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Enhancing public trust in the capital markets by promoting high-quality financial reporting.

<p>The Center for Audit Quality</p>

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Discover the latest insights, resources, and standards in auditing and accounting at the Center for Audit Quality (CAQ) website. Access valuable guidance, research, and tools to enhance your expertise and stay informed in the ever-evolving auditing landscape. 

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Kecia Williams Smith, Ph.D., CPA

North Carolina Agricultural and Technical State University

All around the country, students are graduating from college and embarking on their career journey. Congratulations, Class of 2024! With this new wave of students starting their careers, I wanted to highlight the importance of diversity and inclusion in the...

All around the country, students are graduating from college and embarking on their career journey. Congratulations, Class of 2024! With this new wave of students starting their careers, I wanted to highlight the importance of diversity and inclusion in the accounting profession and the unique role that Historically Black Colleges and Universities (HBCUs) play.

Hello, I’m Kecia Williams Smith, an Associate Professor at North Carolina Agricultural and Technical State University where I lead the Master of Accountancy (MACC) Program and the Center for Accounting Diversity. As a former audit practitioner and regulator, I implement my experiences into innovative academic programming and research related to audit and regulatory communication, auditor judgment and decision-making, audit regulation, and accounting diversity. I strive to spread awareness, elevate the African American presence within the accounting profession, and advocate on behalf of fellow HBCU faculty and students in the workforce.

As we celebrate new graduates, it is crucial to understand the impact Historically Black Colleges and Universities (HBCUs) have had on the profession. I would not be where I am today without the tireless efforts of the pioneers who paved the way and broke down the barriers. It is my pleasure to spotlight historical trailblazers who played a role in adopting accounting programs across HBCUs.
<h3><strong>Jesse Blayton: A Pioneer in Accounting Education</strong></h3>
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As Georgia’s first black Certified Public Accountant (CPA), Jesse B. Blayton was a trailblazer. A graduate of Langston University and a veteran of World War I, Blayton passed Georgia’s accounting examination in 1928 and became <a href="https://nsbcpa.memberclicks.net/index.php?option=com_dailyplanetblog&amp;view=entry&amp;year=2020&amp;month=07&amp;day=06&amp;id=4:jesse-blayton">the fourth African-American to become a CPA</a>.

Blayton also recognized the importance of representation and sought to recruit black students and professionals to enter accounting. In 1944, he authored the book “Essentials of Accounting” and continued to promote the profession. Through his leadership, he became known as the “Dean of Negro Accountants.”

Aside from accounting, Blayton also invested in the community. In 1928, Blayton and two partners reorganized the Citizens Trust Bank, the first Black bank to join the Federal Reserve. Blayton acknowledged that he wanted his banks to be the source of funding for aspiring Black professionals.

In 1949, Blayton <a href="https://www.radiohalloffame.com/jesse-b-blayton-sr">purchased a radio station</a> in Atlanta. The 1,000-watt radio station WERD became the first Black-owned station. WERD’s programming included public service announcements, educational pieces, church services, jazz and gospel music, community news, and more. Blayton used his radio station to elevate the civil rights movement by serving as an information outlet for the campaign and prominent civil rights leaders, such as Martin Luther King, Jr. For his pioneering work, Blayton was inducted into the Radio Hall of Fame in 1955.

[custom_quote text="In 1949, Blayton purchased a radio station in Atlanta. The 1,000-watt radio station WERD became the first Black-owned station."]
<h3><strong>Dr. Ruth Coles Harris: A Pioneer for Black CPAs</strong></h3>
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Dr. Ruth Coles Harris blazed a path of opportunities for many future accounting students. In 1962, she because the first Black woman CPA in Virgina. Fewer than 100 African-Americas held CPA licenses at the time in the United State and only one other was licensed in the state of Virginia.

Obtaining her license was no easy feat and she overcame many barriers to obtain it.  At the time she sat for the CPA, the testing location in Virginia Beach did not have any hotels that allowed African Americans and so she had to stay out of town every day after testing. However, she persevered and succeeded in obtaining her CPA.

Her love for accounting is also what brought her into education. In Virgina, there were no firms hiring African-American accountants at the time. However, Virginia Union University reached out about an opportunity as an Accounting professor. She then went on to serve as the founding Dean of the Sydney Lewis School of Business at Virginia Union University, helping to grow the program.

Her contributions to the accounting profession paved the way for many students who aspire to study and excel in the field of accounting today. I had the pleasure of meeting up with Dr. Ruth Coles Harris recently and at 95 years young, her quick wit and great intellectual capacity were in full display.

[custom_quote text="Dr. Ruth Coles Harris then went on to serve as the founding Dean of the Sydney Lewis School of Business at Virginia Union University, helping to grow the program."]
<h3><strong>Milton Wilson: A Barrier-Breaking Dean</strong></h3>
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Hailing from a family of public school teachers, Dr. Milton Wilson set out to continue a legacy of education. Dr. Wilson earned two doctorate degrees, one in accounting, from Indiana University at Bloomington.

After completing his education, Dr. Wilson became the head of the accounting department at Hampton Institute and subsequently at Dillard University. In 1949, Dr. Wilson established and led the Department of Business at the Texas Southern University (TSU) in Houston, which would eventually become the School of Business. In 1952, Dr. Milton Wilson received his accounting license and made history as Texas’ first black CPA.

Dr. Wilson continued to teach at TSU until 1970 when he returned to his alma mater. However, in 1971, Dr. Wilson <a href="https://www.aacsb.edu/about-us/advocacy/member-spotlight/influential-leaders/2015/milton-wilson">accepted the invitation from Howard University</a> to establish a new school of business. When it was first established, the school had eight or nine faculty members and approximately 200 students. But under Dr. Wilson’s leadership, Howard University’s new business school grew to roughly 80 full-time faculty members and nearly 1,800 students. Under Dr. Wilson was crucial to Howard becoming the first business school in the Washington, DC area to be <a href="https://www.aacsb.edu/about-us/advocacy/member-spotlight/influential-leaders/2015/milton-wilson">accredited by the AACSB</a>.

His effort laid the groundwork for future generations of students pursuing an accounting career at an HBCU.

[custom_quote text="Under Dr. Wilson’s leadership, Howard University’s new business school grew to roughly 80 full-time faculty members and nearly 1,800 students."]
<h3><strong>Quiester Craig: A Supporter of Students</strong></h3>
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Lastly, I’m honored to spotlight my alma mater and current workplace, the<u>Willie A. Deese College of Business and Economics at North Carolina A&amp;T State University</u>. The last pioneer on my list is Dean Emeritus Quiester Craig, who served as Dean of the College of Business and Economics for 42 years. Until his retirement in 2013, Dean Craig’s leadership impacted the lives of thousands of students.

<a href="https://relations.ncat.edu/pubs/alumnitimes/2013/mar14/dean-craig.html">Dean Craig’s journey</a> with NC A&amp;T started in 1972 when he was appointed professor of accounting and dean of the School of Business and Economics. Before his tenure, Dean Craig had already broken barriers as one of the first African Americans to earn CPA licensure. However, the records kept coming under his leadership. During his time, the school’s undergraduate programs were accredited by the AACSB, and NC A&amp;T became the third HBCU to receive international accreditation from AACSB and the first to receive separate accreditation for the accounting program in 1986.

Accreditations aside, Dean Craig also <a href="https://relations.ncat.edu/pubs/alumnitimes/2013/apr25/dr-craig.html">understood the importance</a> of financial support. During his leadership, many students were able to pursue their accounting interests thanks to scholarships from donors and the communities. Dean Craig recognized that many students only needed the opportunity to show their talent, grit, and determination to succeed. To this day, his endowed scholarships continue to provide higher education access for many students.  Dean Craig will be recognized with the American Accounting Association (AAA) Lifetime Achievement Award in August 2024 at the AAA Annual Meeting.

[custom_quote text="I grew up in an era where the opportunities available were a fantasy – they didn’t exist. Now we have transitioned to a time where preparation can be the foundation to get something started." attribution='Dean Emeritus Quiester Craig']

While accounting programs have grown at HBCUs, more must be done to ensure they receive the same financial support as programs at non-HBCUs. In recent years, many leading accounting firms have pledged financial support for Diversity, Equity, and Inclusion (DEI) efforts to better reflect the population the accounting profession serves. However, in <a href="https://publications.aaahq.org/accounting-horizons/article-abstract/38/1/49/12205/Accounting-Firm-Investment-in-Diverse-Talent?redirectedFrom=fulltext">research</a> for the American Accounting Association, my colleagues and I noticed a discrepancy between charitable giving from accounting firms to HBCUs and non-HBCUs. While charitable giving to HBCUs has increased in recent years, the total allocation percentage to HBCUs remains relatively stagnant. Even within HBCU funding, smaller HBCUs do not receive the same amount of support as well-known HBCUs. For our profession to truly reflect the population it serves, I encourage leaders at accounting firms to pursue equal access and equitable financial support when making an impact via charitable giving.

