Deadline: Thursday, March 15, 2018; 12:00 Midnight PST
The CAQ is interested in research questions that can substantively inform audit practice or address policy and regulatory issues that impact the profession. Below are brief descriptions of suggested topics that are listed in the current Request for Proposals.
All proposals must be submitted in accordance with the instructions detailed on the RFP.
Auditing Accounting Estimates and Fair Value Measurements
Auditors face many challenges when auditing the more complex accounting estimates and fair value measurements. PCAOB inspection reports have highlighted numerous deficiencies in this area, such as a lack of consistent application of professional skepticism including insufficient consideration of contradictory evidence when auditing areas that involve significant judgments; inappropriate levels of supervision/reliance on specialists (both inside and outside audit firms); insufficient evaluations of the reasonableness of certain assumptions; insufficient testing of certain inputs used in the determination of significant estimates in the face of contradictory evidence; and insufficient testing of estimates with fair value measurements. The CAQ is interested in research that addresses these areas.
Audit Committee Effectiveness
Audit committees play a critical role in the financial reporting process. The CAQ is interested in research that will add to the current understanding of the responsibilities, best practices, characteristics, policies, and structure of effective audit committees. In addition, the CAQ is interested in research that informs current understanding of the impact of audit committees on the financial reporting process and audits.
Auditor Risk Assessment
Auditors identify and assess the risks of material misstatement in the financial statements as part of the audit planning phase, and then continually reassess risk throughout the course of the engagement. PCAOB standards require that the auditor consider a variety of sources of information to obtain an understanding of the entity, its processes, account balances, classes of transactions, disclosures, etc. Risk assessment is the process of synthesizing that information to identify risks of material misstatement that are relevant to the audit and assessing the inherent risk of those risks in order to design an appropriate audit response. At the 2017 Ninth Annual CAQ Symposium one of the panels focused on the Challenges and Opportunities of Auditor Risk Assessment. The CAQ is interested in supporting research that can inform the profession on this critically important audit activity.
Audits of Internal Control over Financial Reporting (ICFR)
Though there have been many improvements in ICFR reporting, it continues to pose challenges for preparers and auditors. The CAQ is interested in research on the relationship between reported ICFR deficiencies and measures of the quality of financial statements, such as restatements, numeric and non-numeric disclosure quality measures, and measures of disclosure timeliness, etc. On a company-level basis, research around the material weakness decision process (including forecasting the magnitude of errors that could exist) is extremely relevant to both regulators and practitioners.
Cybersecurity has immense scale and challenges every sector of our economy. The auditing profession is in a strong position to play an important role in fostering instructive conversations about cybersecurity risk management. The profession can bring to bear its core value – including independence, objectivity, and skepticism – as well as its deep expertise in providing independent evaluations in a variety of contexts. The CAQ is interested in research that will illustrate the current auditor involvement in cybersecurity by evaluating the impact of cybersecurity breaches on the financial statement audit, specifically the internal control opinion. Additionally, it would be informative to see how a company’s description of their risk factors in filings with the Security and Exchange Commission related to cybersecurity are impacted after there is a breach.
Audit firms are making major investments in technologies that will facilitate the use of advanced data analytics in the audit of financial statements. The integration of data analytics into firm audit methodologies is still in the early stages as the firms explore (i) how best to capture the data; (ii) how such data can influence scoping and risk assessment decisions; and (iii) how such data can be used in providing substantive assurance to the auditor. Suggested areas for research include (i) the potential role and uses of data visualization tools; (ii) the introduction and integration of data analytics into the classroom; (iii) how that integration could promote the development of critical thinking and professional skepticism; and (iv) thought leadership on the definition of data analytics and how data analytics works within the context of existing auditing standards. Research questions in this area could benefit greatly from a multidisciplinary academic team which may have the potential to generate more “out of the box” thinking.
Fraudulent Financial Reporting
Financial reporting fraud continues to be an area of key importance to the CAQ and its Anti-Fraud Collaboration. Broad areas of interest for academic research include understanding the conditions that contribute to financial reporting fraud and assessing related risks; mitigating the risks associated with a focus on short-term results on financial reporting; the role of information technology in facilitating the deterrence and detection of fraudulent financial reporting; and the effectiveness of whistleblower programs.
The determination of materiality is important to the conduct of an audit. Not only does it provide a framework to address uncorrected errors, but it also is the foundation from which audit scope decisions are made. There have been survey pieces relative to firms’ materiality policies and technical event studies attempting to correlate the magnitude of earnings’ surprises to stock price performance; however, there does not appear to be extensive research on other quantitative measures such as EBITDA, operating cash flows, etc. – all of which are often discussed in analysts’ calls.
Multinational Group Audits
Today’s audits often involve global teams of auditors. The CAQ is interested in research related to how lead auditors can best ensure audit quality in a multi-location audit; what are the challenges in a group audit environment; what are the most effective means of communicating when faced with cultural and language barriers; how can a system of quality control across a global network be most effective; and what is the risk of an increase in division of auditor responsibility?
Non-GAAP measures are frequently used by companies to explain financial performance and company results. Use of non-GAAP measures are permitted when complying with certain SEC regulations. Recently, regulators have expressed concern about inappropriate use of such measures. The CAQ is interested in research that will add to the current understanding of the use of non-GAAP measures: whether non-GAAP measures are beneficial to investors; what are the historical trends in the use of non-GAAP measures; what are the common areas of abuse or potential abuse of non-GAAP measures and what role the auditor might have in review of non-GAAP measures.
Professional skepticism is a fundamental element underlying the effectiveness of the external audit. Audit firms continue to seek ways to foster the proper application of professional skepticism in practice. The CAQ is interested in research on the antecedents to and fostering of the proper application of professional skepticism that has the potential to make a meaningful contribution to the extant research. This topic has also been mentioned under the accounting estimates heading above, but professional skepticism does go well beyond accounting estimates.
Value of the Audit
Another area of on-going CAQ interest is the value ascribed to the audit (e.g., debt and equity market effects; the value proposition of audited financial information; the view of stakeholders).