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EY’s Grier and BDO’s Berson Tapped to Lead the CAQ Governing Board

Kelly Grier

Kelly Grier

The governing board of the Center for Audit Quality (CAQ) has elected new leadership.

Effective Oct. 1, Kelly Grier, U.S. chairman and MP and Americas MP at Big 4 firm EY, will become the governing board’s chair. Wayne Berson, CEO at Chicago-based BDO USA LLP (FY18 net revenue of $1.46 billion) and global chairman at BDO International, will serve as vice chair.

“We are delighted and grateful that Kelly Grier and Wayne Berson will step into these leadership roles on the CAQ governing board,” says CAQ Executive Director Julie Bell Lindsay. “Their vision, energy and judgment will be instrumental to the CAQ’s continuing efforts to enhance investor confidence and public trust in the global capital markets.”

Wayne Berson

Wayne Berson

Grier says, “In an era of accelerating change, the CAQ’s overarching mission of fostering trust in audit quality and financial reporting is more important than ever.”

Berson says, “The auditing profession strengthens confidence in our capital markets, and the CAQ strengthens the work of public company auditors.”

The CAQ’s governing board is comprised of CEOs from leading public company auditing firms and the AICPA, as well as three independent board members from outside the public company auditing profession. The board provides oversight for the organization and leads the development of its strategic agenda.

CAQ governing board chairs and vice chairs are elected to two-year terms.

More news from the CAQ

CAQ Welcomes Doutt as Professional Practice Fellow

Anita Doutt

Anita Doutt has joined the Center for Audit Quality (CAQ) as its professional practice fellow. Doutt will help guide the CAQ’s professional practice and public policy activities as part of an 18-month fellowship.

“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,” says CAQ Executive Director Cindy Fornelli.

Doutt joins the CAQ from New York-based Big Four firm KPMG (FY17 net revenue of $9 billion), where she is an audit senior manager in the firm’s McLean, Va., office. She brings to the CAQ 10 years of experience auditing financial services entities, primarily leading integrated financial statement audits of diversified financial institutions. She has also been involved in financial statement audits of private equity investment partnerships, investment advisers and real estate entities, as well as audits of federal agencies under the Chief Financial Officers Act.

CAQ Releases Year End Review

The Center for Audit Quality (CAQ) released the 2011 Year in Review, documenting the work in support of public company audit quality. The document also summarizes the CAQ’s policy, outreach and research activities, including CAQ activities designed to enable stakeholders to more effectively deter and detect financial reporting fraud. Other highlights include the release of the new video on the “System of Investor Protection”; the release of the 5th Annual Main Street Investor Survey; and independent academic research funding on audit-related topics. Full report at www.thecaq.org/publications/CAQ_Year_In_Review_2011.pdf. If you would like a hard copy, contact Jake Leon at (202) 609-8048 or jleon@thecaq.org.

CAQ Comment Letter to the PCAOB Outlines Possible Changes to the Auditor’s Reporting Model

In a comment letter to the Public Company Accounting Oversight Board (PCAOB), the Center for Audit Quality (CAQ) has reaffirmed the public company auditing profession’s commitment to responsible changes to the auditor’s reporting model to better serve investors.

The letter puts forth several proposals that the CAQ believes would be responsive to many of the information needs of investors, including: a new examination report by the auditor on management’s Critical Accounting Estimates disclosure in Management’s Discussion and Analysis ; an emphasis-of-matter approach anchored to the most significant matters in the financial statement; and the addition of clarifying language – on reasonable assurance, auditor independence, and management’s responsibility for preparing the financial statements, among other recommendations – to the current auditor’s report.

The CAQ believes that these changes would enhance audit quality, narrow the expectation gap, and meet the needs of investors without creating significant unintended consequences.

The full letter is available at: http://www.thecaq.org/newsroom/pdfs/CAQCommentLetter-AuditorsReportingModel.pdf

CAQ Reacts to SEC’s IFRS Plan

The Center for Audit Quality (CAQ) issued the following statement by Executive Director Cindy Fornelli in reaction to the U.S. Securities and Exchange Commission’s (SEC) announcement of an International Financial Reporting Standards (IFRS) Work Plan:

“We are pleased that the SEC has reiterated its support for a single set of high-quality global accounting standards, consistent with comments from the vast majority of investors and other stakeholders who reacted to the Commission’s Roadmap. We are also pleased that the SEC has expressed its support for IFRS as that single set of high-quality standards.

The SEC’s action, in conjunction with the staff’s forthcoming Work Plan, should provide a path forward to the incorporation of IFRS into the financial reporting system for U.S. issuers. We encourage the Commission to execute its action plan so it is in a position next year to make a positive decision to adopt IFRS.

IFRS is quickly becoming the international standard, with 110 countries having already adopted, or in the process of adopting, IFRS. As a profession, we are already moving along this path, including helping develop curricula with accounting faculty to train university accounting graduates, working with companies to help them prepare for the transition, and training accountants and auditors.

