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CAQ Snapshot: May 2016

Thursday, May 26, 2016

CAQ Welcomes Dialogue on Considerations for Future PCAOB Inspections 

The CAQ welcomed comments from Jeanette Franzel, Board Member at the Public Company Accounting Oversight Board (PCAOB), regarding how the PCAOB’s inspection process can evolve as part of the Board’s mission to enhance audit quality. In remarks before the 15th Annual Baruch College Financial Reporting Conference, Franzel set forth a number of potential changes, including selecting audits for inspection on a broader basis than that of the current risk-based approach. 

Responding to Franzel’s remarks, the CAQ’s Fornelli said in a statement that firms have invested—and will continue to invest—heavily in quality control at the firm and engagement levels. “Just as the public company auditing profession is built on a commitment to a continuous cycle of improvement,” she added, “it is important for the inspection process to evolve and continue to benefit investors and the capital markets.”

Fornelli added that as the PCAOB explores changes to the inspection process, it will be critical to continue to engage in a robust dialogue with the profession and the public.

CAQ Provides IAASB Views on Enhancing Skepticism, Quality Control

While the CAQ welcomes additional guidance on how auditors can enhance professional skepticism and quality control, auditing standards in those areas should continue to be principles-based and non-prescriptive, said the CAQ in a May letter to the International Auditing and Assurance Standards Board (IAASB). The CAQ filed its comment in response to an IAASB request for comment, Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control, and Group Audits.

“The amount of additional guidance should be sufficient to make the standards operational,” said the letter, “but should not seek to answer every possible question.”


In addition to recommending specific measures that the IAASB can take to enhance skepticism and quality control, the letter provided views on the drivers of appropriate application of professional skepticism, as well as collaborative efforts undertaken by the public company auditing profession to promote skepticism and fight financial reporting fraud.

CAQ and AAA Auditing Section Announce Four Awards for Access to Audit Personnel Program 

The Center for Audit Quality (CAQ) and the Auditing Section of the American Accounting Association (AAA) announced four awards for the Access to Audit Personnel Program, including projects to explore client accountability and auditor evidence collection. This is the fourth year that the CAQ and the AAA Auditing Section have supported this program, which facilitates the ability of accounting and auditing academic scholars to acquire access to audit firm personnel who participate in their research projects. 

From the 25 proposals received this year, the Review Committee selected the following projects to support:

  • A Bright Side to Client Accountability: Accountability to the Client Enhances the Quality and Independence of Auditor Judgment when Accuracy Goals Are Primed by Emily Griffith, University of Wisconsin-Madison; Kathryn Kadous, Emory University; and Donald Young, The Georgia Institute of Technology
  • Does Implementing an Auditor Judgment Rule Increase Auditors’ Likelihood of Conducting More Innovative Procedures? by Yoon Kang, University of Massachusetts – Amherst; David Piercey, University of Massachusetts – Amherst; and Andrew Trotman, Northeastern University 
  • The Impact of Inferences About Work Paper Default Options on Auditors’ Sensitivity to Changes in Risk by Tracie Majors, University of Illinois at Urbana – Champaign; Sarah Bonner, University of Southern California; and Stacey Ritter, University of Southern California 
  • Improving Auditors’ Evidence Collection and Evaluation by Mitigating the Impact of Conflicting Incentives by Daniel Zhou, Emory University 

“The Access to Audit Personnel program has been an effective way to assist researchers in obtaining the necessary participation from multiple audit firms for their research,” said Executive Director Cindy Fornelli. An estimated 580 audit staff of varying levels from the eight CAQ Governing Board firms will be asked to participate in these four research projects.

New “Profession in Focus” Interviews: Michigan State’s Hogan, PCAOB’s Jama 

The CAQ added to its “Profession in Focus” video series with two May episodes. The first featured Chris E. Hogan, Professor of Accounting at Michigan State University’s Eli Broad College of Business. Hogan, who is also President of the American Accounting Association’s Auditing Section, discussed developments in accounting careers, education, and research. 

“The way we educate [accounting] students is very different than 20 years ago,” said Hogan. “We focus much more on the soft skills of teamwork, communication.”

Profession in Focus

The next episode featured Liban Jama, Senior Advisor for Legal, Policy and Strategy at the PCAOB’s Division of Enforcement and Investigations. Jama discussed his division’s top focus areas—skepticism, independence issues, integrity of PCAOB processes, and cross-border activities—and also stressed the importance of communication in the fight against financial reporting fraud. “There needs to be a continuous dialogue among stakeholders,” he said.

To mark the first anniversary of the launch of Profession in Focus, the CAQ has created a short video featuring highlights from one year of informative interviews with leaders in public company auditing and corporate governance. The video is available at the CAQ’s YouTube channel.

Commentary: Keeping Your Anti-Fraud House in Order

Advance planning and pushing for “a seat at the table” are key anti-fraud steps for ethics personnel, compliance officers, and others in an organization, said the CAQ’s Fornelli in a new LinkedIn Influencer commentary

“Both the public and private sectors are as focused as ever on financial reporting fraud,” she noted, citing recent enforcement trends at the U.S. Securities and Exchange Commission (SEC), as well as efforts from private sector entities such as the Anti-Fraud Collaboration

Providing takeaways drawn from a May 2016 panel discussion that Fornelli moderated at the Annual Meeting of the Ethics & Compliance Initiative, she also emphasized the importance of swift remediation efforts in the event of fraud, as well as effective internal control over financial reporting. “If [employees] are aware that there is discipline around financial reporting,” she said, “they may realize that there is a higher probability of their misdeed being detected.”

Separately, the Anti-Fraud Collaboration in May launched a new website resource page, #FraudFacts, as a means to highlight and share useful information, considerations, and research related to financial reporting fraud.

Register Now: July ​7 Anti-Fraud Collaboration Webcast on Mitigating Risks of Short-Termism

How can audit committees, financial executives, and internal auditors identify ways to mitigate the risks of short-termism? How do external auditors factor those risks into their audit planning and scoping? At a July 7 webcast from the Anti-Fraud Collaboration, a panel of experts will discuss what successful companies do to reinforce the alignment between seemingly conflicting goals, and provide actionable recommendations that each supply chain member can implement in their organizations. 


Compliance professionals and all key players in the financial reporting supply chain—audit committee members, financial executives, internal auditors, and external auditors—can benefit from this informative program. It will be free of charge and CPE-eligible.