CAQ Snapshot: November 2018
Tuesday, December 11, 2018
Report Shows Strong Five-Year Trends in Audit Committee Transparency
The amount of information available to investors and other stakeholders on audit committee oversight of the external auditor continues to increase, according to the 2018 Audit Committee Transparency Barometer, an annual report issued jointly by the Center for Audit Quality (CAQ) and Audit Analytics.
Among the Barometer’s findings are the following:
- Of S&P 500 companies, 40 percent disclose considerations in appointing the audit firm (up from 13 percent in 2014), compared with 27 percent of mid-cap companies (up from 10 percent in 2014) and 19 percent of small-cap companies (up from 8 percent in 2014).
- Of S&P 500 companies, 46 percent disclose criteria considered when evaluating the audit firm (up from 8 percent in 2014), compared with 36 percent of mid-cap companies (up from 7 percent in 2014) and 32 percent of small-cap companies (up from 15 percent in 2014).
- Of S&P 500 companies, 26 percent disclose that the evaluation of the external auditor is at least an annual event (up from 4 percent in 2014), compared with 17 percent of mid-cap companies (up from 3 percent in 2014) and 12 percent of small-cap companies (up from 4 percent in 2014).
“The trends revealed in our report tell a clear success story,” says CAQ Executive Director Cindy Fornelli. “Taking steps to enhance transparency into our extraordinary system of financial reporting, as many audit committees are doing, strengthens both the confidence of investors and their ability to make sound decisions in the capital markets.”
The Barometer was also the subject of discussion on a November episodeof Inside America’s Boardrooms. On the program, Erin Dwyer, the CAQ’s Managing Director of Stakeholder Engagement, credits both audit committees and investors for the positive trends seen in the Barometer. “Over the last several years,” she observes, “investors have been more articulate and explicit in terms of the information that they want to see from boards of directors generally—but also specifically from audit committees.”
Video Series Highlights Benefits of Transparency Related to Audit Oversight
Complementing the publication of the Audit Committee Transparency Barometer, the CAQ released three videos featuring insights from audit committee members on the importance of effective audit committee reporting in fostering transparency and trust.
The videos, which can be found on the CAQ website and on YouTube, feature:
- Barbara Duganier, audit committee chair at Buckeye Partners, L.P. and MRC Global Inc. and audit committee member at Noble Energy, Inc.
- Michele Hooper, President and CEO of the Directors’ Council and corporate director at United Continental Holdings, UnitedHealth Group, and PPG Industries
- Leslie Murphy, President and CEO at Murphy Consulting and audit committee chair at Kelly Services and Loop Industries
CAQ Requests Auditing-Related Academic Research Proposals
The CAQ issued its 11th annual request for proposals to fund independent academic research on projects of interest to the auditing profession. To date, the CAQ has funded 39 academic research projects under the auspices of its Research Advisory Board, which is comprised of representatives from academia and the public company auditing profession.
The CAQ’s request for proposals targets a range of key topics, including audit implications of new accounting standards, auditor risk assessment, cybersecurity, and data analytics, among others. To be considered, proposals must be submitted by March 14, 2019, through the CAQ’s online submission form. Proposals will be reviewed by the CAQ’s Research Advisory Board, and grants will be announced in June of 2019.
CAQ Welcomes Anita Doutt as Professional Practice Fellow
Anita Doutt, CPA, has joined the CAQ as its Professional Practice Fellow. In this role, Doutt will help guide the CAQ’s professional practice and public policy activities.
“We are thrilled to have Anita on the CAQ team,” says CAQ Executive Director Cindy Fornelli. “Her extensive experience in auditing and implementation of new accounting standards will be a great asset for our organization as we work to advance audit quality.”
The CAQ’s Professional Practice Fellowship Program is conducted in collaboration with the CAQ’s Governing Board member firms. The ninth participant in the program, Doutt joins the CAQ on loan from KPMG, where she is an Audit Senior Manager in the firm’s McLean, Virginia, office. She succeeds PwC’s Chris Alabi, CPA, ACA.