While there is still work to be done as our profession continues to cultivate a more diverse workforce, I am proud of these educators who have helped pave the way with their perseverance, dedication, and passion. As we look for ways to increase diversity in the profession, I encourage you to check out the CAQ’s Bold Ambition and for students interested in pursuing a career in accounting, visit <a href="http://www.joinaccountingplus.org">Accounting+</a>.

Accounting Milestones: The Importance of HBCUs

Blog Post

Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

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Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

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Podcast | Capital Markets Pulse, Episode 7: Peggy Smyth

Auditors

Policymakers

Investors

Audit Quality

Podcast

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Andi McNeal, CFE, CPA and Dennis McGowan, CPA

Introduction
In March 2024, the Association of Certified Fraud Examiners (ACFE) released Occupational Fraud 2024: A Report to the Nations (report). The cases in this report were submitted by Certified Fraud Examiners (CFEs) throughout the world who each responded to the...

<h3><strong>Introduction</strong></h3>
In March 2024, the Association of Certified Fraud Examiners (ACFE) released <a href="https://www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf"><em>Occupational Fraud 2024: A Report to the Nations</em></a> (report). The cases in this report were submitted by Certified Fraud Examiners (CFEs) throughout the world who each responded to the ACFE’s 2023 <em>Global Fraud Survey</em>, answering a detailed questionnaire with 86 questions about one fraud case they investigated between January 2022 and September 2023. Drawing from 1,921 occupational fraud cases investigated by CFEs, this 13th edition of the ACFE’s study presents statistical analyses related to the methods used to commit, detect, and prevent occupational fraud, as well as the fraud perpetrators, the organizations they victimized, the losses those organizations suffered, and their responses to the frauds.

<strong><em>In this blog, we explore what this report means for all stakeholders with a responsibility for fighting fraud. </em></strong>
<h3><strong>Checks and balances</strong></h3>
Before diving into the report, it is important to understand the system of checks and balances in our U.S. capital markets. In a recent <a href="https://thecaq.wpenginepowered.com/wp-content/uploads/2023/11/caq_perspectives-on-corporate-reporting-the-audit-and-regulatory-environment_2023-11.pdf">survey</a> conducted by the Center for Audit Quality (CAQ), we found that investors have an overall positive view of corporate reporting in the U.S. – believing that the system of checks and balances that is in place delivers reliable information. This has not always been the case. In the early 2000s, public confidence in the U.S. capital markets was notably undermined. A series of significant frauds at large public companies resulted in corporate giants like Enron and WorldCom collapsing, with devastating losses for employees and investors. In the wake of these calamities, there was public debate to understand what went wrong and what needed to be done to restore public confidence in our capital markets and protect investors.

The result was definitive legislative action that resulted in the near unanimous approval of the Sarbanes-Oxley Act of 2002 (SOX). These provisions recognized that audit quality was not solely the responsibility of auditors, and that no one stakeholder in the U.S. financial reporting ecosystem alone could produce both high-quality financial reporting and high-quality audits. Rather, it takes regulators, company management, audit committees, and external auditors all working in concert. Over two decades since its passage, SOX is recognized around the world for its effectiveness in promoting trusted financial reporting and high-quality audits.

[custom_quote text="A series of significant frauds at large public companies resulted in corporate giants like Enron and WorldCom collapsing, with devastating losses for employees and investors."]
<h3><strong>Fighting fraud takes everyone</strong></h3>
High-quality financial reporting and high-quality audits depend on all stakeholders in the financial reporting ecosystem. Similarly, protecting companies and investors from fraud requires the collective effort of all stakeholders. Gurbir Grewal, Director of the Securities and Exchange Commission (SEC) Division of Enforcement has stated that “restoring trust requires more than SEC enforcement actions. We must all work together to ensure companies are following the rules. […] When gatekeepers are living up to their obligations they serve as the first lines of defense against misconduct.”<sup>1</sup>
<h3><strong>Fraud detection</strong></h3>
In the ACFE’s 2024 <em>Report to the Nations</em>, the most common way a fraud came to light was through a tip from a whistleblower (43% of cases). The next two most common sources of fraud detection were internal audit (14%) and management (13%). External auditors detected fraud in 3% of the cases in the ACFE’s study. Some may look at this statistic and question whether auditors are fulfilling their responsibility to detect a material misstatement as a result of fraud. As CPAs, we know how much effort our profession puts forth to fulfill their professional responsibilities, including designing and executing audit procedures that are responsive to the assessed risks of material misstatement from fraud. We also know that even the highest-quality audits are only one component of a comprehensive anti-fraud program. In fact, external auditors are the last line of defense in many cases, due to the timing and scope of their engagements. So, to us, 3% of fraud cases being detected by external audit means that our system of checks and balances is working. In other words, a number much higher than 3% would mean companies are not taking the layered, proactive steps necessary to prevent and detect frauds.

[custom_quote text="As CPAs, we know how much effort our profession puts forth to fulfill their professional responsibilities, including designing and executing audit procedures that are responsive to the assessed risks of material misstatement from fraud."]
<h3><strong>Active fraud detection methods</strong></h3>
To further explore the role and effectiveness of various fraud detection mechanisms, the ACFE report analyzes the median loss and duration of frauds based on how they were uncovered. Their findings emphasize that proactive fraud detection efforts are essential to protecting against fraud risk in general. Active detection methods — such as thorough management review, account reconciliation, and surveillance/monitoring — are associated with much faster detection and much lower fraud losses than passive detection methods (e.g., the perpetrator confessing, or the victim being notified of the fraud by law enforcement). Organizations can dramatically reduce the impact of fraud by implementing internal controls and policies that actively detect fraud.

With active detection methods being so critical to early detection, companies have invested billions of dollars in systems to support strong fraud risk management programs that include internal controls and policies to achieve that goal. According to one report, companies spent up to $44 billion globally on fraud detection and prevention programs in 2023.<sup>2</sup> As the ACFE report shows, programs that support internal parties detecting fraud — whether through employee tips, management review, or internal audit — increase the likelihood that the fraud will be detected sooner and minimize the losses incurred. When the external auditor is the one identifying the fraud, it often means the early detection methods have not worked, and it is likely the fraud has gone on for a longer duration, resulting in higher losses to the company and ultimately investors.
<h3><strong>A closer look at frauds detected by the external auditor</strong></h3>
New in this year’s report, survey respondents who selected that the fraud was detected by the external auditors were asked, “Through which audit procedure(s) did the external auditors first discover the fraud?”

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<h3><strong>Standard audit procedures</strong></h3>
More than half (58%) of the respondents where the fraud case was identified by the external auditor noted that the fraud was detected though standard audit procedures. Maintaining professional skepticism throughout the audit helps auditors remain vigilant to indicators of a possible misstatement due to fraud. The evidence that auditors gather throughout the audit does not always corroborate the anticipated results or available information. Disconfirming evidence obtained might also provide reasons to question the results or information. Check out this resource, <a href="https://caqantifraprod.wpenginepowered.com/wp-content/uploads/2022/02/afc_skpeticism-in-practice_2020-09.pdf"><em>Skepticism in Practice</em></a>, from the Anti-Fraud Collaboration (AFC) to learn more about maintaining professional skepticism.

