Center for Audit Quality
Encyclopedia
The Center for Audit Quality (CAQ) is an autonomous public policy
organization dedicated to enhancing investor
confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity
, effectiveness
and responsiveness
to dynamic market conditions.
The CAQ works to make public company audits even more reliable and relevant for investors in a time of growing financial complexity and market globalization. It also has undertaken research, offered recommendations to enhance investor confidence and the vitality of the capital markets, issued technical support for public company auditing professionals, and helped facilitate the public discussion about modernizing business reporting.
, the CAQ is affiliated with the American Institute of Certified Public Accountants
(AICPA). Since its inception in 2007, the CAQ has represented the unified voices of public company auditors in fostering a more robust dialogue among capital market stakeholders, including the investor, corporate, government and academic communities.
The CAQ is led by a governing board of the CEOs of public company auditing firms and the AICPA. Three public board members bring an outside perspective to the CAQ’s agenda and activities: Harvey Goldschmid, Dwight Professor of Law at Columbia University and former SEC Commissioner; Michele Hooper, Co-founder of The Directors’ Council; and Lynn Paine, Professor of Business Administration at Harvard School of Business.
The CAQ’s executive director is Cindy Fornelli, formerly Regulatory and Conflicts Management Executive at Bank of America
. Previously, Fornelli was Deputy Director of the Division of Investment Management of the Securities and Exchange Commission (SEC). In 2009, Fornelli was honored by Directorship magazine as one of 100 most influential people on corporate governance and in the boardroom for the second consecutive year and Accounting Today named her to the list of the most influential people in accounting for the third year in a row. Prior to becoming the Center’s Executive Director, Fornelli was the Regulatory and Conflicts Management Executive at Bank of America. Before joining Bank of America, Fornelli was Deputy Director of the Division of Investment Management of the U.S. Securities and Exchange Commission.
The CAQ's activities in support of this vision include:
The support of fair value (or “mark-to-market”) accounting remained a primary focus of the CAQ’s public policy activities in 2009, through comment letters, joint letters with other key stakeholders, media interviews and congressional testimony. Throughout the debate, the CAQ continued its collaboration with investor groups, including the Council of Institutional Investors, CFA Institute and Consumer Federation of America.
In a joint letter in February 2009, the four organizations applauded Congressional efforts to restore investor confidence in the U.S. capital markets, but cautioned against a retreat from fair value.
The profession’s leadership on the issue also resulted in Cindy Fornelli’s invitation to testify before the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises in March 2009. Fair value accounting provides transparent financial information to investors,
One of the key functions of the CAQ is to undertake public outreach to educate the public about public auditing, distribute its research findings and advocate its positions on matters of public interest and debate. The CAQ issues frequent member alerts on regulatory developments to the small, medium and large public company auditing firms comprising its membership.
Discussion participants throughout the series of events, held in the United States and the United Kingdom, represented a wide range of market stakeholders with a role or interest in deterrence and detection of fraud. Participants in the series included company executives (CEOs, CFOs, CAOs and general counsel), audit committee chairs and members, internal auditors, current and former senior regulatory officials, investors and analysts, external audit partners, forensic auditors, law enforcement, academics, and members of the financial media.
Common themes were sounded by participants at all five venues. First and foremost, there is widespread acknowledgement that company management has primary responsibility for deterring and detecting fraud yet all capital market stakeholders can play a role. The public company auditing profession has a significant part to play, and it is one we continue to examine.
and the United States Chamber of Commerce
Center for Capital Market Competitiveness in a letter to discourage leaders of the House Financial Services Committee from taking actions that would potentially impact the independence of accounting standard-settinghttp://www.thecaq.org/publicpolicy/pdfs/HillLetterRegardingIndependentStandardSetting.pdf.
Expressing concern over proposals that would realign the oversight of the Financial Accounting Standards Board
(FASB) within the structure of systemic risk, the four organizations explained that, "By placing the FASB under the jurisdiction of a structure charged with managing systemic risks to the financial markets, accounting rules will be viewed through the narrow lens of a few large companies from specific industries, rather than considerate of the applicability of financial reporting policies to over 15,000 public companies. Such a narrow focus can skew standards and undermine the confidence of investors and understanding of transactions that businesses engage in on a daily basis. We believe that the SEC has and continues to be best suited to provide the oversight of the FASB for such a broad and diverse economy. As such, we strongly support an independent standards-setting process, subject to public scrutiny and free of undue pressures."