“Chris has been an indispensable member of the CAQ’s leadership team during his 18-month fellowship,” Fornelli adds. “We thank him for his service to the public company auditing profession, and we wish him well as he returns to PwC.”
CAQ Weighs in on Proposals Regarding Risk Assessment, Financial Disclosures
In November, the CAQ filed a pair of comment letters. Early in the month, the CAQ submitted a response to the International Auditing and Assurance Standards Board (IAASB) Proposed International Standard on Auditing 315 (Revised), Identifying and Assessing the Risks of Material Misstatement and Proposed Consequential and Conforming Amendments to Other ISAs.
While expressing support for the IAASB’s efforts, the CAQ emphasized the need for clarity and flexibility in the standard. “The proposed requirements are at risk of being interpreted differently by auditors, which could lead to inconsistent application of the final standard if not addressed,” says the CAQ’s letter, adding that “the proposed changes also could have a significant cost impact, including with respect to many firms’ methodologies and technologies, with little associated benefit.”
Subsequently, the CAQ commented on a proposed rule from the Securities and Exchange Commission (SEC), Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities. “We believe that the proposal has the potential to achieve the Commission’s intention to better align the disclosure requirements with the needs of investors by providing them with material information based on specific facts and circumstances in a more understandable manner,” the CAQ says.
Auditor’s Report: The CAQ’s Ide Discusses Keys to CAMs Success
Robust communication will be critical to the successful implementation of critical audit matters (CAMs) in the updated auditor’s report, says Catherine Ide, CAQ Managing Director for Professional Practice and Member Services, in a November interview on Inside America’s Boardrooms. In a conversation with host TK Kerstetter, Ide provides an overview of CAMs, the types of matters that will likely be CAMs, and the implications of CAMs for audit committees.
“As gatekeepers for quality financial reporting, I would expect audit committees to be communicating with various stakeholders,” says Ide, who pointed to several CAQ resources aimed at fostering dialogue and understanding regarding auditor reporting.
Join the CAQ at These Upcoming Events
Pracitising Law Institute (PLI) Directors’ Institute on Corporate Governance
November 29; New York, New York
At this annual PLI event, the CAQ’s Cindy Fornelli will participate in a panel on the evolving role of audit committees. Joining Fornelli on the panel will be Giles Cohen, SEC Deputy Chief Counsel, Office of the Chief Accountant; James S. Turley, Retired Chairman and CEO, EY; and moderator Lori Zyskowski, Partner at Gibson, Dunn & Crutcher LLP.
Sustainability Accounting Standards Board Symposium
December 4; New York, New York
Join the discussion on the future of sustainability disclosures and questions about the materiality of sustainability information and its relevance to the capital markets.
American Institute of CPAs (AICPA) Conference on Current SEC and Public Company Accounting Oversight Board (PCAOB) Developments
December 10–12; Washington, DC
The CAQ’s Cindy Fornelli will help kick off this marquis AICPA conference with remarks on the state of the public company auditing profession and an update on CAQ activities. Fornelli will also moderate a “fireside chat” with SEC Chairman Jay Clayton and Chief Accountant Wesley Bricker, as well as a session with all five board members of the PCAOB.
KPMG Board Leadership Conference
January 7–9; Orlando, Florida
We look forward to seeing our director colleagues at the KPMG Board Leadership Conference for conversations about the challenges and priorities shaping board agendas in the year ahead. On January 8, Cindy Fornelli will participate in a session on the 2019 audit committee agenda.
American Accounting Association (AAA) Auditing Section Midyear Meeting
January 17–19; Nashville, Tennessee
Join us on January 18 at the AAA Auditing Section Midyear Meeting, where Cindy Fornelli will moderate the panel “The PCAOB’s New Strategic Plan: What Will It Mean for the Auditing Profession?” Panelists include Wes Bricker, Chief Accountant, SEC; Abe Dymond, Chief of Staff, PCAOB; Trent Gazzaway, National Managing Partner for Quality and Innovation, Audit Services, Grant Thornton; and Joe Ucuzoglu, Chairman and CEO, US Audit and Assurance Leadership, Deloitte & Touche LLP