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CAQ Snapshot: November 2014

Tuesday, November 25, 2014

New Report Offers Tools and Techniques to Help Build a Fraud-Resistant Organization

Financial reporting fraud can prove costly for investors and other capital market stakeholders. A comprehensive new report from the Anti-Fraud Collaboration takes a fresh look at best practices for fraud deterrence and detection, highlighting the critical importance of collaboration on this issue between and among the key players in the financial reporting supply chain. 

Drawing on a wealth of recent research, The Fraud-Resistant Organization: Tools, Traits, and Techniques to Deter and Detect Financial Reporting Fraud provides valuable information about the conditions that might make an organization more susceptible to fraud—and how to mitigate those conditions. The report marks the latest effort from the Anti-Fraud Collaboration, an initiative whose members include the Center for Audit Quality (CAQ), Financial Executives International, The Institute of Internal Auditors, and the National Association of Corporate Directors.

“All players in the financial reporting supply chain must work together to deter and detect financial reporting fraud,” said CAQ Executive Director and Anti-Fraud Collaboration Co-Chair Cindy Fornelli at the report’s publication. “The report highlights vital roles and responsibilities and provides each party with knowledge they can use to reduce the potential for fraud.” 

The report identifies three central themes that are critical to fraud deterrence and detection—strong “tone at the top,” skepticism, and robust communications—and explains how financial supply chain participants can incorporate these important traits into their efforts and their organizations.

On January 8, 2015, the Anti-Fraud Collaboration will host a webcast to discuss The Fraud-Resistant Organization. Moderated by the CAQ’s Fornelli, the webcast panel will include Ken Daly, President & CEO of the National Association of Corporate Directors; Karl Erhardt, Senior Vice President & General Auditor at MetLife; Marie Hollein, President & CEO of Financial Executives International; and Rick Ueltschy, Managing Partner, U.S. Audit Services at Crowe Horwath LLP. Register for the webcast here.

In other Anti-Fraud Collaboration news, the Collaboration hosted a teaching of the Hollate Manufacturing Case Study in Washington, DC on November 12. The event drew 60 people, including representatives from the regulatory community. 

CAQ and AAA Auditing Section Seek Proposals for Access rto Audit Personnel Program

The CAQ and the Auditing Section of the American Accounting Association (AAA) announced a request for proposals (RFP) for a joint program designed to help accounting and auditing academics obtain access to audit firm personnel. The CAQ and the AAA Auditing Section established the Access to Audit Personnel Program in 2012 to generate research on issues that are relevant to audit practice, while providing doctoral students and tenure-track faculty new research opportunities.

A committee of senior academics and audit practitioners will evaluate proposals based on factors such as ability to address important research questions that are relevant to practice, contribution to academic literature, and methodological soundness. Proposals, which may be submitted using a new online application process, are due by February 2, 2015.

CAQ “Pulse Poll” Explores Strong Investor Confidence in Stock Exchanges

As a companion to its October 2014 Main Street Investor Survey, the CAQ conducted a follow-up “pulse” poll taking a closer look at evidence of a substantial improvement in investor confidence in U.S. stock exchanges. Based on a survey of 375 individuals, the pulse poll revealed the factors cited by investors factors as “very important” to their confidence in the exchanges. These factors include the following:

  • The security of the data that moves through the exchanges (75% of investors)
  • The regulatory oversight of the exchanges (59% of investors)
  • The longevity/stability of the exchanges (58% of investors) 

Like the Main Street Investor Survey, the pulse poll defined investors as adults over 18 who are the primary decision-makers for handling their household’s savings and investments—or who share this role equally with another household member—and who live in households with $10,000 or more in investments such as stocks, bonds, or mutual funds.