[custom_quote text="The evidence that auditors gather throughout the audit does not always corroborate the anticipated results or available information. "]
<h3><strong>Fraud inquiries</strong></h3>
The next most common way external auditors discovered frauds was through fraud inquiries (33%). Auditors should approach fraud inquiries with professional skepticism and consider ways to enhance their inquiries.
<ul>
 	<li>Consider who should be part of the fraud inquiry. Some research <a href="https://www.journalofaccountancy.com/news/2023/jan/auditing-best-practices-what-academic-fraud-research-reveals.html">suggests</a> that fraud inquiries conducted by two auditors can influence deceptive members of management to talk more freely and perhaps make them more likely to reveal information related to fraud.</li>
 	<li>Consider when to conduct the inquiry. There is research that <a href="https://www.journalofaccountancy.com/news/2023/jan/auditing-best-practices-what-academic-fraud-research-reveals.html">suggests</a> interviewees are more likely to “let their guard down” in inquiries that take place later in the afternoon when they are tired.</li>
 	<li>Consider resources available on common fraud schemes to enhance the auditor’s assessment of fraud risk, which can also assist the auditor in designing and performing fraud inquiries responsive to those common fraud schemes. In addition to the ACFE’s <a href="https://www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf"><em>Occupational Fraud 2024: A Report to the Nations</em></a>, auditors can look to <a href="https://caqantifraprod.wpenginepowered.com/wp-content/uploads/2021/06/afc-mitigating-the-risk-of-common-fraud-schemes-2021-01.pdf"><em>Mitigating the Risks of Common Fraud Schemes: Insights from SEC Enforcement Actions</em></a> from the AFC, which analyzes 531 accounting and auditing enforcement action releases (AAERs) related to financial statement frauds. This study provides observations on higher-risk areas susceptible to common fraud schemes.</li>
</ul>
<h3><strong>The value of audits in the fraud landscape</strong></h3>
In addition to examining how frauds were detected, the ACFE report explores the anti-fraud controls that were in place at the victim organization when the fraud occurred. External audits of the financial statements were the second most common anti-fraud control (84% of cases), surpassed only by a code of conduct (85% of cases). The ACFE also took a closer look at how the presence or absence of various anti-fraud controls related to the median loss and duration of the frauds in their study. Organizations that included external audits as part of their anti-fraud programs had losses that were 52% smaller and caught frauds twice as fast as organizations that did not undergo audits. This further reinforces the value of high-quality audits as part of a comprehensive approach to managing fraud risk.

<img class="alignnone size-full wp-image-15097" src="https://www.thecaq.org/wp-content/uploads/2024/06/2024_06_Fighting-Fraud-Chart-2.png" alt="" width="405" height="138" />
<h3><strong>Conclusion</strong></h3>
The AFC is dedicated to advancing the discussion of critical anti-fraud efforts and developing resources focused on enhancing the effectiveness of financial fraud risk management. The ACFE’s <a href="https://www.acfe.com/-/media/files/acfe/pdfs/rttn/2024/2024-report-to-the-nations.pdf">report</a> is a valuable tool to understand fraud that has been perpetrated, how it was detected, and the ultimate impact of the fraud schemes. We agree with Paul Munter, SEC Chief Accountant, Office of the Chief Accountant, who has <a href="https://www.sec.gov/news/statement/munter-statement-fraud-detection-101122">stated</a>, “Auditors are gatekeepers and therefore the importance of their responsibilities with respect to the identification of risks of material misstatement due to fraud and the detection of material misstatements in the financial statements due to fraud should not be underestimated.” This year’s ACFE report confirms that external auditors do identify fraud. It also confirms that companies with active and holistic programs to detect instances of fraud can minimize the duration and losses of fraud. All stakeholders can benefit from understanding the findings in the ACFE’s report and what it means for their role in fighting fraud.

&nbsp;

<hr />

<strong>Endnotes</strong>
<h6>1. See <a href="https://www.sec.gov/news/speech/grewal-sec-speaks-101321">SEC.gov | Remarks at SEC Speaks 2021</a>.</h6>
<h6>2. See <a href="https://www.fortunebusinessinsights.com/industry-reports/fraud-detection-and-prevention-market-100231">Fraud Detection and Prevention Market Growth Report [2030] (fortunebusinessinsights.com)</a>.</h6>

Fighting Fraud: A Shared Responsibility

Anti-Fraud

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Lauryn Johnson

PwC Digital Assurance & Transparency (DAT) Experienced Associate

The value of diverse voices and backgrounds within the financial reporting profession cannot be overstated. At the CAQ, we advocate for the advancement of people of color, promote diverse opportunities, and encourage a diversity of thought within our organization and...

The value of diverse voices and backgrounds within the financial reporting profession cannot be overstated. At the CAQ, we advocate for the advancement of people of color, promote diverse opportunities, and encourage a diversity of thought within our organization and the profession at large.

June is Pride Month, a month that celebrates and commemorates the LGBTQ+ community while calling for equal justice and opportunities. We strive for greater inclusivity within the accounting profession, and this important month serves as a reminder that increasing DEI is not just an idea–it’s an action.

During June, we also observe Juneteenth. Celebrated on June 19, this important day commemorates the emancipation of enslaved people in the U.S. As we strive to increase diversity in our workforce, we are reminded of the <a href="https://www.thecaq.org/aia-black-history-month-a-walk-down-memory-lane">Black trailblazers within the profession</a>, and the important work ahead to further <a href="https://www.thecaq.org/aia-diversifying-the-accounting-talent-pipeline">increase diverse representation in the accounting pipeline</a>.

For this Juneteenth and Pride Month, the CAQ is honored to feature Lauryn Johnson, Digital Assurance &amp; Transparency (DAT) Experienced Associate at PwC US. In an in-depth conversation, Lauryn shares unique perspectives and guidance for accounting students and professionals from diverse backgrounds.

Read on for Lauryn’s story.

<strong><em>What advice do you have for others looking to bring their true selves to work?</em> </strong>

Bringing your true self to work can be powerful, especially as a Black, queer woman in corporate America. Some advice I would give first and foremost is to embrace your identity with pride and confidence. Recognize the unique perspectives and experiences you bring to the table. Your voice and insights are invaluable, and they deserve to be heard and respected. Trust in your abilities and the value you bring to any conversation or meeting.

Secondly, seek out mentors and allies who can provide guidance, support and advocacy. Connect with individuals who have successfully navigated similar paths and can offer advice on how to navigate challenges and seek opportunities for professional and personal growth. Building a network of support is crucial and having mentors who understand your specific experiences can be incredibly valuable.

Additionally, take advantage of any diversity and inclusion initiatives at your organization. I have had some of the best experiences in our Inclusion Networks, particularly within PwC’s Shine Inclusion Network for LGBTQ+ colleagues and allies and our Black Inclusion Network. These dynamic communities are open to all of our people based on shared backgrounds, experiences or interests. They help provide a sense of community, opportunities for professional development and a platform to amplify your voice with individuals who you may not regularly interact with. By being authentic, seeking support and embracing opportunities, you can bring your true self to work and help contribute to a more inclusive and equitable workplace.

[custom_quote text="By being authentic, seeking support and embracing opportunities, you can bring your true self to work and help contribute to a more inclusive and equitable workplace."]

<strong><em>In celebration of Pride Month and Juneteenth, can you share a personal story or insight on the importance of diversity, equity, and inclusion in the accounting profession, and how it has shaped your experience?</em> </strong>

In my experience, diversity, equity and inclusion in the accounting profession is crucial for several reasons. First, it allows for diverse perspectives and experiences to be considered, which can lead to more holistic and innovative solutions. Second, it fosters a sense of belonging and acceptance for individuals from underrepresented communities, helping them to thrive and contribute. Lastly, an inclusive profession can benefit society by confirming accounting practices and decisions reflect the needs and interests of stakeholders. Being an openly queer woman of color in the accounting profession has motivated me to be a visible face for those who may feel unseen or unheard. I believe that representation matters and that seeing someone who looks like you and shares similar experiences can be incredibly empowering.

<strong><em>Have you been able to support the LGBTQ community using your accounting career? If so, tell us how.</em> </strong>

Through my accounting career, I have been able to support the LGBTQ+ community, particularly through my involvement in the PwC US Shine and Black Inclusion Networks. I’m proud to have recently moderated a national Lesbian Visibility Day panel discussion hosted by the Shine Inclusion Network. I had the opportunity to facilitate a discussion on the experiences and challenges faced by lesbian individuals within the accounting profession to help amplify their voices and create a space for dialogue and support. The discussion provided a platform for lesbian professionals to share their stories, insights and strategies for success.

Furthermore, my involvement in PwC’s Black Inclusion Network has allowed me to advocate for the intersectionality of being both Black and queer and has provided a platform to address the unique challenges faced by individuals at the intersection of race and sexual orientation. Through this advocacy, I have worked to continue fostering an inclusive and equitable workplace for all individuals, regardless of their identities.

[custom_quote text="I had the opportunity to facilitate a discussion on the experiences and challenges faced by lesbian individuals within the accounting profession to help amplify their voices and create a space for dialogue and support. "]

Commemorating Juneteenth & Pride Month: Lauryn Johnson

Since the public release of various cutting-edge generative artificial intelligence (genAI)-powered chatbots in November 2022, curiosity and engagement with advanced genAI technologies has surged exponentially. While AI and machine learning have long been established, the accessibility and ease of use...

Since the public release of various cutting-edge generative artificial intelligence (genAI)-powered chatbots in November 2022, curiosity and engagement with advanced genAI technologies has surged exponentially. While AI and machine learning have long been established, the accessibility and ease of use of genAI chatbots has ignited widespread interest among individuals and businesses alike. What does this mean for the financial reporting profession?