The CAQ issued a statement regarding the SEC's action:
“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."http://www.thecaq.org/newsroom/release_02242010.htm
For its part, the CAQ is committed to working with the SEC staff as it carries out its Work Plan, recognizing the importance of preparers, investors and standard-setters working together to help move this important initiative forward, continuing efforts to assist stakeholders, including investors, in understanding the benefits of IFRS. In July 2009, the CAQ released its Guide to IFRShttp://www.thecaq.org/newsroom/release_09082009.htm in the interest of an informed public discussion about possible U.S. transition to IFRS. The purpose of the Guide is to provide investors, policymakers and other capital market stakeholders a timely, accessible and objective introduction to the current debate over a single set of high quality global accounting standards.
of 2002 (SOX) requires management and the external auditor to report on the adequacy of the company's internal control over financial reporting (ICFR). Legislation approved by the U.S. House of Representatives on Dec. 11, 2009 included a provision exempting companies with market capitalization below $75 million from compliance with the provision. The CAQ believes that investors in public companies of all sizes are entitled to the protections provided by the provisions in Section 404(b) of the Sarbanes-Oxley Act (SOX), including the requirement for an independent assessment of the effectiveness of internal controls over financial reporting.
The CAQ submitted letters to Househttp://www.thecaq.org/publicpolicy/pdfs/2009-10-26CAQHFSC%20Letter-404(b).pdf and Senatehttp://www.thecaq.org/newsroom/pdfs/2009-12-02CAQDoddShelby404%28b%29letter.pdf Committees expressing support for SOX Section 404(b) and the SEC's position that there will be no further delay in compliance for smaller public companies. The CAQ pointed to feedback illustrating the significant benefits investors derive from Section 404(b) requirements, which are particularly meaningful given that well over half of the financial statement restatements have traditionally been by smaller public companies, which represent over half of the public companies listed in the U.S.
In a February 5, 2010 guest editorial in TheDeal magazine, Cindy Fornelli pointed out that investors have consistently expressed the view that the independent audit of management’s assessment of internal controls provides significant benefits. "Yes, small businesses are the nation's backbone. But investors are its nervous system. The estimated 6,000 companies that would be eligible for an exemption from Section 404(b) aren't mom-and-pop stores. They are public companies whose stock is owned by mom and pop. Weakening SOX at a time of lingering economic uncertainty may appear to be a step forward for small companies but in reality will be two steps backward for investors. "
The CAQ also created "CAQ Lessons Learned: Performing an Audit of Internal Control In an Integrated Audithttp://www.thecaq.org/newsroom/pdfs/404LessonsLearned-PerformingIntegAudit.pdf," a reference source for public company auditors that identified 21 practical insights for auditors, including:
Among its suggestions, the report offers practical pointers about performing an integrated audit, notes the benefits of a top-down, risk-based approach to emphasize areas where material risks are most likely, and also the advantages of maintaining an open line of communication between the auditor, company management and the audit committee.
What began in January as a fair value-focused dialogue with investor groups, including the Council of Institutional Investors (CII), CFA Institute
, Investment Adviser Association and Consumer Federation of America, evolved into an ongoing discussion of a host of financial and regulatory policy issues important to the profession. Building on this stakeholder outreach initiative, the CAQ has hosted meetings with officials of the Financial Accounting Foundation
, Financial Executives International, the International Corporate Governance Network, the National Association of Corporate Directors
(NACD), the Business Roundtable, the U.S. Chamber of Commerce, and the Financial Services Forum
.
Collaboration with these groups has resulted in important joint policy letters, speaking engagements and positions on advisory groups. During 2009, Cindy Fornelli served on the NACD’s Blue Ribbon Commission on Risk Governance and was a featured speaker or panelist at events hosted by CII, the Outstanding Directors Exchange, the New York Stock Exchange, Standard & Poor’s and NASDAQ OMX, among others. In addition, the CAQ brought together members of its Governing Board with regulators and heads of capital market trade associations and investor organizations at such events as the SEC Historical Society’s 75th Anniversary Celebration and the NACD Director of the Year Awards.
