Center for Audit Quality

Center for Audit Quality

company_name = The Center for Audit Quality
company_type = Autonomous member-funded non-profit
foundation = 2007
location = Washington, D.C., USA
key_people = Cynthia M. Fornelli, Executive Director

homepage = []

The Center for Audit Quality (CAQ) is an autonomous, non-profit group created by the public auditing profession to aid investors and issuers in a time of growing financial complexity and market globalization. The CAQ publicly states that its mission is to foster confidence in the audit process and to aid investors and the capital markets by advancing constructive suggestions for change based on the auditing profession’s core values of integrity, objectivity, honesty and trust.

The founding of the CAQ

The CAQ was launched in 2007 and approximately 800 U.S. public company auditing firms are members. The CAQ is affiliated with the American Institute of Certified Public Accountants, the largest professional organization for accountants in the United States. The CAQ’s stated focus is to advance investor confidence by undertaking initiatives such as enhancing public company audit quality, serving as a catalyst to bring market participants together to discuss ways to modernize business reporting, narrowing the “expectations gap” between regulatory standards of performance and public expectations, fostering a greater understanding of the value of the public company audit and providing information on key issues in public accounting and financial information. The CAQ is located in Washington, D.C. [cite news | last = Burns | first = Judith | title = Accountants Form Group To Improve Audit Quality | publisher = Dow Jones Newswires | date = 2007-01-30 | url = | accessdate = 2007-07-27|format=PDF]

The CAQ is governed by a board composed of nine CEOs from the American Institute of Certified Public Accountants and U.S. accounting firms and representatives of the issuer and investor communities. The CAQ is entirely funded by member dues.

The CAQ’s executive director is Cynthia M. Fornelli, formerly Regulatory and Conflicts Management Executive at Bank of America. Previously, Fornelli was Deputy Director of the Division of Investment Management of the Securities and Exchange Commission (SEC).


The CAQ’s public activities focus on fostering investor confidence in the audit process -- the process by which a public company auditor tests and reports on whether the information within a public company’s financial statements conforms with generally accepted accounting principles. Since the passage of the Sarbanes-Oxley Act, outside auditors for large public companies are also required to provide an opinion on managements’ assessments of their companies’ internal control systems overseeing their financial reporting.

The new legislation raises significant new issues of accountability and responsibility for both the businesses releasing financial statements and the public company auditors who, by law, certify them. The CAQ’s activities focus on addressing such issues in order to maintain a stable market for investors in a new, as yet imbalanced, business climate created by factors such as rapid development of information technology, financial scandals and a global business environment.

pecific Goals

The CAQ takes a number of major positions on improving financial reports, and it is focused on the following areas: [cite web | last = Staff | first = WebCPA | title = An Interview with Cindy Fornelli | publisher = WebCPA | date = 2007-05-07 | url = | accessdate = 2007-07-27]

*Improving public company audit quality through research and communications about current developments in public company auditing.

*Facilitating conversation to bring market participants together to discuss improvements of the quality, relevance and integrity of financial reporting.

*Narrowing the expectations gap between regulatory standards and public expectations by pursuing approaches that help auditors and issuers address fraudulent financial reporting through increased transparency, performance and both legislative and policy initiatives.

*Promoting a greater understanding of independent public company auditors and the services they perform.

*Providing public company auditing professionals information and resources for the better practice of their profession.

Historical background

The Center for Audit Quality was launched in January 2007 as an initiative by the public company auditing profession to directly address issues important to investor confidence in public audits. The founding of the CAQ restructured and expanded the American Institute of CPA’s Center for Public Company Audit Firms. The CAQ's affiliation with the American Institute of Certified Public Accountants permits the two groups to collaborate on common issues, and the CEO of the American Institute of CPAs sits on the CAQ's Board.

