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The Future of Audit and Assurance Services
Barry MELANCONPresident and CEO,American Institute of Certified Public AccountantsUnited States
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The Future of Audit & The Future of Audit & Assurance ServicesAssurance Services
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What went wrong – The What went wrong – The current corporate culture and current corporate culture and
reporting modelreporting model Simple greed or arrogance Market pressure on short term earnings Lack of transparency or timely disclosures
in the reporting model Lack of mandated disclosures on
managements accounting policies Too many rules leading to connect the dots
accounting
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The AICPA’s RoleThe AICPA’s Role
AICPA has a role as a standard-setter AICPA has a role as a liaison between market
institutions and corporations AICPA has a research role AICPA has an educational role AICPA has a role to play in advancing the level of
financial reporting AICPA has a role in promoting strong corporate
governance and internal controls
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Getting the Right AnswerGetting the Right Answer
We are at a serious juncture in the history of our financial markets and our profession
Anyone who deceives investors must be held accountable
Regulators should have all the resources they need to police the capital markets and enforce the law
Investors must have information that is accurate, clear, timely and relevant
The reputation of the CPA profession must be restored and our proud heritage honored
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A Revitalized Accounting A Revitalized Accounting CultureCulture
What is needed is not just legislation but a revitalized accounting culture
Build upon the profession’s traditional values– A rigorous commitment to integrity– A passion for getting it right– A commitment to rules and a zeal for
applying them– Zero tolerance for those who break them
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A Strong, Unified A Strong, Unified Profession Profession
Demands Unified SolutionsDemands Unified Solutions Our challenge and opportunity is found in
our diversity We must avoid creating fragmented
solutions for a fragmented profession. Leadership must stay focused on the long-
term strategy and outcome: – Increasing confidence in the capital markets
and in the CPA profession itself.
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Honoring our heritage and Honoring our heritage and moving forwardmoving forward
We need to reaffirm our basic commitment to professionalism
Auditors must be willing to say NO– Every day, auditors everywhere are telling a
corporate exec what must be disclosed, why a transaction can’t be treated in a certain fashion and why certain activity must be reflected on the balance sheet
– “Trust, but verify,” this is the true spirit of the profession
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What saying NO meansWhat saying NO means
Rejecting unsound corporate accounting practices
Reducing the risk of deceit and fraud through diligent inquiry
Ensuring that audited statements are not just accurate, but illuminating
Questioning management, challenging management
When justified – rejecting management’s accounting decisions
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How the U.S. Auditing How the U.S. Auditing Standards Board Standards Board
is Respondingis Responding
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Sarbanes/Oxley ProjectsSarbanes/Oxley Projects
Internal control task force– Focus on reporting on internal controls over
financial reporting as part of the annual audit Audit committee task force
– Focus on relationship and communications
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Sarbanes/Oxley ProjectsSarbanes/Oxley Projects
Omnibus task force– Documentation retention– Concurring partner review– Foreign affiliate issues– Representation and attorney letter amendments
Q.C. Task Force– Focus on inspection/monitoring guidance– Audit partner rotation– Objectivity issues
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Recently Issued StandardsRecently Issued Standards
SAS No. 95, Generally Accepted Auditing Standards
SAS No. 96, Audit Documentation SSAE No. 11, Attest Documentation SAS 97, Reports on the Application of
Accounting Principles SAS 98, Omnibus 2002 SAS 99, Consideration of Fraud in a Financial
Statement Audit
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Other ASB’s Agenda Other ASB’s Agenda ItemsItems
Risk Assessments Fair Value SAS No. 71(Quarterly Reviews of SEC
Entities) Joint Task Force on Quality Control Horizons II
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Horizons II Task ForceHorizons II Task Force
Strategic group looking at direction of ASB and auditing standards over next 3 – 5 years
Will continue to include convergence with international auditing standards
Explore expanding auditor’s communication Explore whether “reasonable assurance” is the
proper level of assurance with respect to the auditor’s responsibility to plan and detect material errors.
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AICPA Fraud InitiativesAICPA Fraud Initiatives
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Working with Corporate Working with Corporate AmericaAmerica
AICPA to convene anti-fraud summit with corporate leaders, accountants and market professionals
Will partner with corporations to design and establish anti-fraud controls and programs.
Will created enhanced attestation standards for CPAs to report on corporate anti-fraud programs
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Corporate GovernanceCorporate Governance
AICPA calls for revision of auditing standards to provide public notice of internal control weaknesses
Reportable conditions to include: – One person as Chair and as CEO– Audit committee that is not fulfilling its
mission.– It may include lack of mandatory anti-fraud
education, or lack of a Code of Conduct
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ResearchResearch
AICPA to sponsor academic research into the who, what, when, where & why of fraud
AICPA will establish an Institute for Fraud Studies with the University of Texas and Association of Certified Fraud Examiners
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Education & TrainingEducation & Training
AICPA will develop training programs to prevent fraud
AICPA to work with academia on anti-fraud curricula and materials
AICPA calling for members to more anti-fraud CPE
AICPA urges stock exchanges to mandate anti-fraud education for corporate managers and directors
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Overview of Other Overview of Other Significant Professional Significant Professional
DevelopmentsDevelopments
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Foundation for the Foundation for the FutureFuture
Must work to protect the public interest under the current reporting models
Must work to develop approaches and programs to respond to marketplace demands for assurance under “New Economic” models
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ConvergenceConvergence
Blurring of Boundaries between– Auditing of Financial Statements
– Assurance– Attestation on financial and non-financial items
Need for on-line real time assurance
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What it takes to get What it takes to get Real Time Assurance.Real Time Assurance.
Reliable systems A common method of disseminating information
on the internet Reporting on subsets of financial data as well as
non financial data, industry specific rather than one size fits all, common global approach
Corporate accountability including management integrity, solid enterprise risk management
Understandable disclosures including the ability to ‘drill down” into expanded discussion if the user desires to do so
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Continuous Assurance
Issues we’re grappling with: Subject matter: systems or data? Cost effectiveness of continuous monitoring
procedures Reporting: contemporaneous or very
frequent or exception reporting?
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XBRLXBRL
Extensible Business Reporting Language 4th International Conference held in Berlin
in March “The Road to Better Business Information--
Making the case for XBRL”– A white paper by Microsoft,
PricewaterhouseCoopers and NASDAQ XBRL GL was released
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XBRLXBRL
With its promise of real-time financial reporting, the AICPA-founded XBRL moves to center stage in business world
The Federal Deposit Insurance Corporation, Moody’s, Microsoft, Reuters, NASDAQ and Deutsche Bank, among many others, announce they are using XBRL in their financial disclosures
More than 150 international companies and organizations now belong to consortium that is developing XML-based business reporting standards
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PrivacyPrivacy
Developing framework of privacy practices and criteria
Developing educational campaign to educate public and B&I members
Study on Privacy was released and generated much media coverage– AICPA, Ernst & Young and Privacy and
American Business Research Study Congressional activity
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Sustainability Reporting
Sustainability reports typically cover the following matters:
Environmental matters such as data on emissions of certain pollutants and initiatives to reduce those emissions
Social responsibility matters such as occupational health and safety, payment of a living wage and compliance with collective bargaining agreements
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Conclusion -- Moving Conclusion -- Moving ForwardForward
Core values and traditional areas. Building on what we do best and what the
public needs us to do. Wrestle with such key issues as reporting
measures, transparency, fraud responsibility, dependency, etc.
Address state issues Enhance the public’s perception of our
profession
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Questions?Questions?