The CAQ also served as a valued resource for stakeholders during the Congressional debate over Section 404(b) of the Sarbanes-Oxley Act and accounting standard-setting independence. This included a November letter to Congress signed by the CAQ, CII, the Investment Company Institute and the U.S. Chamber of Commerce on the importance of independence in the accounting standard-setting process.
audit-related topics, issued a request for proposals (RFP) in March 2009 to fund research on auditing-related topics, including audit quality, professional judgment, professional skepticism, and the value of the audit.
The RAB received nearly 50 proposals from academics around the world. After an extensive review of the proposals, the RAB selected the following five projects for $130,000 of funding:
In December 2009, the CAQ issued an RFP for a second round of funding independent academic research on projects of interest to the auditing profession, including the value of the audit, audit quality, professional judgment, professional skepticism, fraud deterrence and detection, and the impact of communication and information technologies on the audit.
The symposium, held prior to the American Accounting Association’s Annual Meeting, was hosted by CAQ Governing Board Chair Jim Turley of Ernst & Young LLP and moderated by Executive Director Cindy Fornelli. Two leading academic researchers, Bill Kinney of the University of Texas and Mark Peecher of the University of Illinois, led the discussion.
The Guide to Public Company Auditing is an introduction to and overview of the key processes, participants and issues related to public company auditing. Presented in a straightforward, easy-to-use format, the Guide to Public Company Auditing demonstrates to investors the important role public company auditing plays in preserving the strength and stability of U.S. capital markets.
The CAQ distributed the Guide to Public Company Auditing to key capital market stakeholders such as the National Association of Corporate Directors and key regulating agencies, including the Office of Thrift Supervision, the Securities and Exchange Commission and the Financial Accounting Standards Board.
The purpose of the Guide to IFRS is to provide investors, policymakers and other capital market stakeholders an accessible and objective introduction to the current debate over a single set of high quality global accounting standards. In the spirit of educating capital market stakeholders, the CAQ developed the Guide to help facilitate an informed discussion among interested parties.
The CAQ promoted awareness of the issue by distributing the Guide to IFRS to key capital market stakeholders, including the Council of Institutional Investors, the National Association of Corporate Directors, the National Association of State Boards of Accountancy and the Outstanding Directors Exchange, among other organizations.
Governing Board Chair
Governing Board Co-Vice Chairs
Governing Board Members
Public policy
Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. In general, the foundation is the pertinent national and...
organization dedicated to enhancing investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity
Objectivity (science)
Objectivity in science is a value that informs how science is practiced and how scientific truths are created. It is the idea that scientists, in attempting to uncover truths about the natural world, must aspire to eliminate personal biases, a priori commitments, emotional involvement, etc...
, effectiveness
Effectiveness
Effectiveness is the capability of producing a desired result. When something is deemed effective, it means it has an intended or expected outcome, or produces a deep, vivid impression.-Etymology:...
and responsiveness
Responsiveness
Responsiveness as a concept of computer science refers to the specific ability of a functional unit to complete assigned tasks within a given time, but also may incorporate the ability of an artificial intelligence system to understand and carry out its tasks in a timely fashion. It is one of the...
to dynamic market conditions.
The CAQ works to make public company audits even more reliable and relevant for investors in a time of growing financial complexity and market globalization. It also has undertaken research, offered recommendations to enhance investor confidence and the vitality of the capital markets, issued technical support for public company auditing professionals, and helped facilitate the public discussion about modernizing business reporting.
CAQ background
The CAQ is an autonomous public policy organization that was launched in 2007 and counts approximately 700 U.S. public company auditing firms as members. Based in Washington, D.C.Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, the CAQ is affiliated with the American Institute of Certified Public Accountants
American Institute of Certified Public Accountants
Founded in 1887, the American Institute of Certified Public Accountants is the national professional organization of Certified Public Accountants in the United States, with more than 370,000 CPA members in 128 countries in business and industry, public practice, government, education, student...
(AICPA). Since its inception in 2007, the CAQ has represented the unified voices of public company auditors in fostering a more robust dialogue among capital market stakeholders, including the investor, corporate, government and academic communities.
