Research and Guidance Resources by the Center for Audit Quality (CAQ)

Devoted to enhancing investor confidence and public trust in the global capital markets, the Center for Audit Quality (CAQ) is an autonomous, nonpartisan, and nonprofit public policy organization based in Washington, DC. Supported by a membership of U.S. accounting firms registered with the Public Company Accounting Oversight Board (PCAOB), the CAQ is led by a Governing Board made up of CEOs from leading public company auditing firms and the AICPA, as well as three members from outside the public company auditing profession. CAQ resources include guides, case studies, technical alerts, research reports, comment letters, amicus briefs, and videos. They are all publicly available and free of charge.

On August 7, 2016, top practitioners from the public company auditing profession gathered with leading academics at the CAQ’s Eighth Annual Symposium in New York, Research in Auditing – Insights from Academics and Practitioners. The event is a key part of the CAQ’s ongoing dialogue with the academic community on how research can help inform audit practice. As in past years, the 2016 Symposium included panel discussions on critical issues.

This Symposium panel focused on the advantages that can be gained when academics team up with members of the profession to inform their research. Behavioral and archival researchers working with the CAQ Research Advisory Board have benefited from conferring with auditors to better understand the challenges faced in practice, how those are addressed, and how changes in approach or audit methodology could impact the research question.

The Center for Audit Quality has also developed two video vignettes for use in the classroom (each approximately five minutes in length) that provide insights into the types of conversations that occur when auditors are assessing the internal controls used by management. In these scenarios, the focus is on a management review control over goodwill impairment estimates. The discussions captured in the videos can also be used in other teaching situations as they highlight communications and interviewing techniques, professional skepticism, and how to navigate conversations on difficult and sensitive issues. To learn more, refer to video Vignette 1: A Meeting between the Audit Manager and the Company Controller and video Vignette 2: A Meeting between the Audit Manager and the Engagement Partner.

Enhancing Auditor Professional Skepticism: The Professional Skepticism Continuum

A 2014 academic research paper published by the American Accounting Association notes that “Due to past high-profile audit failures, reported audit deficiencies in regulator inspection reports, and the growing number and size of complex estimates in the financial statements, there is a growing need for reliability and trust in financial reports and a corresponding increased demand for enhanced audit quality. Enhancing the level of professional skepticism applied in practice is one important means of improving audit quality, but there is a lack of practical guidance around the appropriate application and documentation of professional skepticism in the professional literature.”

The following graphic offers a proposed skepticism continuum. Such a continuum enables the auditor to take the perspective that is most appropriate considering the circumstances applicable to each audit area and assertion. Applying a continuum to a specific account and assertion takes place after a careful and rigorous initial risk assessment, and a continued re-evaluation of the risk throughout the audit to ensure that appropriate skepticism is applied to the collection and evaluation of audit evidence.

According to the paper, “A shared understanding would allow audit professionals to identify, communicate, and exercise a level of professional skepticism appropriate for the risks involved, and would enable regulators to fairly evaluate, after the fact, the level of skepticism applied. The skepticism continuum we propose represents a potential step forward in understanding the nature of professional skepticism and in applying it appropriately under varying circumstances.”

The paper concludes that, “In order to make the necessary changes, the profession, academics, regulators, and standard setters should work together to better understand the nature of professional skepticism, including how skepticism is threatened at various structural levels, current measures in place to mitigate those threats and, then, finally, how skepticism can be enhanced at the various structural levels. Our hope is that this paper will provide a conceptual foundation to facilitate a productive ongoing dialogue that will lead to specific actions to enhance auditor professional skepticism and, ultimately, audit quality.”

To learn more, read the full paper by Steven M. Glover and Douglas F. Prawitt, both Professors at Brigham Young University, “Enhancing Auditor Professional Skepticism: The Professional Skepticism Continuum” in Current Issues in Auditing: December 2014, Vol. 8, No. 2, pp. P1-P10.