<a href="https://www.thecaq.org/audit-partner-pulse-survey-fall-2023">A recent survey </a>by the Center for Audit Quality (CAQ) found that one in three audit partners see companies in their primary industry sector deploying or planning to deploy AI in their financial reporting process. This is not just a passing trend; it represents a significant shift as companies explore the transformative potential of AI in enhancing accounting and financial reporting practices.

Auditors need to recognize the emerging importance of genAI and stay informed in an ever-changing landscape. <a href="https://www.thecaq.org/auditing-in-the-age-of-generative-ai">Auditing in the Age of Generative AI</a> is a resource for auditors looking to understand how this technology is enhancing accounting and financial reporting processes and how the profession can respond to this emerging area.
<h3><strong>What is GenAI Technology?</strong></h3>
GenAI is a subset of artificial intelligence based on probabilistic technology that can create content, including text, images, audio, or video when prompted by a user. GenAI creates responses using algorithms that are often trained on open-source information, such as text and photos from the internet. Based on this training, when prompted by a user, genAI technologies make predictions of the next character, word, phrase, pixel, etc. to formulate a probable response to the user prompt. In other words, genAI is a predictive technology, and therefore, the outputs are based on what the genAI technology has determined is a probable response. This makes genAI skilled at performing tasks that involve drafting content, summarizing data, and recognizing patterns and trends in large amounts of data. AI chatbots, like ChatGPT and Copilot, are well-known examples of GenAI.

“Because of both the simplicity and utility of GenAI, it has the power to transform a vast amount of business processes, including those impacting financial reporting. For example, GenAI can summarize and analyze vast amounts of information to generate accounting memos or prepare a first draft of financial statements.” - Dan O’Malley, CPA, Audit Senior Manager, Crowe LLP

For auditors, the probabilistic nature of genAI is a key distinction from other technologies that they may have historically encountered in a company’s financial reporting processes, which may inform auditors’ identification and assessment of risks of material misstatement, including the identification of process-level risks or risks arising from IT.

However, despite genAI’s impressive capabilities, humans still need to be involved to oversee genAI technologies and apply critical thinking skills. Information produced by genAI is not necessarily factual and may not be able to be replicated by the same genAI technology, even if the same input is provided again. When auditors are performing audit procedures over information produced by genAI, the auditor’s responsibility to obtain sufficient and appropriate audit evidence under applicable auditing standards remains unchanged.

[custom_quote text="Because of both the simplicity and utility of GenAI, it has the power to transform a vast amount of business processes, including those impacting financial reporting. " attribution='Dan O’Malley, CPA, Audit Senior Manager, Crowe LLP']
<h3><strong>Deploying GenAI: What Auditors Should Know </strong></h3>
New risks can arise when deploying genAI in financial reporting processes and ICFR. As auditors obtain an understanding of the company’s use of genAI, they will need to consider how its use may impact the identification and assessment of risks of material misstatement, including the identification of process-level risks or risks arising from IT. In our publication, we have compiled a list of several potential risk areas and accompanying questions for auditors to consider.

One area that we explore is risks that may arise related to the company’s governance of genAI. Overall governance is critical to enable the company to know where and how genAI technologies are being used and to understand and evaluate the impacts of its use on processes and internal controls. The following questions may be useful for auditors to consider how the company’s governance of genAI may impact their risk assessment:
<ul>
 	<li>Who (individual or group) in the company is responsible for oversight of the use of GenAI?</li>
 	<li>Has the company developed a framework for the responsible use of GenAI?</li>
 	<li>Has the company established policies regarding the acceptable and ethical use of GenAI?</li>
 	<li>How are policies regarding the acceptable and ethical use of GenAI documented and communicated to appropriate individuals throughout the company?</li>
 	<li>How does the company monitor compliance with policies regarding the acceptable and ethical use of GenAI?</li>
 	<li>Does the company have a process to track and monitor the use of GenAI throughout the company, including use by third-party service providers?</li>
 	<li>How does the company evaluate the impact (nature and affected groups) of GenAI technologies being deployed?</li>
 	<li>How does the company track risks arising from the use of GenAI technologies and mitigating responses?</li>
</ul>
“Before organizations can fully embrace genAI, they should understand the risks and have a plan to implement responsible practices to manage new and evolving risks. This is what we refer to as responsible AI.” - Jennifer Kosar, Trust and Transparency Solutions Leader at PwC US

For many current genAI use cases in financial reporting processes and ICFR, keeping a human involved in the process (“a human in the loop”) may address some of the risks arising from its use. A human in the loop is responsible for reviewing the accuracy and completeness of company inputs entered into the genAI technology, understanding the explainability and interpretability of the outputs, and reviewing the outputs to determine quality, reliability, and appropriateness. Most importantly, human involvement with genAI technology requires a high degree of vigilance and professional skepticism.

[custom_quote text="Before organizations can fully embrace genAI, they should understand the risks and have a plan to implement responsible practices to manage new and evolving risks." attribution='Jennifer Kosar, Trust and Transparency Solutions Leader at PwC US']
<h3><strong>Additional Auditor Considerations</strong></h3>
Auditors should assess if their audit engagement team has the appropriate knowledge and skills to respond to the risks of material misstatement related to the use of genAI. Depending on the skillset of the audit engagement team, additional training related to genAI may be necessary or it may be appropriate to involve an individual with the requisite knowledge, skill, and ability related to genAI.

As the use of and reliance on GenAI technologies evolves, audit procedures will likely need to adapt as well. For example, the nature of outputs from GenAI technology may be complex or otherwise unable to be independently replicated or verified by a human. In these cases, it will be critical for companies to have appropriate processes and controls surrounding GenAI, including human oversight of the technology, which are designed to respond to the associated risks.

“A number of years ago a popular mantra when deploying AI was ‘Let the humans do what humans do best, and let AI do what AI does best.’ That is still true today, but the scope of what AI can do has not only drastically changed, but the capabilities are far more accessible. These rapid changes present the risk that limitations are overlooked with insufficient human review, oversight, and governance.” -Kevin Murphy, Director, Audit Innovation at Grant Thornton

Auditors are well-qualified to meet new challenges arising from the use of genAI by applying and building on their expertise in identifying and assessing risks, exercising professional skepticism, and developing appropriate audit responses.

As generative AI continues to evolve and become a component of how financial reporting professionals operate, the CAQ will monitor its impact on our profession and beyond. To get the latest insights, explore our <a href="https://www.thecaq.org/resource-hub">resources</a> and subscribe to our newsletters to learn more.

[custom_quote text="These rapid changes present the risk that limitations are overlooked with insufficient human review, oversight, and governance." attribution='Kevin Murphy, Director, Audit Innovation at Grant Thornton']

&nbsp;

The Age of Generative AI: How the Profession Can Respond

Audit Committee

Emerging Reporting Areas

Audit Committee Effectiveness: A Webinar Series | Episode 6
Welcome to Audit Committee Effectiveness: a webinar series brought to you by the Center for Audit Quality and the National Association of Corporate Directors. The series explores key takeaways and insights from...

<h4>Audit Committee Effectiveness: A Webinar Series | Episode 6</h4>
<em>Welcome to Audit Committee Effectiveness: a webinar series brought to you by the Center for Audit Quality and the National Association of Corporate Directors. The series explores key takeaways and insights from leaders in the financial reporting ecosystem alongside resources developed to aid audit committees and public company board members. Stay tuned to this page for information about topics, participants, and how to register for upcoming webinars.</em>

<img class=" wp-image-12997 alignnone" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2022/11/CAQ_NACD_400x150.png" alt="CAQ NACD" width="200" height="75" />

Enterprise Risk Management (ERM) is essential for audit committee members, offering insights into identifying, assessing, and mitigating risks that impact organizational objectives. Join the CAQ, NACD and our panel of experts for a discussion on how audit committees can fulfill their oversight responsibilities related to ERM through the lens of frameworks, regulatory expectations, and best practices for effective risk oversight. Participants will learn how to enhance risk reporting, improve decision-making, and ensure alignment with strategic goals.

<strong>1 CPE credit is available for this event</strong>

Enterprise Risk Management for Audit Committees

Event

Audit Committee Effectiveness: A Webinar Series | Episode 5
Welcome to Audit Committee Effectiveness: a webinar series brought to you by the Center for Audit Quality and the National Association of Corporate Directors. The series explores key takeaways and insights from...

