Volume 2, Issue 10

November 2008

I. “Mark-to-Market” Accounting Update

As we reported last month, the CAQ and several other organizations have joined forces to advance their common interest in protecting investors and promoting transparency through preservation of mark-to-market, or fair value, accounting. Participating stakeholders include the Council of Institutional Investors, the CFA Institute and the Consumer Federation of America.

Fair value accounting has long required that many financial instruments be valued according to current market conditions, not on outdated estimates or unrealistic expectations about the future. Many policy makers and market watchers believe it is the most timely and transparent method to determine the value of securities and other financial instruments.

After issuing a joint statement in support of mark-to-market accounting in early October, stakeholders sent a letter to U.S. Securities and Exchange Commission (SEC) Chairman Christopher on Oct. 15 expressing “grave concern” regarding calls for the SEC to override guidance issued by the Financial Accounting Standards Board (FASB) and the Commission’s staff that would effectively suspend fair value or mark-to-market accounting. “We believe such urgings are decidedly not in the public interest,” they wrote.

Meanwhile, investors and auditors were among those expressing support for mark-to-market accounting during the first of two SEC roundtables on the topic held Oct. 29. PricewaterhouseCoopers LLP partner, and CAQ Professional Practice Executive Committee (PPEC) member, Vincent Colman was among the panelists defending the current accounting rules and expressed the view FASB should be kept “free from political pressures.”

II. PCAOB Releases Seven New Auditing Standards Related to the Auditor’s Assessment of, and Responses to, Risk

The Public Company Accounting Oversight Board (PCAOB) voted Oct. 21 on seven new auditing standards, which will be subject to a 120-day comment period ending Feb. 18, 2009. The standards represent a comprehensive attempt to update the requirements for assessing and responding to risk during an audit.

In his announcement of the new standards, PCAOB Chairman Mark Olson said “an appropriate assessment of risk is the foundation of a high quality audit. Today’s proposals are intended to strengthen that foundation, which should result in improvements throughout the audit.”

III. PCAOB Announces 2009 SAG Members

On Oct. 30, the PCAOB released its list of 2009-2010 Standing Advisory Group (SAG) appointments and re-appointments.

We are pleased to note that the PCAOB has re-appointed three public company auditors to the SAG: Steven B. Rafferty, Professional Practices Partner, BKD, LLP; James V. Schnurr, Deputy Managing Partner, Audit and Enterprise Risk Services, Deloitte & Touche LLP; and Samuel J. Ranzilla, Audit Partner and National Managing Partner, Audit Quality and Professional Practice, KPMG LLP.

All three are members of the CAQ’s PPEC, which Ranzilla chairs.

IV. Cindy Fornelli Moderates Haas Business School’s Financial Reporting Panel

On Friday, Oct. 24, the Center for Audit Quality’s Executive Director Cindy Fornelli moderated a panel at the University of California at Berkeley Haas School of Business’ 19th Annual Conference on Financial Reporting. The panel focused on the impact of key SEC and PCAOB projects and initiatives.

Joining CAQ Executive Director Cindy Fornelli (seated at left) at the Haas School of Business’ Financial Reporting Conference’s discussion of SEC and PCAOB initiatives were: (clockwise, from top left) David Kaplan, national partner, PricewaterhouseCoopers; Conrad Hewitt, Chief Accountant, SEC; Ken Lewis, CFO, Franklin Templeton; Mark Olson, Chairman, PCAOB; and Christine DiFabio, Vice President, Technical Activities, Financial Executives International (Photo courtesy of Jim Block Photography).

V. CAQ’s Fornelli again honored by Accounting Today

CAQ Executive Director Cindy Fornelli has been named to Accounting Today’s list of the top 100 most influential people in accounting for the second consecutive year. According to the publication, “Rarely does a corporate governance issue escape scrutiny and commentary from this former SEC and Bank of America exec. Under her auspices, the CAQ has just completed a 10-city dialogue tour on financial reporting issues.” The honor was reported in a special supplement in the magazine’s Sept. 22 edition.

VI. What is Audit Quality?

In an ongoing series in our newsletter, we highlight different perspectives to answer the question, “What is audit quality?” This week, we focus on comments made during the CAQ’s D.C. Public Dialogue Tour event by Arne M. Sorenson, chief financial officer and executive vice president, Marriott International, Inc., who said:

Audit quality is “... a fair report card about the way a company is performing.”