Encouraging Quality and Transparency

The major themes that I took away from the conference this year are a focus on quality, transparency, and investor information. Comments from the AICPA chair kicked off the conference by stating the need for CPAs to be committed to financial reporting quality, integrity, and objectivity, and to participate in the standards-setting process.

The CAQ praised a strong profession that takes pride in its work, reported that investor confidence had improved, and called for increased confidence through transparency and better communications with investors. FASB's agenda includes projects to reduce complexity and to increase education and investor outreach. Conference attendees were reminded that the SEC and PCAOB continue to be concerned about internal controls over financial reporting, and inspections continue to find control deficiencies that are not being identified by auditors. There was a call to action for management and audit committees to be more diligent in their oversight of accounting practices, internal controls, and transparency.

There was much focus on audit quality at the conference, including the PCAOB's new Audit Quality Indicators, and the increasingly important role of audit committees in auditor selection and audit issues. The proposed changes to the audit report, including the controversy around critical audit matters (CAM) and naming the audit partner, got a lot of attention. But will these initiatives really improve audit quality? Do “investors” really need to know what “kept the auditors awake at night” or the name of the audit partner?

Many walked away asking who is an investor and what do investors really want. How do regulators really know what investors need that they don't already have? Are they using investors as a reason for oversight that will really lead to better quality and protect market participants, or are they using it as an excuse for greater regulation? Does the audit report today reflect the value of an audit, or is a more meaningful communication needed?

Additional Developments

In the category of “what's old is new again,” several regulators mentioned the recent acquisitions of consulting practices by the Big Four as an area of great concern and future regulatory scrutiny. Will these firms turn their attention to consulting at the expense of audit quality? Will good audit staff abandon auditing to join consulting? Didn't firms enhance their policies around independence many years ago, so that this should not be an issue for global investor confidence?

Notably absent from the conference was the new chair of the SEC. It was implied that it was an issue of Dodd-Frank and JOBS Act rulemaking and insufficient staff resources The SEC staff at the conference was relatively low key this year—no big bombshells where they delivered new guidance that sent participants running back to their firms and clients, and there were only a few entertaining enforcement tales of investigations and fines.

It was a slow year for new standards. The usual time was spent calling for better management discussion and analysis (MD&A) preparation and for fewer misleading non-GAAP disclosures. There was some good news: the SEC actually said that it was advisable to take a fresh look at disclosures this year-end and to take out unnecessary ones that had been repeated over the years. The most notable piece of SEC “news” related to its mission of fraud deterrence and detection, including its FRAud Task Force, the new Accounting Quality Model (a data-analysis tool, affectionately named RoboCop, to flag potential fraud), and the increased use of Extensible Business Reporting Language (XBRL) data in its reviews. Some participants questioned, however, whether more analytical data mean better detection and enforcement.

Why CPAs Need to Participate

I look forward to this conference every year, and although this one might not have had many big announcements, it did provide a great retrospective look at the past year. It also sent some clear signals that our profession will continue to be regulated, and that some of the proposed regulation might not be what many CPAs believe to be in the best interests of themselves, their firms, or their clients.

It is critically important that the members of our profession participate actively and timely in the comment-letter and publicforum processes to make their concerns known. These proposed regulations can result in certain needed improvements, but there could also be significant consequences to the profession that must be considered.

The opinions expressed here are my own and do not reflect those of the NYSSCPA, its management, or its staff.