<h4>Audit Committee Effectiveness: A Webinar Series | Episode 5</h4>
<em>Welcome to Audit Committee Effectiveness: a webinar series brought to you by the Center for Audit Quality and the National Association of Corporate Directors. The series explores key takeaways and insights from leaders in the financial reporting ecosystem alongside resources developed to aid audit committees and public company board members. Stay tuned to this page for information about topics, participants, and how to register for upcoming webinars.</em>

<img class=" wp-image-12997 alignnone" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2022/11/CAQ_NACD_400x150.png" alt="CAQ NACD" width="200" height="75" />

Join us for a discussion about the <a href="https://www.thecaq.org/audit-committee-practices-report-2024">third edition of the Audit Committee Practices Report</a>, a collaboration between Deloitte’s Center for Board Effectiveness and the Center for Audit Quality. Based on survey findings, this webinar offers audit committee members and those who work with them an opportunity to hear about committee priorities, challenges, and opportunities, as well as leading practices around audit committee effectiveness.

<em><strong>Note</strong>: CPE available only to participants who joined the live webcast.</em>

2024 Audit Committee Practices Report Webinar

The SEC has adopted new climate-related disclosure rules. The Center for Audit Quality and Anita Chan, who played an active role in the development of the proposed rule, will be breaking down the new rules in this informative session and...

The SEC has adopted new climate-related disclosure rules. The Center for Audit Quality and Anita Chan, who played an active role in the development of the proposed rule, will be breaking down the new rules in this informative session and answering questions such as:
<ul>
 	<li>What will companies need to disclose?</li>
 	<li>What are the attestation requirements?</li>
 	<li>When will these rules take effect?</li>
</ul>

Breaking Down the New SEC Climate-Related Disclosure Rules

Preparers/Issuers

Audit Committee Effectiveness: A Webinar Series | Episode 4
Welcome to Audit Committee Effectiveness: a webinar series brought to you by the Center for Audit Quality and the National Association of Corporate Directors. The series explores key takeaways and insights from...

<h4>Audit Committee Effectiveness: A Webinar Series | Episode 4</h4>
<em>Welcome to Audit Committee Effectiveness: a webinar series brought to you by the Center for Audit Quality and the National Association of Corporate Directors. The series explores key takeaways and insights from leaders in the financial reporting ecosystem alongside resources developed to aid audit committees and public company board members. Stay tuned to this page for information about topics, participants, and how to register for upcoming webinars.</em>

<img class=" wp-image-12997 alignnone" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2022/11/CAQ_NACD_400x150.png" alt="CAQ NACD" width="200" height="75" />

The increasingly rapid adoption of artificial intelligence-enabled technology has sparked a dialogue about how to encourage innovation while addressing the associated risks. AI has been around for decades but the advancement in the past 18-months, powered by the likes of OpenAI’s ChatGPT and Google’s Bard, is capturing the attention of corporate leaders around the world.  AI is increasingly finding its way into product design and even non-tech companies are already monetizing new products with embedded AI.

Companies are excited about the prospects AI can offer; at the same time, there are concerns about the elevated risk profile it introduces. Corporate boards are focusing on better understanding the technology and establishing guardrails to ensure risks of information security, data quality, hallucinations, and other areas are appropriately managed. Join the CAQ and NACD for a webinar to learn about what AI is and isn’t, examples of how businesses are using the technologies that encompass it in financial reporting, and what questions boards should ask of corporate management.

<em><strong>Note</strong>: CPE available only to participants who joined the live webcast.</em>

Artificial Intelligence (AI) 101 For Audit Committees

Join the AICPA &amp; CIMA, the Center for Audit Quality, CPA Canada, and the ISSB as we cover upcoming sustainability disclosure priorities in 2024.

Agenda:

 	Opening Remarks: Kristen Sullivan, Partner, Global Audit &amp; Assurance Climate Services Leader, Deloitte
 	Update from the...

Join the AICPA &amp; CIMA, the Center for Audit Quality, CPA Canada, and the ISSB as we cover upcoming sustainability disclosure priorities in 2024.

Agenda:
<ul>
 	<li>Opening Remarks: Kristen Sullivan, Partner, Global Audit &amp; Assurance Climate Services Leader, Deloitte</li>
 	<li>Update from the ISSB: Sue Lloyd, Vice Chair, International Sustainability Standards Board (ISSB)</li>
 	<li>Panel discussion: What businesses need to know coming out of COP28</li>
 	<li>Short takes: Reporting landscape in 2024</li>
 	<li>IAASB Assurance Update: Tom Seidenstein, Chair, International Audit and Assurance Standards Board (IAASB) and Co-CEO, International Foundation for Ethics and Audit</li>
 	<li>Panel Discussion: Challenges in the transition to mandatory sustainability disclosure</li>
</ul>
Explore the full agenda and panelists <a href="https://event.on24.com/wcc/r/4422215/45CA5EC51BEE8F4263A651D03C56290A?partnerref=DON24">here</a>.

Sustainability Disclosure Priorities for 2024

Washington DC, June 17, 2024 – The CAQ Governing Board elected Brian Becker, Managing Partner and CEO, RSM US LLP (RSM), as the new Vice Chairman of the Governing Board, effective June 14, 2024.

Becker oversees the firm’s strategy and operations...

<strong>Washington DC</strong>, <strong>June 17, 2024</strong> – The CAQ Governing Board elected Brian Becker, Managing Partner and CEO, RSM US LLP (RSM), as the new Vice Chairman of the Governing Board, effective June 14, 2024.

Becker oversees the firm’s strategy and operations across four countries—the United States, Canada, El Salvador and India. Becker is driving RSM to become a digital firm and is committed to advancing the firm’s inclusive culture, as well as to continuing its longstanding history of stewardship.

“With his extensive experience and long-standing dedication to the profession, Brian will be essential to the CAQ as we work to instill trust in corporate reporting and the integrity of the auditing process,” said Julie Bell Lindsay, Chief Executive Officer, Center for Audit Quality.

“In this time of accelerating change for the auditing profession, the CAQ’s mission of enhancing trust and transparency is more important than ever,” said Becker. “I look forward to continuing to serve on the Board in the role of Vice Chair as we address the challenges and opportunities that lie ahead.”

Becker succeeds Wayne Berson, Chief Executive Officer, BDO USA and Chairman, BDO International. “I also want to extend our gratitude to Wayne for his time and energy as Vice Chair of our Governing Board since 2019. With his vision and leadership, Wayne has been an essential driver of our goals and commitment to strengthening the work of public company auditors,” said Lindsay.

The CAQ’s Governing Board is comprised of a variety of leaders representing the financial reporting ecosystem, including chief executive officers from some of the largest public company audit firms, the American Institute of CPAs, as well as independent board members from investor, board member and issuer communities.

<strong>About the Center for Audit Quality
</strong>
The CAQ champions the public interest in the capital markets by:
<ul>
 	<li>Elevating the quality, credibility, and transparency of public company audits;</li>
 	<li>Advancing critical issues affecting public company audits;</li>
 	<li>Driving innovation in assurance; and</li>
 	<li>Providing a collaborative forum for capital market stakeholders to address evolving needs and challenges.</li>
</ul>
As the voice of the public company audit profession, we work to instill trust in corporate reporting and the integrity of the auditing process, ultimately empowering investors, companies, and society as a whole.

<strong>Contact:</strong>
Brad Jacklin
Director of Communications
Bjacklin@thecaq.org
(202)-494-9560

RSM CEO Brian Becker Elected as New Vice Chair of CAQ Governing Board

Press Releases

Company Management

Washington DC, April 2, 2024 – Paul Knopp, KPMG U.S. Chair and CEO, has been elected Chair of the CAQ’s Governing Board, effective April 1, 2024.

The CAQ’s Governing Board is comprised of a variety of leaders representing the financial reporting...

<strong>Washington DC, April 2, 2024 – </strong>Paul Knopp, KPMG U.S. Chair and CEO, has been elected Chair of the CAQ’s Governing Board, effective April 1, 2024.

The CAQ’s Governing Board is comprised of a variety of leaders representing the financial reporting ecosystem, including chief executive officers from some of the largest public company audit firms, the American Institute of CPAs, as well as independent board members from investor, board member and issuer communities. The Governing Board oversees the CAQ’s strategic agenda and activities.

“The financial reporting landscape is constantly evolving, creating new challenges and opportunities for the public company audit profession,” said Julie Bell Lindsay, Chief Executive Officer, CAQ. “With his extensive experience serving large, multinational clients as an audit partner and his leadership and long-standing dedication to the profession as the Chair and CEO at KPMG,  Paul will be essential to the CAQ as we fulfill our mission of supporting high-quality financial reporting, convening capital market stakeholders to advance discussions on audit quality issues and championing policies and standards that bolster and support audits.”

