Volume 6, Issue 6

June 2012

I. CAQ’s Workshop on the Evolving Role of the Auditor Summarized in New Publication

The Center for Audit Quality (CAQ) has released a report summarizing its March workshop on the evolving role of the public company auditor.

The workshop further explored observations made during a series of CAQ roundtables attended by a range of stakeholders over the course of 2011 on the evolving role of the public company auditor. A summary of those roundtables was published last year.

More than 30 workshop participants gathered in New York on March 12 to consider how the public company auditor’s role might change to meet the needs of investors. Over half of the workshop participants were investors and buy-side analysts; the remainder was a mix of audit committee members, preparers, auditors and others.

Workshop participants explored key areas that had been flagged at the roundtables, including the benefits of auditor involvement with financial information disclosed by management outside of the audited financial statements; specifically, Management’s Discussion and Analysis (MD&A), earnings releases, and key performance indicators (KPIs).

Workshop observations include:

• Non-GAAP disclosures are important to investors’ decision making processes, although audited financial statements provide a baseline;
• More consistency and comparability is warranted in the use of KPIs in MD&A and earnings releases;
• Investors want to hear directly from management; auditor involvement with information outside the financial statements could add an unwanted “filter”; and
• Some investors would like to see a requirement that the auditor read and discuss the earnings release with the audit committee or perform a limited review.

“We hope to advance further consideration of these issues by all interested parties through publication of this workshop summary and through continued dialogue with stakeholders and policy makers,” said CAQ Executive Director Cindy Fornelli. “It is vitally important that investors understand and continue to trust the work that auditors perform – and have confidence in our financial reporting system and the checks and balances that underly the system.”

II. CAQ Announces Funding of Audit-Related Research Projects

The CAQ is continuing its support for independent audit-related research with the selection of five new academic research proposals for funding.

The CAQ received 40 research proposals in response to a December 2011 request for proposals on such topics as financial reporting fraud deterrence and detection, professional skepticism and objectivity, audit quality, and the value of the audit. After careful consideration of the proposals, the CAQ’s Research Advisory Board, comprised of members from academia and the auditing profession, selected the following projects to receive funding:

• “Field Evidence of Auditor’s Views on Audit Quality and Earnings Quality” by Brant Christensen, Marjorie Shelley and Thomas C. Omer, Texas A&M University, and Steven M. Glover, Brigham Young University
• “A Field Investigation of Coordination and Communications in Globally Dispersed Audit Teams” by Denise Hanes, Bentley University
• “Field Study Examination of How Auditors Evaluate Internal Control over Financial Reporting: Implications for Practice and Research” by Jay Thibodeau, Bentley University, Jeffrey Cohen, Boston College, Jennifer Joe, Georgia State University, and Greg Tompeter, University of Central Florida
• “Learning More about Auditing Estimates Including Fair Value Measurements” by Mark Taylor and Yi-Jing Wu, Case Western Reserve University, and Steven M. Glover, Brigham Young University
• “Evaluating the Intentionality of Misstatements: How Auditors Can Better Differentiate Errors from Fraud” by Erin Hamilton, University of South Carolina

The CAQ’s research funding continues to provide opportunities for doctoral students. Three funding recipients, Texas A&M’s Christensen, Bentley’s Hanes and South Carolina’s Hamilton, are in accounting doctoral programs.

The CAQ has funded a total of 18 projects since 2009.