The CAQ is led by a governing board of the CEOs of public company auditing firms and the AICPA. Three public board members bring an outside perspective to the CAQ’s agenda and activities: Harvey Goldschmid, Dwight Professor of Law at Columbia University and former SEC Commissioner; Michele Hooper, Co-founder of The Directors’ Council; and Lynn Paine, Professor of Business Administration at Harvard School of Business.
The CAQ’s executive director is Cindy Fornelli, formerly Regulatory and Conflicts Management Executive at Bank of America
Bank of America
Bank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
. Previously, Fornelli was Deputy Director of the Division of Investment Management of the Securities and Exchange Commission (SEC). In 2009, Fornelli was honored by Directorship magazine as one of 100 most influential people on corporate governance and in the boardroom for the second consecutive year and Accounting Today named her to the list of the most influential people in accounting for the third year in a row. Prior to becoming the Center’s Executive Director, Fornelli was the Regulatory and Conflicts Management Executive at Bank of America. Before joining Bank of America, Fornelli was Deputy Director of the Division of Investment Management of the U.S. Securities and Exchange Commission.
Vision and activities
The CAQ is dedicated to enhancing investor confidence and public trust in the global capital markets by:- Fostering high quality performance by public company auditors;
- Convening and collaborating with other stakeholders to advance the discussion of critical issues requiring action and intervention; and
- Advocating policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions.
The CAQ's activities in support of this vision include:
- Bringing together stakeholders to discuss the future of the capital markets and audit quality;
- Conducting research on the perceptions of market participants to recommend enhancements to the auditing process that advance investor confidence and the vitality of capital markets;
- Assisting its nearly 700 member public company audit firms in their pursuit of audit quality by providing technical alerts, white papers and webcasts on key issues and topics; and
- Acting as the public company auditing profession’s liaison with policymakers.
Fair value accounting
The CAQ has strongly defended fair value (or mark-to-market) accounting standards and forged new alliances to oppose calls for a suspension. The effort started in September 2008, when Executive Director Cindy Fornelli sent a letter on behalf of the CAQ telling members of Congress that proposals to suspend fair value “are not in the best interest of investors or the capital markets and should be rejected.” At year’s end, the U.S. Securities and Exchange Commission (SEC) issued a report to Congress advising against a suspension of fair value. The CAQ praised the decision and agreed with the SEC that enhancements to the existing rules may be appropriate, “but only in extraordinary circumstances, and only if transparency is not compromised as a result.”The support of fair value (or “mark-to-market”) accounting remained a primary focus of the CAQ’s public policy activities in 2009, through comment letters, joint letters with other key stakeholders, media interviews and congressional testimony. Throughout the debate, the CAQ continued its collaboration with investor groups, including the Council of Institutional Investors, CFA Institute and Consumer Federation of America.
In a joint letter in February 2009, the four organizations applauded Congressional efforts to restore investor confidence in the U.S. capital markets, but cautioned against a retreat from fair value.
The profession’s leadership on the issue also resulted in Cindy Fornelli’s invitation to testify before the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises in March 2009. Fair value accounting provides transparent financial information to investors,
One of the key functions of the CAQ is to undertake public outreach to educate the public about public auditing, distribute its research findings and advocate its positions on matters of public interest and debate. The CAQ issues frequent member alerts on regulatory developments to the small, medium and large public company auditing firms comprising its membership.
Anti-fraud initiative
The CAQ in 2009 held a series of roundtable discussions, hosted by CAQ Governing Board Co-Vice Chair Michele Hooper and Executive Director Cindy Fornelli, on the topic of fraudulent financial reporting. The series brought together a wide variety of perspectives with the goal of identifying best practices in the detection and deterrence of financial statement fraud.Discussion participants throughout the series of events, held in the United States and the United Kingdom, represented a wide range of market stakeholders with a role or interest in deterrence and detection of fraud. Participants in the series included company executives (CEOs, CFOs, CAOs and general counsel), audit committee chairs and members, internal auditors, current and former senior regulatory officials, investors and analysts, external audit partners, forensic auditors, law enforcement, academics, and members of the financial media.
Common themes were sounded by participants at all five venues. First and foremost, there is widespread acknowledgement that company management has primary responsibility for deterring and detecting fraud yet all capital market stakeholders can play a role. The public company auditing profession has a significant part to play, and it is one we continue to examine.