“With rapidly emerging technologies such as generative AI, new corporate reporting areas including new climate disclosure rules and a need to strengthen the talent pipeline for the future, now is a transformative time for the public company audit profession,” said Knopp. “I look forward to supporting the CAQ in executing their strategic agenda and supporting the profession as it embraces the future of financial reporting while maintaining a laser focus on investor protection through high-quality audits.”

Knopp succeeds Tim Ryan, US Senior Partner at PwC. “Tim has been instrumental in leading the CAQ to help address some of the most important issues impacting our profession, from the talent pipeline to helping the profession lead the way in emerging areas of corporate reporting like climate and cybersecurity,” said Lindsay.

<strong>About the Center for Audit Quality</strong>

The Center for Audit Quality (CAQ) is a nonpartisan public policy organization serving as the voice of US public company auditors and matters related to the audits of public companies. The CAQ promotes high-quality performance by US public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, US public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of US public company auditors and audits to dynamic market conditions.

KPMG U.S. Chair and CEO Paul Knopp to Helm CAQ’s Governing Board

Two-thirds of audit committee members see opportunities to improve effectiveness,
 according to Deloitte, Center for Audit Quality Survey
NEW YORK, March 12, 2024 —The “Audit Committee Practices Report: Common Threads Across Audit Committees,” a joint effort between Deloitte’s Center for Board Effectiveness...

<p style="text-align: center;"><em>Two-thirds of audit committee members see opportunities to improve effectiveness,</em></p>
<p style="text-align: center;"><em> according to Deloitte, Center for Audit Quality Survey</em></p>
<strong>NEW YORK, March 12, 2024 —</strong>The “Audit Committee Practices Report: Common Threads Across Audit Committees,” a joint effort between Deloitte’s Center for Board Effectiveness and the Center for Audit Quality (CAQ), identified cybersecurity as the top priority in the next 12 months.

A total of 266 respondents participated in this year’s survey, most of whom are from US public companies (74%), and of which 81% have more than $700 million in market cap.

Respondents cited enterprise risk management (ERM) as the No. 2 priority, demonstrating a broader, more holistic view of risk. Meanwhile, trending topics like artificial intelligence (AI) governance and environmental, social and governance (ESG) reporting are receiving comparably less attention.

“We are seeing the role of the audit committee continue to evolve and adapt as demands on oversight responsibilities change with the business environment and investor expectations,” said Vanessa Teitelbaum, senior director, Professional Practice at CAQ. “Audit committees are zeroed in on one of their core responsibilities: overseeing enterprise risk programs at large. While their agenda continues to grow and expand, key areas like cybersecurity and ERM remain a central focus.”

In addition to cybersecurity and ERM, finance and internal audit talent (a new entry in this year’s survey), compliance with laws and regulations, and finance transformation rounded out the top five priorities. Although the majority of respondents view internal audit as an effective function — one that adds demonstrable value — nearly 80% believe there is an opportunity for internal audit to add even more value. Audit committees are also increasingly prioritizing compliance with laws and regulations, with more than one-third citing it as a top-three priority, a significant increase from last year.

<strong>Cybersecurity remains No. 1 priority for audit committees, followed by ERM</strong>

Cybersecurity topped the list of committee priorities by nearly 20 percentage points over ERM. Notably, 58% of respondents said the audit committee has primary oversight over cybersecurity, with 25% indicating the full board has oversight responsibility. Sixty-nine percent of respondents highlighted cybersecurity as a top concern in the next 12 months, with 3-in-10 ranking it No. 1.

The heightened focus on cybersecurity is likely due to greater disclosure requirements from regulatory agencies. The U.S. Securities and Exchange Commission (SEC), for example, is requiring new disclosures on cybersecurity risks and incidents, as well as management and strategy, including an explanation of oversight processes.

When considering what additional expertise would enhance the audit committee's effectiveness, cybersecurity was highlighted as the top area (44%). This is particularly notable given that almost half (48%) of respondents said they have some level of cybersecurity expertise on the committee.

The evolving risk landscape and emerging risks have put an increased spotlight on ERM. Nearly half of respondents indicated that ERM will be a top focus area in the next 12 months. More than three quarters (85%) of respondents reported some level of ERM expertise on the audit committee, positioning it to effectively oversee management’s risk programs.

<strong>Opportunities for audit committees to increase effectiveness </strong>

With a growing agenda and evolving responsibilities, audit committee members see an opportunity for continuous learning and improvement and have perspectives on how they could enhance their effectiveness. Only one-third of respondents say the committee is effective as is, while the rest feel there is at least one strategy that could boost general effectiveness. Those respondents highlighted three key areas for improvement:
<ul>
 	<li>Increased discussion and/or engagement from members during meetings — highlighted by 29% of respondents.</li>
 	<li>Improved quality of pre-read materials — highlighted by 28% of respondents.</li>
 	<li>Improved quality of presentations during meetings — highlighted by 26% of respondents.</li>
</ul>
“The effectiveness of an audit committee can be distinguished by how it executes its responsibilities,” said Krista Parsons, Audit &amp; Assurance managing director, Audit Committee Program leader, and Governance Services leader at Deloitte’s Center for Board Effectiveness. “Key to this is including the right topics on the agenda, obtaining information that enhances comprehension of these issues, and fostering candid and transparent discussions. These are among the actions that audit committee members can take to be prepared for the issues facing them today and in the future."

<strong>About the survey</strong>

This edition of the “Audit Committee Practices Report,” like prior editions, is based on a survey of audit committee members. A total of 266 respondents participated in this year’s survey, most of whom are from US public companies (74%) and of which 81% have more than $700 million in market cap.

In its third year, the Audit Committee Practices Report added a charitable element to the survey, allowing the first 200 qualifying respondents to select from <a href="https://braven.org/">Braven</a> and/or <a href="https://www.newprofit.org/">New Profit</a> for a $100 donation. This led to a total of $20,000 in donations, allocated per respondent selections.

<strong>About the Center for Audit Quality</strong>

The Center for Audit Quality (CAQ) is a nonpartisan public policy organization serving as the voice of US public company auditors and matters related to the audits of public companies. The CAQ promotes high-quality performance by US public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, US public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of US public company auditors and audits to dynamic market conditions.

<strong>About Deloitte’s Center for Board Effectiveness</strong>

Deloitte’s Center for Board Effectiveness helps directors deliver value to the organizations they serve through a portfolio of high-quality, innovative experiences throughout their tenure as board members. Whether an individual is aspiring to board participation or has extensive board experience, the Center’s programs enable them to contribute effectively and provide focus in the areas of governance and audit, strategy, risk, innovation, compensation and succession.

<strong>About Deloitte</strong>
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including nearly 90% of the Fortune 500® and more than 8,500 US-based private companies. At Deloitte, we strive to live our purpose of making an <a href="https://www2.deloitte.com/us/en/pages/about-deloitte/articles/purpose-at-deloitte-us.html">impact that matters</a> by creating trust and confidence in a more equitable society. We leverage our unique blend of business acumen, command of technology, and strategic technology alliances to advise our clients across industries as they <a href="https://www2.deloitte.com/us/en/pages/about-deloitte/articles/technology-consulting-engineering-advantage.html">build their future</a>. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them. Bringing more than 175 years of service, our network of member firms spans more than 150 countries and territories. Learn how Deloitte’s approximately 457,000 people worldwide connect for impact at <a href="http://www.deloitte.com">www.deloitte.com</a>.

###

<strong>Contacts</strong>
<table>
<tbody>
<tr>
<td width="230">Kerry Lee</td>
<td width="262">Brad Jacklin</td>
</tr>
<tr>
<td width="230">Senior Manager, Public Relations</td>
<td width="262">Director, Communications</td>
</tr>
<tr>
<td width="230">Deloitte Services LP</td>
<td width="262">Center for Audit Quality</td>
</tr>
<tr>
<td width="230">+1 916-298-8031</td>
<td width="262">+1 202 494 9560</td>
</tr>
<tr>
<td width="230">kerlee@deloitte.com</td>
<td width="262">bjacklin@thecaq.org</td>
</tr>
</tbody>
</table>
&nbsp;

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see <a href="https://www2.deloitte.com/us/en/legal/about-deloitte.html">www.deloitte.com/about</a> to learn more about our global network of member firms.

Audit Committees Prioritize Cybersecurity, Enterprise Risk Management in New Survey

Transparency and accountability are pillars of effective public policy development. Unfortunately, the roundtable that the PCAOB held this week on its proposal related to company noncompliance with laws and regulations (NOCLAR) failed to live up to these principles. Specifically, the...

