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CAQ Snapshot: November 2017

Tuesday, November 28, 2017

Audit Committees Continue to Increase Transparency of External Audit Oversight

The amount of information available to investors and other stakeholders on audit committee oversight of the external auditor continues to increase, according to the latest edition of the Audit Committee Transparency Barometer, an annual report issued jointly by the Center for Audit Quality (CAQ) and Audit Analytics.

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.

The fourth edition of the Barometer provides year-over-year comparisons of key audit committee disclosure areas for companies of all sizes. Notable findings include:

  • Thirty-seven 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-four percent of mid-cap companies show enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm (up from 10 percent in 2014), compared to 17 percent of small-cap companies (up from 8 percent in 2014).
  • Thirty-eight percent of S&P 500 companies disclose criteria considered when evaluating the audit firm, a jump from 8 percent in 2014. 

“For the fourth year in a row, audit committees have continued to enhance transparency around their oversight of the external auditor by voluntarily and broadly increasing disclosure,” said CAQ Executive Director Cindy Fornelli in a statement. “With robust data and real-world examples of effective proxy disclosures, the Audit Committee Transparency Barometer is a resource for companies looking to better communicate with investors, regulators, and the public.”

CAQ Offers 2018 Grants to Fund Auditing-Related Academic Research

The CAQ issued its 10th annual request for proposals to fund independent academic research on projects of interest to the auditing profession. To date, the CAQ has funded 35 academic research projects through this program.

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

To be considered, proposals must be submitted by March 15, 2018, 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 in June of 2018.

New Anti-Fraud Collaboration Resource Examines Reporting on Misconduct

Organizations can take substantive actions to address the reporting of suspected financial fraud, according to a new report released by The Institute of Internal Auditors on behalf of the Anti-Fraud Collaboration. The report, Encouraging the Reporting of Misconduct, presents recommendations from key players in the financial reporting supply chain, including corporate directors, financial executives, and internal and external auditors.

The Collaboration compiled best practices from roundtable discussions focused on suspected financial reporting fraud and the negative impact that fear of retaliation has on the timely detection of such fraud. By understanding the factors that discourage reporting, the Collaboration offers ways to counter such obstacles and makes recommendations for creating and maintaining a retaliation-free environment.

The CAQ is a founding member of the Anti-Fraud Collaboration, along with Financial Executives International, the National Association of Corporate Directors, and The Institute of Internal Auditors. Since 2010, the Collaboration has promoted the deterrence and detection of financial reporting fraud through the development of thought leadership, awareness programs, educational opportunities, and related resources.

Register Today: Free Webcast on Strengthening Corporate Culture

Sound corporate culture is a cornerstone of fraud deterrence and detection. A December 13 webcast, hosted by the Anti-Fraud Collaboration, will highlight leading practices on assessing and strengthening a company’s corporate culture.

Moderated by CAQ Executive Director Cindy Fornelli, the panel will share actionable recommendations that organizations can implement to deter fraud and misconduct. Panelists include Gilly Lord, PwC’s head of regulatory affairs and audit strategy and transformation; Brenda J. Gaines, audit committee chair at Tenet Healthcare Corp.; Paul L. Walker, the Schiro/Zurich chair in enterprise risk management and the executive director of the Center for Excellence in ERM at St. John’s University; and Mark Carawan (invited), chief compliance officer at Citigroup.

The webcast will take place from 1:00 p.m. to 2:30 p.m. ET. It is offered free of charge, with the opportunity to earn Behavioral Ethics CPE credit.

Profession in Focus Welcomes Casal, Hatfield

The CAQ has added two new episodes to its “Profession in Focus” video series. The first of these episodes features Frank Casal, vice chair of audit at KPMG LLP. Casal discusses the implications of newly approved enhancements to the auditor’s report in the US, the public company auditor’s role in cybersecurity, and the impact on the audit of advanced data analytics, artificial intelligence, and other technological changes.

Featured in the subsequent episode is Professor Richard Hatfield of the University of Alabama’s Culverhouse School of Accountancy. Hatfield, who is also president of the Auditing Section of the American Accounting Association, discusses the benefits that the Auditing Section brings to academia and the profession, the factors that drive his research work, and the impact of technological advances on accounting and auditing research. “It’s becoming very clear that future audits will look very different five or 10 years from now,” he says. “I hope as academics, we’re there to help shape that with our research.”

Join the CAQ at These Upcoming Events

NACD Directorship 100 Gala
As a proud sponsor of NACD’s 11th Directorship 100 Gala, the CAQ congratulates the honorees.
November 29, 2017; New York, NY (Website)

AICPA Conference on Current SEC and PCAOB Developments
CAQ Executive Director Cindy Fornelli will help kick off the conference on December 4 with remarks on the state of the public company auditing profession and an update on CAQ activities. Fornelli will then moderate a conversation with SEC Chairman Jay Clayton and SEC Chief Accountant Wesley Bricker to discuss SEC leadership’s current activities and future plans related to public company financial reporting.
December 4-6, 2017; Washington, DC (Website)

AAA Auditing Section Midyear Meeting
Join us on January 12 (10:15 a.m.) at the AAA Auditing Section Midyear Meeting, where Cindy Fornelli will moderate a panel discussion with Phillip Austin of BDO USA LLP, the PCAOB’s Marty Baumann, Dan Sunderland of Deloitte & Touche LLP, and EY’s Scott Zimmerman on “Challenges Facing the Profession.”
January 11-13, 2018; Portland, OR (Website)