The CAQ is committed to working with the SEC staff as it carries out its Work Plan. We recognize the importance of preparers, investors and standard-setters working together to help move this important initiative forward, and we will continue efforts to assist stakeholders, including investors, in understanding the benefits of IFRS.”

CAQ Weighs In on PCAOB Supreme Court Case

On December 7th, the U.S. Supreme Court heard opening arguments in a case debating the constitutionality of the Public Company Oversight Board (PCAOB). In advance of the case, the CAQ submitted to the Supreme Court an amicus brief in support of the PCAOB. The CAQ’s friend-of-the-court brief does not address the constitutional questions raised in the case, but rather provides context to help the Court understand the PCAOB’s role in achieving the goals Congress embodied in the Sarbanes-Oxley Act, from the perspective of the profession the PCAOB regulates.

“At a time of market and financial upheaval, overturning the established system of regulation will exacerbate investors’ fears about the integrity of capital markets, and interfere with the ongoing work of regulation,” the brief stated. “Were the Court to find the PCAOB as established to be constitutionally impermissible, the uncertainty surrounding the effect of past regulations, and the question of what form future regulation would take, would have negative consequences for investors, the profession, and the markets generally.”

Oversight of the public company auditing profession through the creation of the PCAOB was a key provision of the Sarbanes-Oxley Act of 2002 (SOX) and has helped restore investor confidence in the capital markets. According to a CAQ survey done in conjunction with the 5th anniversary of the passage of SOX, 79% of investors surveyed said that the changes brought about by SOX gave them more confidence in audited financial information.

In a Dow Jones story about the case, CAQ Executive Director Cindy Fornelli said of the public company auditing profession’s regulator, “I do think the market and investors benefit from having this oversight structure.”

The Court is expected to issue a ruling on the PCAOB’s constitutionality in Spring 2010.

II. CAQ Asks Congress to Preserve Key Sarbanes-Oxley Provision.

The CAQ recently sent letters to Senate and House leaders expressing support for the Sarbanes-Oxley Act of 2002 (SOX) and urging them to resist efforts to roll back a key investor protection provision in the law.

In a December 2nd letter to Senate Banking Committee leadership, the CAQ asked the Committee to resist efforts to exempt small businesses from compliance with Section 404(b) of SOX. “If, as proposed by some members of the House of Representatives, Congress agrees to a permanent waiver for small companies, there may be little independent scrutiny of financial reporting safeguards at an estimated 6,000 small companies,” Cindy Fornelli wrote in the letter. “Reporting under Section 404 provides investors with meaningful information regarding a company’s internal control over financial reporting (ICFR).”

The CAQ wrote a December 8th letter to Representatives Barney Frank, Paul Kanjorski, John Sarbanes and Steve Cohen, regarding their efforts to remove from the Consumer Protection Act language exempting small public companies from compliance with Section 404(b) of the Sarbanes-Oxley Act of 2002. “As representatives of the auditing profession, the Center for Audit Quality (CAQ) commends you for your continued support of Section 404(b) of the Sarbanes-Oxley Act (SOX), which requires an independent audit of a company’s assessment of its internal controls over financial reporting (ICFR),” Cindy Fornelli stated. “We understand you are contemplating an amendment that would preserve the potential application of this important investor protection to public companies of all sizes. We support such efforts.”

III. Cindy Fornelli Discusses Accounting Standard-Setting Independence in Conference Call with Reporters.

On November 16, Executive Director Cindy Fornelli and CAQ Governing Board Co-Vice Chair Barry Melancon, President and CEO of the American Institute of CPAs, held a teleconference with reporters to discuss the importance of maintaining the independent accounting standard-setting process. The media teleconference was held in response to proposals in the House Financial Services Committee that would realign the oversight of the Financial Accounting Standards Board (FASB) from the U.S. Securities and Exchange Commission (SEC) to within the structure of systemic risk.

“Financial and auditing standards are for the benefit of investors so that they can get the information that they need so that they can make valid investment decisions,” said Fornelli. “The SEC acts as an investor advocate and is the right oversight party for helping the FASB maintain independent standard setting. Having financial and banking regulators be part of that process and basically have veto power over the standards is really not a good model for our system. Particularly in this time of financial crisis, it is a bit ironic that we would be talking about watering down the process that’s designed to protect investors.”

Ultimately, the amendment’s authors were persuaded to alter their proposal so that the Oversight Council can recommend – but not demand – changes to the accounting standards.

Auditors Can Bring Trust, Confidence, Reliability to Currently Unaudited Corporate Reporting

Auditors are uniquely qualified to enhance confidence in a wide range of company-prepared information outside financial statements, according the Center for Audit Quality (CAQ).

In a white paper titled The Role of Auditors in Company-Prepared Information: Present and Future, the CAQ describes the role of auditors in various types of publicly disclosed information, as well as how that role is evolving.

“Investors and other market stakeholders increasingly rely on information beyond financial statements to make decisions and assess company value, yet much of this information doesn’t undergo independent review,” says CAQ Executive Director Julie Bell Lindsay. “Employing their critical thinking, skepticism, business knowledge and technical expertise, auditors stand ready to enhance the reliability of corporate information for the benefit of the capital markets, investors and the public.”