<span data-contrast="auto">Transparency and accountability are pillars of effective public policy development. Unfortunately, the roundtable that the PCAOB held this week on its proposal related to company noncompliance with laws and regulations (NOCLAR) failed to live up to these principles. Specifically, the roundtable failed to address the concerns outlined in 78% of the comment letters the PCAOB received, including from those investors, audit committee members, auditors, academics and others who are concerned with the PCAOB’s proposal. </span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}"> </span>

<span data-contrast="auto">“Today’s NOCLAR roundtable was a missed opportunity for the PCAOB to further understand the views highlighted in numerous comment letters from engaged stakeholders,” said Julie Bell Lindsay, Chief Executive Officer, CAQ. “Not only did the roundtable surface disagreement as to the actual scope or intention of the proposal, but we are concerned that the lack of diverse stakeholder representation – particularly from investors and audit committees, two important audiences – resulted in dialogue that did not meaningfully address stakeholder concerns. Given the discussion at the roundtable, we believe that the appropriate response is to re-propose the standard, with an economic analysis, to begin to address these concerns.”</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}"> </span>

<span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:259}"> </span>

Statement on the PCAOB’s NOCLAR Roundtable Event

Statements

The Center for Audit Quality (CAQ) supports the SEC’s vote to adopt a final rule that will bring clarity, consistency and comparability to company-reported climate information and will require assurance over certain aspects of this information. In adopting the final...

The Center for Audit Quality (CAQ) supports the SEC’s vote to adopt a final rule that will bring clarity, consistency and comparability to company-reported climate information and will require assurance over certain aspects of this information. In adopting the final rule, the SEC has recognized the valuable role that assurance plays in bringing accountability and objectivity to company-reported climate disclosures.

“While we are still digesting the final rules, the SEC took a step forward today in providing much needed clarity on the reporting of climate-related information by public companies,” said Julie Bell Lindsay, Chief Executive Officer of the CAQ. “Whether greenhouse gas emissions or the impact of climate issues in company financial statements, audit firms – with their deep understanding of company financial records, operations, business strategies and internal controls – stand ready to bring their independence and objectivity in providing assurance on this information.”

Statement of Support for the SEC’s Final Rule on Climate-Related Disclosures

In this comment letter, the CAQ responds to the SEC’s notice to solicit comment on QC 1000, A Firm's System of Quality Control and Other Amendments to PCAOB Standards, Rules, and Forms, as adopted by the PCAOB Board.   

In our letter...

<span data-contrast="none">In this comment letter, the CAQ responds to the SEC’s notice to solicit comment on QC 1000, </span><i><span data-contrast="none">A Firm's System of Quality Control and Other Amendments to PCAOB Standards, Rules, and Forms</span></i><span data-contrast="none">, as adopted by the PCAOB Board. </span><span data-contrast="auto"> </span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span>

<span data-contrast="auto">In our letter we detail our views on the following:</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">As we have consistently stated – including in encouraging the Board to move forward expeditiously with updating the US quality control standard to, in part, bring it up to date with the international standard – we believe that a firm’s quality control system is foundational to audit quality and that an effective quality control system is important to strengthening auditing practices and continuously improving audit quality. We also support the Board’s efforts to modernize existing auditing standards, and in particular quality control standards. We have supported this effort since responding to the PCAOB’s Concept Release on QC 1000 dated December 17, 2019, and Proposed Standard dated November 18, 2022.</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span></li>
</ul>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><span data-contrast="auto">Unfortunately, we have specific concerns and questions about the Final Standard, particularly the new External Quality Control Function (EQCF), that we believe requires further consideration by the PCAOB before a final quality control standard can be approved by the SEC. Our comment letter focuses specifically on our concerns related to this new EQCF requirement.</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span></li>
</ul>
<span data-contrast="none">Read the full comment letter <a href="https://www.thecaq.org/wp-content/uploads/2024/07/CAQ-_SEC_QC-1000_07.02_signed.pdf">here</a>.</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span>

Comment Letter | SEC QC 1000, A Firm's System of Quality Control and Other Amendments to PCAOB Standards, Rules, and Forms

Comment Letter

In this comment letter, the CAQ responds to the SEC’s notice to solicit comment on AS 1000, General Responsibilities of the Auditor in Conducting an Audit and Amendments to PCAOB Standards, as adopted by the PCAOB Board.  

In our letter we...

<span data-contrast="auto">In this comment letter, the CAQ responds to the SEC’s notice to solicit comment on AS 1000, </span><i><span data-contrast="auto">General Responsibilities of the Auditor in Conducting an Audit and Amendments to PCAOB Standards</span></i><span data-contrast="auto">, as adopted by the PCAOB Board. </span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span>

<span data-contrast="auto">In our letter we detail our views on the following:</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559683&quot;:0,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="auto">We welcome the efforts of the PCAOB Board to understand the feedback provided and concerns raised by stakeholders through the comment letter process, and to thoughtfully address that feedback in the Final Standard. We are supportive of the SEC approving the Final Standard.</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span></li>
</ul>
<ul>
 	<li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559683&quot;:0,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><span data-contrast="auto">Based on our initial reviews of the Final Standard, implementation resources will be necessary to promote consistent implementation and application of the new standard and amendments. It will be important for the PCAOB to engage with the auditing profession throughout the implementation period to resolve questions as they arise, as well as with investors and other key stakeholders to reduce potential expectation gaps. We suggest that the SEC encourage the PCAOB to provide such support to ensure a successful implementation of the Final Standard.  </span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span></li>
</ul>
<span data-contrast="auto">Read the full comment letter <a href="https://www.thecaq.org/wp-content/uploads/2024/07/caq_sec_as-1000_2024-07.pdf">here</a>.</span><span data-ccp-props="{&quot;201341983&quot;:0,&quot;335559739&quot;:160,&quot;335559740&quot;:279}"> </span>

Comment Letter | AS 1000, General Responsibilities of the Auditor in Conducting an Audit and Amendments to PCAOB Standards

Academics

​​​​

Welcome to June, the official first month of summer. For me, this month marks a major (and bittersweet) milestone - my oldest son’s graduation from high school. And while he is planning on majoring in environmental science at the University of Oregon this fall,...

Bold Ambition Quarterly | Summer 2024

Newsletter

Welcome to another edition of Capital Markets Pulse, a monthly newsletter from the Center for Audit Quality that brings you insights, resources, and tools on the latest issues impacting the capital markets.

As we enter the summer months, thoughts turn to...

<img class="aligncenter wp-image-13866" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2023/06/Header_JBL_1200x400_600x200_FINAL_Website.png" alt="Capital Markets Pulse with Julie Bell Lindsay" width="650" height="163" />

<strong>Welcome to another edition of Capital Markets Pulse</strong>, a monthly newsletter from the Center for Audit Quality that brings you insights, resources, and tools on the latest issues impacting the capital markets.

As we enter the summer months, thoughts turn to family vacations, baseball games and enjoying more time outdoors – unless you have been in Washington DC recently where June has felt like August. It also used to be said that Washington “shuts down” during the summer.  That has been a myth generally for some time, but certainly not in an election year.

The CAQ has been quite busy in May and June as the PCAOB continues its work to update and modernize a slew of audit standards and rules. We also published a report signaling overall good news for the state of financial reporting.

And, in the latest episode of my Capital Markets Pulse podcast series, I spoke with Peggy Smyth, Audit Committee Chair at Etsy, about the implications of the SEC’s final climate rule for public companies.

I am incredibly proud of the work the CAQ team does on behalf of public company audit firms and the capital markets. Read on for what’s on my radar.

<em>Please note that these perspectives are my own. If this email was forwarded to you, <a href="https://go.thecaq.org/l/834983/2020-04-22/fskb">subscribe here</a> so that you never miss a public company auditing update. </em> ​​​

<img class="wp-image-14496 aligncenter" src="https://www.thecaq.org/wp-content/uploads/2024/02/Header_JBL_1200x400_600x200_PODCAST_V2.png" alt="" width="600" height="150" />
<h3><strong>Discussing the SEC’s Final Climate Rule: Part 1 with Etsy’s Peggy Smyth</strong></h3>
In the latest episode of Capital Markets Pulse, this month I met with Peggy Smyth, Audit Committee Chair at Etsy, to discuss the implications of the SEC’s final climate rule for public companies, audit committee responsibilities, and how public companies can navigate different standards and requirements.