Independent Standard-Setting
In November 2009, the CAQ joined with the Council of Institutional Investors, the Investment Company InstituteInvestment Company Institute
The Investment Company Institute is the national association of U.S. investment companies. ICI encourages adherence to high ethical standards, promotes public understanding of funds and investing, and advances the interests of investment funds and their shareholders, directors, and advisers.As of...
and the United States Chamber of Commerce
United States Chamber of Commerce
The United States Chamber of Commerce is an American lobbying group representing the interests of many businesses and trade associations. It is not an agency of the United States government....
Center for Capital Market Competitiveness in a letter to discourage leaders of the House Financial Services Committee from taking actions that would potentially impact the independence of accounting standard-settinghttp://www.thecaq.org/publicpolicy/pdfs/HillLetterRegardingIndependentStandardSetting.pdf.
Expressing concern over proposals that would realign the oversight of the Financial Accounting Standards Board
Financial Accounting Standards Board
The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...
(FASB) within the structure of systemic risk, the four organizations explained that, "By placing the FASB under the jurisdiction of a structure charged with managing systemic risks to the financial markets, accounting rules will be viewed through the narrow lens of a few large companies from specific industries, rather than considerate of the applicability of financial reporting policies to over 15,000 public companies. Such a narrow focus can skew standards and undermine the confidence of investors and understanding of transactions that businesses engage in on a daily basis. We believe that the SEC has and continues to be best suited to provide the oversight of the FASB for such a broad and diverse economy. As such, we strongly support an independent standards-setting process, subject to public scrutiny and free of undue pressures."
IFRS
On February 24, 2010, the U.S. Securities and Exchange Commission approved a statement that makes clear that the Commission continues to believe that a single set of high-quality globally accepted accounting standards would benefit U.S investors and directed SEC staff to execute a Work Plan by 2011 to determine whether to incorporate international financial reporting standards (IFRS) into the U.S. financial reporting systemhttp://www.sec.gov/news/press/2010/2010-27.htm.The CAQ issued a statement regarding the SEC's action:
“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."http://www.thecaq.org/newsroom/release_02242010.htm
For its part, the CAQ is committed to working with the SEC staff as it carries out its Work Plan, recognizing the importance of preparers, investors and standard-setters working together to help move this important initiative forward, continuing efforts to assist stakeholders, including investors, in understanding the benefits of IFRS. In July 2009, the CAQ released its Guide to IFRShttp://www.thecaq.org/newsroom/release_09082009.htm in the interest of an informed public discussion about possible U.S. transition to IFRS. The purpose of the Guide is to provide investors, policymakers and other capital market stakeholders a timely, accessible and objective introduction to the current debate over a single set of high quality global accounting standards.
Sarbanes-Oxley Section 404(b)
Section 404 of the Sarbanes-Oxley ActSarbanes-Oxley Act
The Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
of 2002 (SOX) requires management and the external auditor to report on the adequacy of the company's internal control over financial reporting (ICFR). Legislation approved by the U.S. House of Representatives on Dec. 11, 2009 included a provision exempting companies with market capitalization below $75 million from compliance with the provision. The CAQ believes that investors in public companies of all sizes are entitled to the protections provided by the provisions in Section 404(b) of the Sarbanes-Oxley Act (SOX), including the requirement for an independent assessment of the effectiveness of internal controls over financial reporting.
The CAQ submitted letters to Househttp://www.thecaq.org/publicpolicy/pdfs/2009-10-26CAQHFSC%20Letter-404(b).pdf and Senatehttp://www.thecaq.org/newsroom/pdfs/2009-12-02CAQDoddShelby404%28b%29letter.pdf Committees expressing support for SOX Section 404(b) and the SEC's position that there will be no further delay in compliance for smaller public companies. The CAQ pointed to feedback illustrating the significant benefits investors derive from Section 404(b) requirements, which are particularly meaningful given that well over half of the financial statement restatements have traditionally been by smaller public companies, which represent over half of the public companies listed in the U.S.
