Volume 2, Issue 9

October 2008

I. Auditors Join Investors and Analysts in Opposing Suspension of “Mark-to-Market” Accounting

The $700 billion Emergency Economic Stabilization Act signed into law by President Bush on Oct. 3 includes a provision requiring the Securities and Exchange Commission, in consultation with the Federal Reserve and the Treasury Department, to conduct a study on mark-to-market accounting and to report to Congress within 90 days on its findings.

Mark-to-market – also called fair value accounting – requires financial firms to value assets based on their current market value.

On Sept. 30, CAQ Executive Director Cindy Fornelli sent a letter to Congress urging lawmakers to reject calls for a suspension of mark-to-market (or fair value) accounting. “In our view, investor confidence would be undermined by efforts designed to mask the actual value of financial assets at a given point in time,” said Fornelli.

The following day, the CAQ, the Council of Institutional Investors (CII), and the CFA Institute united to issue a joint statement opposing the suspension of mark-to-market accounting. The organizations warned that “[s]uspending fair value accounting during these challenging economic times would deprive investors of critical financial information when it is needed most.”

The letter to Congress and the joint statement received extensive media coverage. Fornelli appeared on Fox Business Channel’s Money for Breakfast program, as well as “Marketplace” and NPR’s “All Things Considered” in support of mark-to-market accounting.

Working with the CII, the CFA Institute and other interested parties, the CAQ continues to oppose efforts to suspend mark-to-market accounting.

II. Treasury Advisory Committee on Auditing Profession Approves Final Report

The U.S. Department of Treasury Department’s Advisory Committee on the Auditing Profession hosted its final meeting on Sept. 26, voting 14-1 to approve its draft final report.

The CAQ issued a statement noting that the Committee identified several useful recommendations to “significantly strengthen the profession and raise public confidence in the audit process.”

In particular, the CAQ supports the creation of a National Center for Fraud Prevention and Detection and intends to be a part of efforts toward identifying new approaches to “improve audit performance as it relates to fraud.” Additionally, the CAQ praised the recommendations put forth by the Committee in the area of human capital, specifically to enrich the talent pool, enhance curricula and increase diversity among accounting professionals.

The final report is posted on the U.S. Department of Treasury Web site.

III. CAQ Hosts AS5 Preparedness Webcast

Joining Executive Director Cindy Fornelli (second from left) for the CAQ's September 25 Webcast on AS 5 were (left to right): Trent Gazzaway, managing partner of corporate governance, Grant Thornton LLP; Wendy Campbell, executive, Crowe Horwath LLP; and Greg Wilson, deputy director of inspections, Public Company Accounting Oversight Board (PCAOB).

The Center for Audit Quality hosted a webcast on Sept. 25 entitled “AS5: Preparing for Integrated Audits of Non-Accelerated Filers.” Cindy Fornelli moderated a panel discussion with Wendy Campbell, executive, Crowe Horwath LLP; Trent Gazzaway, managing partner of corporate governance, Grant Thornton LLP; and Greg Wilson, deputy director of inspections, Public Company Accounting Oversight Board (PCAOB).

The webcast presented findings and lessons learned from a CAQ task force, which conducted pilot projects for non-accelerated filers and of smaller companies. It was intended to share practical knowledge and insights prepared by auditors — for auditors. The panel discussed integrating the audits, establishing the right team, and taking a risk-based approach to testing identified controls. They stressed the importance of getting the planning process under way well before the audit, and communicating and coordinating early with management.

During the two-hour webcast, listeners heard from both the PCAOB and the profession about preparing for next year’s audit, and more specifically, how to plan, gain efficiency and eliminate redundancy; how to use a top-down risk-based approach to focus on areas of greatest risk; and how to effectively and efficiently communicate with management.

The archived webcast is available online.

IV. What is Audit Quality?

Edward E. Nusbaum

In an ongoing series in our newsletter, we highlight different perspectives to answer the question “What is audit quality?” This month, we hear from Grant Thornton LLP CEO and Executive Partner, and CAQ Governing Board Member, Edward E. Nusbaum, who says:

“Measuring quality in an audit really comes down to assessing how well the audit is performed — a consideration which includes an objective analysis of how the financial statements reflect the performance of an organization.”

Do you agree? Email us your definition of audit quality, with "Audit Quality" in the Subject line, and you may see it in future newsletters.