CAQ Weighs in on Auditing Accounting Estimates and Fair Value Measurements

There is no ‘one-size-fits-all’ solution when it comes to auditing accounting estimates and fair value measurements, the CAQ said in a November 3 comment letter to the Public Company Accounting Oversight Board (PCAOB). “In developing a potential new standard, it may be more appropriate to create overarching principles related to auditing accounting estimates,” said the CAQ, which also provided detailed perspective on issues such as management’s use of specialists in making estimates, and third-party pricing services.

The CAQ filed its letter in response to a PCAOB paper, Auditing Accounting Estimates and Fair Value Measurements.

CAQ and AICPA Issue Joint Member Alert Highlighting Independence Rules

A new member alert issued jointly by the CAQ and the American Institute of CPAs (AICPA) provides audit firms with an overview of Securities and Exchange Commission (SEC) and PCAOB independence rules. The alert outlines rules applicable to financial statement audit and attestation engagements undertaken for the following non-issuers:

  • Non-issuer broker-dealers that are registered with the SEC as a broker or dealer; and 
  • Where the engagement(s) is subject to the requirements of SEC Rule 206(4)-2, SEC-registered and state-registered investment advisers, related party custodians, or private funds (e.g., pooled investment vehicles). 

The alert addresses applicability of SEC independence rules, financial statement preparation, applicability of PCAOB independence rules, and other engagements subject to SEC or PCAOB independence rules.

Recommendations from GW/CAQ Initiative on Rethinking Financial Disclosure Provided to SEC

SEC officials were briefed in early November on a new report from graduate students participating in a groundbreaking effort to improve the effectiveness of financial disclosure for investors. The report, issued through the Initiative on Rethinking Financial Disclosure (the Initiative), presents a set of innovative recommendations on the content, presentation, and creation process of corporate filings. 

Announced in May 2014, the Initiative is a partnership of the Institute for Corporate Responsibility at the George Washington University School of Business (GWSB) and the CAQ. It responds directly to SEC Chair Mary Jo White’s challenge to improve the effectiveness of corporate disclosure to investors. 

As a part of the Initiative, multiple teams of GWSB students spent months intensively studying the top concerns regarding financial corporate disclosure through the SEC-mandated Form 10-K. Their final report includes 11 recommendations to address those concerns.

Commentary: “Bringing Nuance Back to Regulatory Debagtes”

American attitudes about government and regulation are complex, observed the CAQ’s Fornelli in a recent commentary published by American Banker. Appreciating this complexity will help policymakers and the private sector as they strive to improve the regulatory process.

Fornelli cited recent findings from the CAQ’s Main Street Investor Survey, which revealed that while investors view the U.S. government as a reason for confidence in U.S. capital markets, they also worry that government regulation could harm their portfolios. “Regulation is important to [investors],” noted Fornelli, “but they don’t want the government to overdo it.”

To find the right balance and to promote effective regulation, Fornelli suggested that one important step will be fostering better communication and interaction between the government and private entities. 

CAQ Presents Corporate Governance Awards

On November 5, over 400 governance, risk, and compliance professionals gathered for the seventh annual Corporate Secretary Corporate Governance Awards in New York City. The CAQ, which had helped to judge nominees, presented awards to winners in several categories. 

In the photo, CAQ Director of Professional Practice Luba Dinits presents the award for Best Compliance and Ethics Program (small- and mid-capitalization company) to Tim Shelhamer, Senior Securities and Ethics Counsel at Freescale Semiconductor.


What Format Should the Next Version of the CPA Exam Take? Comments Due December 2!

The accounting profession evolves constantly, anticipating and responding to significant changes in the business and regulatory environments. Accordingly, the AICPA is developing the next version of the Uniform CPA Examination to address changing circumstances, expectations and demands and to continue to effectively protect the public interest.

On September 2, the AICPA released a document for public comment on what format should be taken by the next version of the Uniform CPA Examination. Access the Invitation to Comment to provide your feedback and help determine the knowledge and skills newly licensed CPAs need in today’s market. Deadline for comment is December 2, 2014. Read more in this item from the Journal of Accountancy.