In a February 5, 2010 guest editorial in TheDeal magazine, Cindy Fornelli pointed out that investors have consistently expressed the view that the independent audit of management’s assessment of internal controls provides significant benefits. "Yes, small businesses are the nation's backbone. But investors are its nervous system. The estimated 6,000 companies that would be eligible for an exemption from Section 404(b) aren't mom-and-pop stores. They are public companies whose stock is owned by mom and pop. Weakening SOX at a time of lingering economic uncertainty may appear to be a step forward for small companies but in reality will be two steps backward for investors. "
The CAQ also created "CAQ Lessons Learned: Performing an Audit of Internal Control In an Integrated Audithttp://www.thecaq.org/newsroom/pdfs/404LessonsLearned-PerformingIntegAudit.pdf," a reference source for public company auditors that identified 21 practical insights for auditors, including:
- Understand and Use Management’s Assessment and Documentation as a Starting Point
- Integrate the Audits
- Establish the Right Team
- Identify Material Risks to Reliable Financial Reporting
- Identify Controls Necessary to Sufficiently Address Identified Risks
- Take a Risk-Based Approach to Testing Identified Controls
Among its suggestions, the report offers practical pointers about performing an integrated audit, notes the benefits of a top-down, risk-based approach to emphasize areas where material risks are most likely, and also the advantages of maintaining an open line of communication between the auditor, company management and the audit committee.
Stakeholder outreach
The CAQ has built a robust infrastructure to support its mission of facilitating dialogue among capital market participants and is a recognized and respected entity in public company auditing issues. During 2009, the Center interacted with regulators and other capital market stakeholders, speaking at key events and on cable news programs and leading or moderating numerous other activities.What began in January as a fair value-focused dialogue with investor groups, including the Council of Institutional Investors (CII), CFA Institute
CFA Institute
CFA Institute is headquartered in the United States of America at Charlottesville, Virginia, with offices in Hong Kong and London. Formerly known as the Association for Investment Management and Research , CFA Institute awards the Chartered Financial Analyst designation...
, Investment Adviser Association and Consumer Federation of America, evolved into an ongoing discussion of a host of financial and regulatory policy issues important to the profession. Building on this stakeholder outreach initiative, the CAQ has hosted meetings with officials of the Financial Accounting Foundation
Financial Accounting Foundation
The Financial Accounting Foundation is located in Norwalk, Connecticut. It was organized in 1972 as a non-stock, Delaware Corporation. It is an independent, organization in the private sector...
, Financial Executives International, the International Corporate Governance Network, the National Association of Corporate Directors
National Association of Corporate Directors
The National Association of Corporate Directors is an independent, not-for-profit membership organization, dedicated to serving the corporate governance needs of directors of public, private, and non-profit organizations. Founded in 1977, NACD is headquartered in Washington, D.C. and serves...
(NACD), the Business Roundtable, the U.S. Chamber of Commerce, and the Financial Services Forum
Financial Services Forum
The Financial Services Forum is a non-partisan financial and economic policy organization comprising the CEOs of 20 of the largest and most diversified financial services institutions doing business in the United States...
.
Collaboration with these groups has resulted in important joint policy letters, speaking engagements and positions on advisory groups. During 2009, Cindy Fornelli served on the NACD’s Blue Ribbon Commission on Risk Governance and was a featured speaker or panelist at events hosted by CII, the Outstanding Directors Exchange, the New York Stock Exchange, Standard & Poor’s and NASDAQ OMX, among others. In addition, the CAQ brought together members of its Governing Board with regulators and heads of capital market trade associations and investor organizations at such events as the SEC Historical Society’s 75th Anniversary Celebration and the NACD Director of the Year Awards.
The CAQ also served as a valued resource for stakeholders during the Congressional debate over Section 404(b) of the Sarbanes-Oxley Act and accounting standard-setting independence. This included a November letter to Congress signed by the CAQ, CII, the Investment Company Institute and the U.S. Chamber of Commerce on the importance of independence in the accounting standard-setting process.
