ announced funding for four new academic research projects. The CAQ’s Research Advisory board (RAB) selected the projects from a group of 36 research proposals received in response to a December 2013 request for proposals on key auditing topics.

“I applaud our Research Advisory Board members for their dedication to identifying projects that will inform the profession’s efforts to continuously improve audit quality,” said CAQ Executive Director Cindy Fornelli in a press release announcing the grants.

The projects selected are the following:

  • Audit Committee Quality and Financial Reporting in Merger and Acquisition Transactions,” by Tom Adams, and Jayanthi Krishnan, Temple University “Management Bias and Accounting Estimates: When do Auditors Assimilate Management’s Bias and When Do They Correct for It?” by Brian Fitzgerald, Texas A&M University (accepted a position at Northeastern), Kecia Smith, and Christopher Wolfe, Texas A&M University
  • “Does Disclosing Critical Audit Matters in the Audit Report Increase Perceived Auditor Responsibility for Misstatements?” by Steven J. Kachelmeier, Jaime J. Schmidt, and Kristen Valentine, University of Texas at Austin
  • “The Way Forward on Professional Skepticism: Conceptualizing Professional Skepticism as an Attitude,” by Christine Nolder, Suffolk University and Kathryn Kadous, Emory University

Through the RAB, the CAQ has provided 25 grants to fund academic research since 2009.

II. New Member Alert Helps Auditors of Brokers and Dealers, Futures Commission Merchants

The CAQ and the American Institute of CPAs in mid-May issued a joint member alert outlining key regulatory changes applicable to audits and attestation engagements of brokers and dealers and futures commission merchants. For audit firms, the alert highlights auditing considerations arising from regulatory changes set forth by the Securities and Exchange Commission and the Commodity Futures Trading Commission—as well as related guidance and standards issued by the Public Company Accounting Oversight Board. Most major changes discussed in the alert take effect on June 1, 2014.

III. Discussion Continues Around CAQ Approach to Audit Quality Indicators

Following its April 2014 publication, the CAQ Approach to Audit Quality Indicators has generated significant discussion around the issue of creating standardized measures for audit quality. The CAQ has fostered this discussion through outreach and dialogue with stakeholders, including the media.

On May 7, for example, CAQ staff member Susan Brooke provided a briefing for members of the Global Auditor Investor Dialogue (GAID), a telephonic forum to discuss topics of mutual interest to the auditing and investing communities. Participants on the May 7 call included representatives from the Canadian Coalition for Good Governance, the Association of British Insurers, and the UK Investment Management Association, among others. Brooke also briefed the Global Public Policy Committee on the Approach in May.

On the media front, Bloomberg BNA featured an interview between the CAQ’s Fornelli and Ali Sartipzadeh of Bloomberg BNA’s Accounting Policy and Practice Report at the end of April. Fornelli also discussed AQIs on the May 8 edition of “This Week in the Boardroom”— a program hosted by TK Kerstetter, Chairman of NYSE Governance Services – Corporate Board Member—and on “NACD BoardVision,” hosted by National Association of Corporate Directors CEO Ken Daly, on May 9.

IV. Audit Committees: Summary of April Panel Available

In April 2014, a group of top corporate governance experts gathered at the University of Delaware to discuss emerging practices of enhanced audit committee disclosures and the value of increasing transparency about the role and responsibilities or the audit committee. The panel discussion—hosted jointly by the University of Delaware’s John L. Weinberg Center for Corporate Governance and the CAQ—was an outgrowth of a November 2013 publication, Enhancing the Audit Committee Report: A Call to Action.

CAQ Executive Director Cindy Fornelli—seated next to CAQ Governing Board Member Michele J.Hooper, President and CEO of The Directors’ Council (right)— discuss the Call to Action in April. Photo courtesy of the University of Delaware  

A summary of the April 2014 discussion is now available at the Audit Committee Collaboration website. Among the topics covered are recent developments impacting the policy environment for audit committees, the potential benefits and challenges of enhancing audit committee disclosure, and to what extent adoption of any new disclosures is best accomplished through regulatory mandates or voluntary efforts.

V. “Rethinking Financial Disclosure” Initiative Gets Underway

The Center for Audit Quality (CAQ), together with the Institute for Corporate Responsibility at the George Washington University School of Business (GW), has launched the Initiative on Rethinking Financial Disclosure. Announced on May 15, the Initiative responds to Securities and Exchange Commission Chair Mary Jo White’s challenge to streamline Form 10-K disclosure requirements.

As a part of the Initiative, multiple teams of GW graduate students will begin by studying issues driving concerns over effective corporate disclosure. Each student team will then review several Form 10-K reports from randomly selected Fortune 500 companies. Following this review, they will make specific recommendations to improve disclosure effectiveness and to reduce unnecessary or redundant reporting requirements. Along with faculty at the Institute for Corporate Responsibility, the students will receive guidance from an advisory committee comprised of leading academics, practitioners, and others.




In September 2014, the students’ final projects will be presented for judging. The most effective recommendations will be compiled into a report that will be submitted to the Securities and Exchange Commission in October.

“Effective disclosure is a key component of world-class capital markets,” said CAQ Executive Director Cindy Fornelli at the Initiative’s launch. “These students, working with an expert advisory committee, will have the chance to make a positive contribution to this important public policy dialogue.”