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CAQ Snapshot: November 2016

Tuesday, November 29, 2016

Report: Audit Committees Have Significantly Increased Transparency of External Audit Oversight

The amount of information available to investors on audit committee oversight of the auditor continues to increase significantly, according to the latest edition of the Audit Committee Transparency Barometer. Issued jointly in November by the Center for Audit Quality (CAQ) and Audit Analytics, the 2016 Barometer reveals double-digit growth since 2014 in the percentage of S&P 500 companies disclosing information on key areas of external auditor oversight, including auditor appointment and audit partner rotation.

“Audit committees play important roles in enhancing audit quality and representing investor interests, so it is encouraging to observe how public companies continue to shed more light on audit committee practices,” said CAQ Executive Director Cindy Fornelli.

Each year since 2014, the Barometer has measured the robustness of proxy disclosures among companies in the S&P Composite 1500. This index is comprised of the S&P 500 (large-cap companies), the S&P MidCap 400, and the S&P SmallCap 600.

Notable findings in the 2016 Barometer include the following:

  • Thirty-one percent of S&P 500 companies’ proxy statements present enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm, up from 13 percent in 2014. Twenty-two percent of MidCap companies show enhanced discussion (up from 10 percent in 2014) compared to 17 percent of SmallCap companies (up from 8 percent in 2014).
  • Seventeen percent of S&P 500 companies explicitly stated the role audit committees play in negotiating audit fees, more than doubling from 8 percent in 2014.
  • Thirty-four percent of S&P 500 companies disclose the evaluation or supervision of the audit firm, more than quadrupling from just 8 percent in 2014.

As a companion to the report, the CAQ has produced a video that brings to life the topics discussed in the Barometer through interviews with audit committee chairs discussing best practices related to appointment, compensation, and oversight of the work of the external auditor. The video is available on the CAQ website

Commentary: AQIs – An Opportunity for Audit Committees

In recent years, stakeholders in both the private and public sectors have shown a growing interest in audit quality indicators, write the CAQ’s Fornelli and Paula Loop, Leader of PwC’s Governance Insights Center, in a recent joint commentary posted on LinkedIn. Yet despite this interest, the two observe, recent research shows that a significant number of audit committees are not fully—or formally—using AQIs.

Fornelli and Loop cite PwC’s recently published Annual Corporate Directors Survey, which shows that 42 percent of respondents indicated that they did not formally use AQIs. Among companies with annual revenue greater than $10 billion, that percentage climbs to 61 percent.

“Judging by PwC’s research, the opportunity for audit committees to formally use AQIs remains ripe,” Fornelli and Loop write. They also emphasize several key considerations for audit committees addressing the possible use of AQIs. These considerations include the recognition that one size does not fit all, as well as and an understanding that working with AQIs is an iterative process.

CAQ Offers Grants to Fund Auditing-Related Academic Research

The CAQ has issued its ninth annual request for proposals to fund independent academic research on projects of interest to the auditing profession. To date, the CAQ has funded more than $600,000 in academic research through this program.

“Academic research plays an essential role informing audit practice,” said CAQ Executive Director Cindy Fornelli in a statement. “The CAQ and the public company auditing profession are dedicated to supporting academic research that can improve audit quality and help shape the future of auditing.”

The CAQ program focuses on a number of critical policy issues, including audits of internal control over financial reporting, auditing of accounting estimates and fair value, audit committee effectiveness, cybersecurity, data analytics, professional skepticism, global group audits, materiality, non-GAAP measures, fraudulent financial reporting, and the value of the audit.

To be considered, proposals must be submitted by March 17, 2017, through the CAQ’s online submission form. Proposals will be reviewed by the CAQ’s Research Advisory Board, which is comprised of representatives from academia and the profession. Grants will be announced no later than June 1, 2017.

“Profession in Focus” Welcomes James Lam, Timothy F. Ryan

The CAQ has added two new episodes to its “Profession in Focus” video series. The first of these episodes features James Lam, a risk expert and President at James Lam & Associates. Lam discusses key components of board oversight of risk, his thoughts on risk transparency generally, and why cybersecurity is a “very different” risk.


In a subsequent episode, Timothy F. Ryan, Chairman and Senior Partner at PricewaterhouseCoopers LLP, also touches on cybersecurity, as well as PwC’s hiring priorities and the broader state of audit quality. “When I think of audit quality over the last ten years, the profession has made tremendous strides,” says Ryan, a member of the CAQ Governing Board. “But by the same token, the expectations of our stakeholders keep going up, as they should.”

Join the CAQ at These Upcoming Events

SASB Annual Symposium
Join us at the SASB Symposium where Cindy Fornelli will moderate a panel discussion with Jeanette Franzel, Board Member at the PCAOB and Jeff Thomson, CEO of IMA, on “Sustainability Reporting: Expanding the Boundaries of Accounting.
December 1, 2016; New York, NY (Website)

AICPA Conference on Current SEC and PCAOB Developments
The CAQ is proud to support this year’s AICPA annual SEC/PCAOB conference. Cindy Fornelli will help kick off the conference on Dec. 5 with remarks on the future of the auditing profession and an update on the CAQ.
December 5-7, 2016; Washington, DC (Website)

2016 Millstein Governance Forum
The CAQ is a proud supporter of the Millstein Center and its 2016 Governance Forum exploring “Governance, Leadership, and the Future of the Corporation.” Registration is now open!
December 7, 2016; New York, NY (Website)

Anti-Fraud Collaboration Webcast
Join the Anti-Fraud Collaboration for a webcast discussion with Kara Novaco Brockmeyer, Chief of the SEC Foreign Corrupt Practices Act Unit, Rodney Chase, Independent Director and Audit Committee Member, Timothy Hedley, Partner at KPMG, LLP, and Fiona Philip, Partner at Sidley Austin, LLP, on the topic of “SEC Investigations: Are There Benefits to Cooperation and Self-Reporting?”
December 13, 2016; Washington, DC (Register Here)

AAA Mid-Year Meeting ADS Breakfast

The CAQ and the AAA are partnering to invite ADS graduates and students to this year’s Accounting Doctoral Scholar’s Breakfast at the AAA Mid-Year Meeting. We hope to see our Academic friends in Orlando!

January 13, 2017; Orlando, FL (Website)

Equilar Board Leadership Forum

The CAQ is pleased to participate in the 2017 Board Leadership Forum where Cindy Fornelli will moderate a panel discussion with David Larcker, Professor & Faculty Director of the Corporate Governance Research Initiative at Stanford Graduate School of Business, Damon Oshita, Senior Analyst of Governance & Proxy at The Capital Group, and Anne Sheehan, Director of Corporate Governance at CalSTRS, on the topic of “Boards that Lead: What Do Investors Want to See from Directors?”

February 2, 2017; San Francisco, CA (Website)