Research
The CAQ also facilitates and produces research initiatives to address new or significant issues relating to investor confidence, public company auditing and the capital markets.Individual Investor Survey
Since its inception in 2007, the CAQ has annually measured individual investor confidence in the capital markets, publicly-traded companies and audited financial information. The results of the CAQ's 3rd Annual Individual Investor Survey found that despite two years of tumult in the global economy, investor confidence in U.S. capital markets leveled off in 2009 after dropping precipitously between 2007 and 2008. About three-quarters of investors (73 percent) surveyed expressed confidence in the U.S. capital markets, a three percent increase from 2008. Respondents’ confidence in investing in U.S. publicly-traded companies held steady at 75 percent. Confidence in audited financial statements released by public companies declined slightly to 70 percent, down three percent but within the survey’s margin of error.Academic Research Funding
The CAQ’s Research Advisory Board (RAB), which promotes credible and timely academic research onaudit-related topics, issued a request for proposals (RFP) in March 2009 to fund research on auditing-related topics, including audit quality, professional judgment, professional skepticism, and the value of the audit.
The RAB received nearly 50 proposals from academics around the world. After an extensive review of the proposals, the RAB selected the following five projects for $130,000 of funding:
- "The Collaboration Between Financial Statement Auditors and Fraud Experts in Fraud Risk Assessment," by Stephen Asare, University of Florida, and Arnie Wright, Northeastern University
- "A Review and Model of Auditor Judgments in Fraud-Related Planning Tasks," by Jacqueline Hammersley, University of Georgia
- "Does Context Influence Auditors’ Fair Value Judgments?" by Vicky Hoffman, University of Pittsburgh, Christine Earley, Providence College,and Jennifer Joe, Georgia State University
- "Training Auditors in Professional Skepticism," by David Plumlee and Brett Rixom, University of Utah, and Andrew Rosman, University of Connecticut
- "Enhancing Professional Skepticism," by Ken Trotman, University of New South Wales, Australia
In December 2009, the CAQ issued an RFP for a second round of funding independent academic research on projects of interest to the auditing profession, including the value of the audit, audit quality, professional judgment, professional skepticism, fraud deterrence and detection, and the impact of communication and information technologies on the audit.
Research Symposium
In August 2009, senior audit partners and academic researchers participated in a discussion hosted by the CAQ about the link between audit research and practice. The “Symposium on Academic Research in Auditing: Making it Relevant to Audit Practice” brought together these audit quality stakeholders to discuss the issues and challenges auditors face in pursuit of quality audits, and how academic research benefits and promotes that practice.The symposium, held prior to the American Accounting Association’s Annual Meeting, was hosted by CAQ Governing Board Chair Jim Turley of Ernst & Young LLP and moderated by Executive Director Cindy Fornelli. Two leading academic researchers, Bill Kinney of the University of Texas and Mark Peecher of the University of Illinois, led the discussion.
Audit Committee Survey
In early 2008, a survey commissioned by the CAQ offered a look at the views of key players in the fight against corporate fraud – the audit committee members who oversee the work of public company auditors for corporate boards. More than three-quarters of audit committee members rated overall audit quality “very good” or “excellent,” and 82 percent said it had improved in recent years. Nearly two-thirds agreed that investors should have more confidence in the markets as a result of the Sarbanes-Oxley Act.Guide to Public Company Auditing
In May 2009, the CAQ released a resource that illustrates for capital market stakeholders the vital role public company auditors play in providing transparency in the markets.The Guide to Public Company Auditing is an introduction to and overview of the key processes, participants and issues related to public company auditing. Presented in a straightforward, easy-to-use format, the Guide to Public Company Auditing demonstrates to investors the important role public company auditing plays in preserving the strength and stability of U.S. capital markets.
The CAQ distributed the Guide to Public Company Auditing to key capital market stakeholders such as the National Association of Corporate Directors and key regulating agencies, including the Office of Thrift Supervision, the Securities and Exchange Commission and the Financial Accounting Standards Board.
Guide to International Financial Reporting Standards
In September 2009, the CAQ released its Guide to International Financial Reporting Standards (IFRS), an overview of the issue of a single set of high-quality global accounting standards.The purpose of the Guide to IFRS is to provide investors, policymakers and other capital market stakeholders an accessible and objective introduction to the current debate over a single set of high quality global accounting standards. In the spirit of educating capital market stakeholders, the CAQ developed the Guide to help facilitate an informed discussion among interested parties.