The growing complexity of financial information, the global expansion of financial markets and the rapid development and ubiquity of information technology caused concern to users of business information beginning in the 1990s. Prior to that, scholars and regulators as early as 1978 noted an “expectations gap” between the services provided by auditors and the public’s notion of what should be provided in an audit. [cite web | last = Pierce | first = Bernard | title = The Audit Expectations Gap | publisher = Dublin City University Business School | date = 1996 | url = | accessdate = 2007-07-27] Investor confidence suffered as a result of increased financial complexity and the perception that reliable financial information was difficult to compile and susceptible to manipulation. A number of major corporate scandals in the decade preceding the CAQ’s founding hinged on management’s manipulation of financial information and also damaged investor confidence. [cite news | last = Strauss | first = Gary | title = Scandal further decimates investor confidence | publisher = USA Today | date = 2002-06-27 | url = | accessdate = 2007-07-27]

Since the accounting profession certifies all public financial statements, public auditors act as de facto umpires or intermediaries between, on the one hand, companies and, on the other hand, investors and regulators. Thus, public company auditors have a significant stake in maintaining the objectivity and quality of financial reporting, which certifies the reliability of a company’s financial statements. The quality of financial information public audits is essential to capital markets, since investors and businesses rely on this information.

Public initiatives

One of the key functions of the CAQ is to undertake public outreach to educate the public about public auditing, distribute its research findings and advocate its positions on matters of public interest and debate. The CAQ issues frequent member alerts on regulatory developments to the small, medium and large public company auditing firms comprising its membership.

arbanes-Oxley Section 404

The CAQ’s activities also focus on research, dialogue and recommendations in respect to accounting and compliance issues raised by the Sarbanes-Oxley Act of 2002, specifically the Act’s Section 404. The act is a landmark piece of legislation for market stability, and the priority placed on it by the CAQ underscores the crucial role of the profession in investor confidence and the stability of the capital markets. [cite web | last = Coates IV | first = John C. | title = The Goals and Promise of the Sarbanes-Oxley Act | publisher = Journal of Economic Perspectives | date = Winter 2007 | url = | accessdate = 2007-07-27]

Sarbanes-Oxley mandated company management to design and implement internal controls over financial reporting and required company officers to attest to the establishment and maintenance of those controls. In addition, for the first time, outside auditors for large public companies were required to provide an opinion as to management’s assessment of the effectiveness of those controls.

The CAQ has been heavily engaged with the Securities and Exchange Commission and the Public Company Accounting Oversight Board as the two agencies implement the complicated regulatory framework mandated by the Sarbanes-Oxley Act. The CAQ writes public comment letters to both agencies to influence and inform the regulatory process. [cite web | last = Staff | first = WebCPA | title = An Interview with Cindy Fornelli | publisher = WebCPA | date = 2007-05-07 | url = | accessdate = 2007-07-27] [cite web | last = Westbrook | first = Jesse | title = 3rd Official Migrates From the SEC to Audit Quality Center | publisher = The Washington Post | date = 2007-04-30 | url = | accessdate = 2007-07-27]

Public Dialogue Tour

The CAQ has, since its founding, undertaken a “public dialogue tour” of cities in the United States. The dialogues gather accounting professionals, representatives of large institutional investors, regulators, lawmakers and other interested parties for exchanges of ideas and debate on the public audit process. Tour events have taken place in Denver, Charlotte, Minneapolis, Seattle, New York, Chicago, San Francisco and Dallas. The program is ongoing. [cite news | last = Grunbaum | first = Rami | title = Engaging chat over breakfast on audits | publisher = The Seattle Times | date = 2007-07-08 | url = | accessdate = 2007-07-27]

The CAQ plans to issue a report to summarize feedback and findings from the tour. To date, some of the feedback and general findings from participants have included: [cite web | title = Public Dialogue: Denver Summary | publisher = The Center for Audit Quality | date = 2007-05-01 | url = | accessdate = 2007-07-27]

*The need for simplification of financial reports to make them easier to understand for investors, regulators and issuers. [cite web | last = AARP | first = North Carolina | title = Simplify Financial Reports | publisher = NCAARP | date = 2007-07-13 | url = | accessdate = 2007-07-27]

*The need for transparency in financial reporting and data gathering.

*The need for financial reporting that reflects long-term business goals.

arbanes-Oxley Fifth Anniversary Event

On July 30th, the Center for Audit Quality (CAQ) hosted a panel discussion and luncheon to mark the fifth anniversary of the Sarbanes-Oxley legislation. The event took place at the National Press Club, exactly five years after President George W. Bush signed the bill into law.