A few highlights from our discussion:
<ul>
 	<li><strong>On her key learnings for audit committees</strong>: Etsy has leveraged its SEC reporting practices to strengthen internal controls for ESG reporting. Embedding ESG roles into traditional business functions, rather than siloing them, drives greater alignment and accountability, enhancing the adoption of sustainability practices.</li>
 	<li><strong>On the final rule’s impact on Etsy’s reporting practices</strong>: Etsy’s disclosures already include many elements the SEC will require, such as assurance of Scope 1 and 2 emissions by a public company audit firm. The company also voluntarily discloses Scope 3 emissions, even though they are not generally required under the new rule.</li>
 	<li><strong>On assurance provided</strong>: Since Etsy includes all ESG data in the Form 10-K, it made sense to have the same third party that audits Etsy’s financial statements also assure this data. Etsy has robust systems and processes for data collection, reporting, and assurance, both internally and externally.</li>
 	<li><strong>On different requirements</strong>: As a global company, Etsy supports the alignment of sustainability disclosure standards, both mandatory and voluntary. This provides clarity to public companies and their boards, drives greater accountability in managing sustainability and climate impacts, and ensures consistent, reliable, and comparable data for stakeholders and regulators.</li>
</ul>
Listen to the <a href="https://www.thecaq.org/podcast-capital-markets-pulse-episode-7">full podcast here</a>. And stay tuned for part two of this discussion with the SEC’s Chief Accountant Paul Munter.

Be sure to subscribe to the latest episodes on <a href="https://open.spotify.com/show/0Eom56jIKUbXXufaJ98yBX">Spotify</a>, <a href="https://podcasts.apple.com/us/podcast/capital-markets-pulse/id1690673211">Apple Podcasts</a>, <a href="https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5idXp6c3Byb3V0LmNvbS8yMTkyMjg2LnJzcw==">Google Podcasts</a>, or <a href="https://music.amazon.com/podcasts/a9d37ab7-2e09-4ce9-93a5-bc0399d25fae">Amazon Music</a>.

&nbsp;

<img class="aligncenter wp-image-13867" src="https://thecaq.wpenginepowered.com/wp-content/uploads/2023/06/Header_JBL_1200x400_600x200_RADAR-1024x256.png" alt="On my radar" width="600" height="150" />
<h2>CAQ Updates</h2>
<h3><strong>Report Finds Financial Restatements Trending Down</strong></h3>
One measure that investors and other capital markets stakeholders rely on to understand the state of financial reporting is restatements. Therefore, the CAQ set out to better understand restatement trends by studying them for the past decade (2013 – 2022).

<strong>The good news</strong>: Restatements continue to decline – both in number and severity. The decline in overall restatements was significant – over half (58%) – including both “Big R” (or Item 4.02 of Form 8-K restatements) and “Little r” restatements. With respect to “Big R” restatements, the decline was most significant (from 28% to 18%) over the first seven years of the sample period.

Other trends were observed, including that smaller organizations, and organizations in industries with higher financial reporting risk such as healthcare, finance, and technology, were more likely to issue a restatement. It is also worth noting that fraud did not often contribute to a restatement, with approximately 3% of restatements attributable to fraud. However, fraud was consistently higher for 4.02 restatements than the rest of the sample.

My colleague Vanessa Teitelbaum breaks down more key takeaways in this <a href="https://www.thecaq.org/audit-in-action-what-ten-years-of-restatement-trends-tell-us-about-the-state-of-financial-reporting">blog</a>. View the full report: <a href="https://www.thecaq.org/financial-restatement-trends-us-2013-2022">Financial Restatement Trends in the United States: 2013 – 2022.</a>
<h3><strong>CAQ Teams Up with WilmerHale to Discuss Recent Developments in Accounting</strong></h3>
This month, I joined a panel of profession stakeholders, including a board member and investor, former regulators at the PCAOB and legal experts to discuss PCAOB standard-setting and inspections trends, as well as SEC and PCAOB enforcement trends, including the nature of underlying violations, SEC and PCAOB areas of focus, and connections between enforcement and recently adopted and proposed PCAOB standards.

Here are a few of my takeaways:
<ul>
 	<li><strong>Inspections:</strong> By and large, inspection results continue to demonstrate that audit quality remains high. Restatements as a result of inspections remain scant, and while the PCAOB has found more deficiencies in recent years, they are still down by 47% since the PCAOB began inspections.</li>
 	<li><strong>Enforcement actions:</strong> Enforcement actions from the PCAOB have also increased in recent years while SEC penalties have been declining. One analysis found that 50% of inspections led to enforcement actions. But a closer look shows that most enforcements were minor and technical in nature, such as communications with audit committees or documentation. Enforcements are also higher for non-U.S. firms.</li>
 	<li><strong>Standard-Setting:</strong> While all panelists agreed that the PCAOB’s efforts to modernize existing auditing standards are important, concerns remain about comment letter timelines, lack of cost/benefit analyses, and not enough stakeholder engagement.</li>
</ul>
If you’re interested in hearing the full discussion, an on-demand webinar can be accessed here: <a href="https://www.wilmerhale.com/insights/events/20240618-recent-developments-in-accounting-auditing-and-the-law-series">Recent Developments in Accounting, Auditing and the Law Series.</a>
<h2>Accounting+ Updates</h2>
<h3><strong>Accounting+ Hosts Student Events</strong></h3>
The CAQ continues to host “Accounting for your Future” events with EVERFI, one of our key strategic partners in the initiative, allowing Accounting+ partners to volunteer their time to interact directly with students in cities across the country.

Our most <a href="https://njbiz.com/newark-event-teaches-students-about-accounting-career-opportunities/">recent event</a> took place in Newark, New Jersey, where more than 70 students learned about the diverse career opportunities in accounting. Students heard from professionals from Northfield Bank, EisnerAmper LLP and Withum and attendees included Newark Mayor Ras Barak, the CEO of NJCPA and Dhani Jones, former NFL linebacker.

<img class="wp-image-15140 aligncenter" src="https://www.thecaq.org/wp-content/uploads/2024/06/2024_06_CMP_NABA-Newark.jpg" alt="" width="499" height="333" />
<h3><strong>CAQ Commemorates Pride Month and Juneteenth with Lauryn Johnson </strong></h3>
June is Pride Month, a month that celebrates and commemorates the LGBTQ+ community while calling for equal justice and opportunities. During June, we also observed Juneteenth. Celebrated on June 19, this important day commemorates the emancipation of enslaved people in the U.S.

To mark these important milestones, the CAQ was honored to feature Lauryn Johnson, Digital Assurance &amp; Transparency (DAT) Experienced Associate at PWC, for an in-depth conversation. In a Q&amp;A, Lauryn shared unique perspectives and guidance for accounting students and professionals from diverse and underrepresented backgrounds looking to make a change. Read the blog: <a href="http://www.thecaq.org/aia-commemorating-juneteenth-pride-month-lauryn-johnson">Commemorating Juneteenth &amp; Pride Month: Lauryn Johnson</a>.
<h2>Profession Updates</h2>
<h3><strong>PCAOB Adopts Several Standards and Issues New Proposals</strong></h3>
This summer may be the busiest yet for the PCAOB. In May, they adopted <a href="https://pcaobus.org/news-events/news-releases/news-release-detail/pcaob-adopts-new-quality-control-standard-with-a-risk-based-approach-designed-to-drive-continuous-improvement-in-audit-quality">QC 1000</a> and <a href="https://assets.pcaobus.org/pcaob-dev/docs/default-source/rulemaking/docket-049/2024-004-as1000.pdf?sfvrsn=3ba6358a_2">AS 1000</a>, two standards aimed at improving firms’ quality control systems and general responsibilities respectively. In June, they adopted their standard to clarify auditor responsibilities when using <a href="https://pcaobus.org/news-events/news-releases/news-release-detail/pcaob-updates-its-standards-to-clarify-auditor-responsibilities-when-using-technology-assisted-analysis">technology-assisted analysis</a> and updated their rule regarding <a href="https://assets.pcaobus.org/pcaob-dev/docs/default-source/rulemaking/053/2024-008-rule-3502-adoption.pdf">auditor contributory liability</a>.

And they aren’t slowing down. This month, the Board issued a proposal to replace the PCAOB’s existing auditing standard related to an auditor’s use of <a href="https://pcaobus.org/oversight/standards/auditing-standards/details/AS2305">substantive analytical procedures</a> with a new standard: <a href="https://pcaobus.org/oversight/standards/auditing-standards/details/AS2305">AS 2305, Designing and Performing Substantive Analytical Procedures</a>.

I encourage investors, issuers and audit committees to familiarize themselves with these new rules and proposals and to continue to share their views with the PCAOB as any input could help the PCAOB evaluate the benefits and costs of these proposals. For the CAQ’s perspective on several outstanding proposals, please review our <a href="https://www.thecaq.org/resource-hub?content_type=73&amp;page=1">recent comment letters</a>. ​​​​​

&nbsp;

<hr />

<h3 style="text-align: center;">Julie Bell Lindsay</h3>
<p style="text-align: center;"><em>Chief Executive Officer, CAQ</em></p>

The Center for Audit Quality

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