The CAQ promoted awareness of the issue by distributing the Guide to IFRS to key capital market stakeholders, including the Council of Institutional Investors, the National Association of Corporate Directors, the National Association of State Boards of Accountancy and the Outstanding Directors Exchange, among other organizations.
Federal Advisory Committees
The CAQ was actively engaged in the deliberations of the Treasury Department’s Advisory Committee on the Auditing Profession (ACAP) and the SEC’s Advisory Committee on Improvements to Financial Reporting (CIFiR), both of which concluded their work in 2008.Public Dialogue Tour
In 2007-2009, the CAQ held a 10-city “Public Dialogue Tour” to solicit ideas on ways to improve the quality, transparency and relevance of business and financial reporting for investors. More than 500 investors, academics, corporate executives, policymakers, regulators and other stakeholders participated in the forums. Tour feedback addressed the following:- The need for simplification of financial reports to make them easier to understand for investors, regulators and issuers.
- The need for transparency in financial reporting and data gathering.
- The need for financial reporting that reflects long-term business goals.
Membership and structure
The CAQ is an autonomous, nonpartisan, nonprofit public policy organization based in Washongt, DC. Affiliated with the AICPA, the CAQ is self-supporting and entirely funded by member dues. Membership in the CAQ is open to U.S. accounting firms registered with the Public Company Oversight Board (PCAOB). Associate membership is available for U.S. accounting firms not registered with the PCAOB. The CAQ also offers international firm subscriptions.Governing board
The CAQ receives strategic guidance from a 12-person Governing Board that includes three members from outside the public company auditing profession.Governing Board Chair
- James S. Turley, Chairman and CEO, Ernst & Young LLPErnst & YoungErnst & Young is one of the largest professional services networks in the world and one of the "Big Four" accountancy firms, along with Deloitte, KPMG and PricewaterhouseCoopers ....
Governing Board Co-Vice Chairs
- Michele J. Hooper, President and CEO, The Directors' Council
- Barry Melancon, President and CEO, American Institute of CPAs
Governing Board Members
- Charles M. Allen, CEO, Crowe Horwath LLPCrowe HorwathCrowe Horwath LLP is a professional services firm with offices throughout the United States, including California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, New Jersey, New York, Ohio, Tennessee and Texas. In addition to its U.S. presence, Crowe serves clients worldwide as an...
- Stephen M. Chipman, CEO and Executive Partner, Grant Thornton LLP
- Harvey J. Goldschmid, Former Commissioner, U.S. Securities and Exchange Commission
- Robert E. Moritz, Chairman and Senior Partner, PricewaterhouseCoopers LLP
- Lynn S. Paine, Professor of Business Administration, Harvard School of Business
- Barry Salzberg , CEO, Deloitte LLPDeloitte Touche TohmatsuDeloitte Touche Tohmatsu Limited , commonly referred to as Deloitte, is one of the Big Four accountancy firms along with PricewaterhouseCoopers , Ernst & Young, and KPMG....
- David R. Scudder, Managing Partner, McGladrey & Pullen, LLPRSM McGladreyMcGladrey is the 5th largest accounting firm in the United States by revenue and a member of the global accounting network RSM International.The firm has more than 8,000 employees across 85 offices nationwide providing assurance, tax, and consulting services...
- John B. Veihmeyer, CEO, KPMGKPMGKPMG is one of the largest professional services networks in the world and one of the Big Four auditors, along with Deloitte, Ernst & Young and PwC. Its global headquarters is located in Amstelveen, Netherlands....
, LLP - Jack Weisbaum, CEO, BDO Seidman, LLP
See also
- AuditAuditThe general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...
- AccountancyAccountancyAccountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
- Public Company Accounting Oversight BoardPublic Company Accounting Oversight BoardThe Public Company Accounting Oversight Board is a private-sector, non-profit corporation created by the Sarbanes–Oxley Act, a 2002 United States federal law, to oversee the auditors of public companies. Its stated purpose is to 'protect the interests of investors and further the public interest...
- United States Securities and Exchange CommissionUnited States Securities and Exchange CommissionThe U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
- American Association of Certified Public Accountants
- Internal auditInternal auditInternal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk...
- Sarbanes-Oxley ActSarbanes-Oxley ActThe Sarbanes–Oxley Act of 2002 , also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which...
- Cindy Fornelli