Panelists at the event included the authors of the Sarbanes-Oxley Act, former U.S. Senator Paul Sarbanes and former U.S. Congressman Michael Oxley. Also on the panel were SEC and PCAOB chairmen Christopher Cox and Mark Olson as well as former SEC chairmen Harvey Pitt and William H. Donaldson and former PCAOB chairman William J. McDonough. [cite web | last = Burns | first = Judith | title = Sarbanes-Oxley gets praise from Sarbanes and Oxley | publisher = Dow Jones Newswires | date = 2007-07-13 | url =| accessdate = 2007-07-27]

Research Initiatives

The CAQ also facilitates and produces research initiatives to address new or significant issues relating to public audits and investor confidence. The CAQ also conducted and released a survey of investors to correspond with the fifth anniversary of the Sarbanes-Oxley Act. The nationwide telephone survey of 1000 investors explored opinions about the legislation and its various components, the strength of the U.S. capital markets and the impact of the Sarbanes-Oxley Act on investor confidence. [cite web | last = The Center for Audit Quality | title = Center for Audit Quality Survey Finds Majority of Nation’s Investors Support Sarbanes-Oxley, Believe Rules Mandated By Act Should Not Be Eased | publisher = The Center for Audit Quality | date = 2007-01-30 | url = | accessdate = 2007-07-27]

Membership and structure

All public U.S. accounting firms (1) whose CPAs are members of the American Institute of CPAs and (2) are registered with the Public Company Accounting Oversight Board (PCAOB) are eligible for membership in the Center for Audit Quality. Associate membership is available for U.S. public accounting firms not registered with the PCAOB. Non-U.S. firms are ineligible to join, but can subscribe to certain materials issued by the CAQ.

The Center for Audit Quality is led by a governing board that comprises leaders from accounting firms and the accounting, investor and issuer communities. Three public board members also bring an outside perspective to the CAQ board. The governing board oversees the activities of the CAQ and establishes committees, advisory groups and task forces as needed to carry out the CAQ's mission.

Board of directors

Twelve members currently compose the CAQ’s governing board: [cite web | title = Center for Audit Quality Governing Board | publisher = The Center for Audit Quality | url = | accessdate = 2007-07-27]

*Barry Melancon, President and CEO, American Institute of CPAs
*Charles M. Allen, CEO, Crowe Chizek and Company LLC
*Dennis M. Nally, Chairman and Senior Partner, PricewaterhouseCoopers LLP
*Ed Nusbaum, CEO and Executive Partner, Grant Thornton LLP
*Barry Salzberg , CEO, Deloitte & Touche USA LLP
*David R. Scudder, Managing Partner, McGladrey & Pullen, LLP
*James S. Turley, Chairman and CEO, Ernst & Young LLP
*John B. Veihmeyer, Americas Chairman and U.S. Deputy Chairman, KPMG, LLP
*Jack Weisbaum, CEO, BDO Seidman, LLP

Public Board Members

*Harvey J. Goldschmid, Former Commissioner: U.S. Securities and Exchange Commission

*Michele J. Hooper, Co-founder of The Directors' Council

*Lynn S. Paine, Professor of Business Administration: Harvard School of Business

The executive director of the CAQ, Cynthia M. Fornelli, leads the organization's operations and reports directly to the governing board.

ee also

*Public Company Accounting Oversight Board
*United States Securities and Exchange Commission
*American Association of Certified Public Accountants
*Internal audit
*Sarbanes-Oxley Act
*Cynthia M. Fornelli

Notes or references

External links

* [ Official website]
* [ The CAQ Newsroom]
* [ The AICPA]
* [ The Securities and Exchange Commission]
* [ The Public Company Accounting Oversight Board]
* [ McGladrey and Pullen, LLP]
* [ PricewaterhouseCoopers]
* [ Crowe Chizek]
* [ KPMG]
* [ BDO Seidman, LLP]
* [ Ernst and Young]
* [ Grant Thornton LLP]
* [http://www. Deloitte and Touche]

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