Today, the role of auditors is largely limited to the audit of financial statements and audits of internal control over financial reporting (ICFR). However, due to changing business models and investor demand, companies are increasingly providing information that falls outside the purview of traditional audits. This information typically does not undergo the rigor of assurance provided by an auditor, CAQ asserts, so the need for verification, trust and assurance of the information rises.

CAQ says auditors can meet stakeholders’ needs, boosting confidence in the following types of company-prepared information:

  • Non-GAAP financial measures, such as adjusted earnings per share
  • Key performance indicators, such as sales per square foot
  • Environmental, social and governance information, such as sustainability reporting
  • Cybersecurity reporting outside of the financial statements, such as how companies manage cyber-risks
  • Other communications about value-creation outside of financial statements, such as intellectual property

More news from CAQ

Report Criticizing PCAOB At Odds with New Survey

A report bashing the PCAOB for lax oversight of the Big 4 appears to contradict recent poll results reported by the Center for Audit Quality (CAQ).

CAQ said Sept. 18 that 83% of U.S. retail investors are confident that public company auditors are effective in their investor protection roles, according to the 2019 Main Street Investor Survey.

“Healthy investor confidence is critical at all levels, from the biggest asset managers to people saving in their 401(k),” says CAQ Executive Director Julie Bell Lindsay in a statement. “Our survey shows that retail investors in the U.S. have healthy and consistent levels of confidence in both our capital markets system and in the public company auditing profession.”

The survey polled U.S. retail investors with at least $10,000 in the capital markets through retirement plans or direct holdings. The findings say that 76% have confidence in U.S. companies that are publicly traded, and that 78% express confidence in audited financial statements, up three points from 2018.

By contrast, the Project on Government Oversight (POGO), an independent watchdog, said in a report earlier this month that its analysis of PCAOB annual inspection reports showed the board has been too lenient and has done “a feeble job” policing the Big 4.

POGO says that only 18 enforcement actions resulted from 808 cases in which the Big 4 performed audits that were “so defective that the audit firms should not have vouched for a company’s financial statements, internal controls or both.” The report says, “It has taken disciplinary action over only a tiny fraction of the apparent violations its staff has identified. Meanwhile, the financial penalties it has imposed pale into insignificance compared to the fines it apparently could have imposed.”

In its 16-year history, only $6.5 million in fines have been issued when it could have fined the audit firms more than $1.6 billion, according to the report, How an Agency You’ve Never Heard of is Leaving the Economy at Risk.

“It’s unacceptable that the agency is taking such a light-handed approach in holding these large audit firms accountable,” POGO’s executive director, Danielle Brian, said in a news release, adding, “By failing to hold the Big 4 accountable, the board is putting all Americans’ financial futures in jeopardy.”

Center for Audit Quality Names New Executive Director

Julie Bell Lindsay

Julie Bell Lindsay

Julie Bell Lindsay will succeed Cindy Fornelli as the executive director of the Center for Audit Quality (CAQ) on May 6.

Retiring after 12 years as executive director, Fornelli will continue at the CAQ through May 2019 to help with the leadership transition.

Lindsay comes to the CAQ from Citigroup, where she was managing director and deputy head for global regulatory affairs. In March, the CAQ’s governing board unanimously approved Lindsay’s appointment.

“Julie brings deep experience in the capital markets and an appreciation for the vital role of the public company auditing profession in our system of investor protection,” says Cathy Engelbert, Deloitte US CEO and chair of the CAQ board.

At Citigroup, Lindsay worked to develop and execute the bank’s regulatory policy priorities and strategy, engaging extensively with regulators, international standards-setters, trade organizations and peer institutions. Prior to Citigroup, among other endeavors, she served as counsel to SEC Commissioner Cynthia A. Glassman.

“Since 2007, the CAQ has established itself as force in public company auditing, thanks to its convening power, its constructive policy engagement and vision for the profession’s future,” Lindsay says.

Information on External Auditors on the Rise: Center for Audit Quality

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

“The trends revealed in our report tell a clear success story – over the past five years, audit committees have provided increasingly robust disclosures about their important investor-protection role in overseeing the external audit,” 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. To build on this progress, the CAQ encourages audit committees to explore additional opportunities for transparency improvements.”

Each year since 2014, the report has measured the robustness of proxy disclosures among companies in the S&P Composite 1500. Findings in this year’s report include:

  • 40% of S&P 500 companies disclose considerations in appointing the audit firm (up from 13% in 2014), compared to 27% of mid-cap companies (up from 10% in 2014) and 19% of small-cap companies (up from 8% in 2014).
  • 46% of S&P 500 companies disclose criteria considered when evaluating the audit firm (up from 8% in 2014), compared to 36% of mid-cap companies (up from 7% in 2014) and 32% of small-cap companies (up from 15% in 2014).
  • 26% of S&P 500 companies disclose that the evaluation of the external auditor is at least an annual event (up from 4% in 2014), compared to 17% of mid-cap companies (up from 3% in 2014) and 12% of small-cap companies (up from 4% in 2014).