SEC chiefs stress central role of auditors

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Auditors and high-quality audits are central to the U.S. financial system, according to the chief regulators at the Securities and Exchange Commission and the head of the Center for Audit Quality -- but there’s room for improvement.

Launching a roundtable discussion at the AICPA Conference on Current SEC and PCAOB Developments in Washington, D.C., on Monday, CAQ executive director Cindy Fornelli remarked on the need for different parts of the accounting and auditing profession to work together. “The truth is that working together we gain strength and confidence," she said. "I know that may sound like a simple commonsense adage, but it’s still worth pausing to reflect on it for a moment.”

Fornelli, who announced this fall that she would be retiring next spring after 12 years at the helm of the CAQ, pointed to the example of the Anti-Fraud Collaboration that the CAQ coordinates with the Institute of Internal Auditors, Financial Executives International and the National Association of Corporate Directors. The CAQ has also been working closely with the SEC over the years, and Fornelli brought SEC Chairman Jay Clayton and Chief Accountant Wesley Bricker onstage to talk about the role of the audit profession in the capital markets.

Fornelli noted that the CAQ’s Main Street Investor Survey responses indicated the investor community has confidence in the financial markets, but she asked the SEC officials whether the financial reporting system is working the way they would like.

“Is it working the way we would like to see it work? It’s a loaded question because you can always find imperfections in systems that are as complex and important as our financial reporting and overall disclosure system,” Clayton responded. “But is it a system where I would say the fundamental approach is a good one? Absolutely. I’ll say it again: Audit quality is the bedrock of our financial system. Without high-quality financial reporting, we don’t have the ability to have this kind of capital flow, this kind of confidence. It’s fundamental. It’s an absolutely necessary condition to what we have, and preserving it is of paramount importance.”

Bricker agreed. “I would just build onto that accountants can contribute to confidence,” he added. “Accountants build confidence, particularly when accountants adhere to the highest levels of integrity, the highest levels of ethics, and they build trust. One of the fundamental underpinnings of the profession over time has been calling the shots as they see them in a clear, candid and constructive way. I certainly appreciate the work that everyone here does in advancing quality, but in a way that adheres to the integrity investors expect.”

Clayton pointed to the example of initial coin offerings for cryptocurrency, and the lack of audit protections for investors. “High-quality financial reporting and audit drives better behavior and better performance by companies,” he said. “We’ve recently had the ICO space develop and a great deal of capital flowed into the ICO space. One of the warnings I tried to get out as much as possible to people who were looking into investing in that space is you do not have the protections that our securities laws require of public companies in many of these situations, and a fundamental protection is audited financial statements. You can see the stark difference in the type of fundraisings and the quality of companies you’ve seen as a general matter in the ICO market. This is a market where there are audited financial statements required.”

Clayton and Bricker unveiled a new chart that the SEC is posting on its website about the various phases of the financial reporting and auditing process. They also talked about the importance of cybersecurity. “I think that what we’re seeing is an appreciation in the boardroom of the importance of this issue,” said Clayton. “We’re seeing increased expertise in the boardroom looking not just at prevention and saying, ‘OK, we’ve got this suite of data we need to protect. How can we wall it off? How can we segregate it?’ But also looking at going forward and saying, ‘Do we need all of this? What are the things that we do need to do our business and are we collecting them in a way that we can best protect them, whether that’s the cloud or some other thing?’ I think that level of conversation, not just a backward-looking conversation but a forward-looking conversation in the boardroom, is essential to moving this issue forward.”

Fond farewells

Speakers at the conference also took time to recognize Fornelli’s achievements in advance of her impending retirement.

In introducing her, AICPA president and CEO Barry Melancon said, “Cindy Fornelli has done a marvelous job at the Center for Audit Quality. I’ve worked with her very, very closely. She has announced that she will be retiring from her position as executive director of the CAQ in the spring, or at some point in the early part of 2019. I actually have the honor of chairing the search committee with the CAQ board, the CEOs of the largest firms and the like. That’s going to be a daunting task, because Cindy has been a tremendous leader and advocate for a multi-stakeholder approach about the public interest and has been a very strong voice on many of these issues that have evolved dramatically over the last decade-plus.”

Melancon thanked Fornelli for her leadership and long-term commitment to the profession. “I know whatever endeavors you take in the future, you’ll always have an eye on the profession moving forward,” he added.

“Cindy, I also want to express our gratitude and appreciation for your service,” added Bricker. “Congratulations as you move into a year of retirement and think about what comes next in your career.”

“I want to echo Wes’ thanks,” said Clayton. “Cindy, thank you very much for all you do.”

Fornelli thanked the CAQ staff for their work. “I have a top-notch staff and I couldn’t do what I do without their commitment and dedication and hard work day after day,” she said. “Thank you for all that you do for the CAQ and for me personally. I do want to take a moment, Barry, just to thank you for being such a great mentor and friend. You have been very instrumental in my success over the last 12 years, so I appreciate that. Together, we have made real progress on the issues facing the profession.”

She explained her plans for next year. “In the spring, my husband and I are going to move to Florida to start the next chapter of our lives together, but it has been a real pleasure to work with all of our members in the profession on the key issues that we look at. As I think about this poignant time, anybody who is contemplating retirement or who has had a significant other that’s retired knows that it’s a time of contemplation and reflection, so I’ve spent a lot of time over the last several months contemplating what I’ve learned over these last 12 years at the CAQ. As you might imagine I’ve learned a lot over the last 12 years. When you work as closely as I have with the wonderful men and women of the profession and others in the capital markets, you tend to learn a lot.”

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Audits Audit preparation Cindy Fornelli Jay Clayton Barry Melancon Wesley Bricker SEC CAQ AICPA