The Future of Audit and Assurance Services
Barry MELANCON
President and CEO,
American Institute of Certified Public Accountants
United States
The Future of Audit &
Assurance Services
What went wrong – The current
corporate culture and
reporting 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 Role
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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
Getting the Right Answer
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We are at a serious juncture in the history of our
financial markets and our profession
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Anyone who deceives investors must be held
accountable
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Regulators should have all the resources they need
to police the capital markets and enforce the law
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Investors must have information that is accurate,
clear, timely and relevant
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The reputation of the CPA profession must be
restored and our proud heritage honored
A Revitalized Accounting
Culture
 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
A Strong, Unified Profession
Demands 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 longterm strategy and outcome:
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– Increasing confidence in the capital markets
and in the CPA profession itself.
Honoring our heritage and
moving forward
We need to reaffirm our basic commitment
to professionalism
 Auditors must be willing to say NO
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– 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
What 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
Standards Board
is Responding
Sarbanes/Oxley Projects
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Internal control task force
– Focus on reporting on internal controls over
financial reporting as part of the annual audit
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Audit committee task force
– Focus on relationship and communications
Sarbanes/Oxley Projects
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Omnibus task force
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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
Recently Issued Standards
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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
Other ASB’s Agenda Items
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 Force
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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.
AICPA Fraud Initiatives
Working with Corporate
America
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 Governance
AICPA calls for revision of auditing
standards to provide public notice of
internal control weaknesses
 Reportable conditions to include:
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– 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
Research
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 & 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 antifraud CPE
 AICPA urges stock exchanges to mandate
anti-fraud education for corporate managers
and directors
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Overview of Other Significant
Professional Developments
Foundation for the
Future
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Must work to protect the public interest
under the current reporting models
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Must work to develop approaches and
programs to respond to marketplace
demands for assurance under “New
Economic” models
Convergence
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Blurring of Boundaries between
– Auditing of Financial Statements
– Assurance
– Attestation on financial and non-financial items
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Need for on-line real time assurance
What it takes to get
Real Time Assurance.
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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
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?
XBRL
Extensible Business Reporting Language
 4th International Conference held in Berlin
in March
 “The Road to Better Business Information-Making the case for XBRL”
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– A white paper by Microsoft,
PricewaterhouseCoopers and NASDAQ
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XBRL GL was released
XBRL
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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
Privacy
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
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– AICPA, Ernst & Young and Privacy and
American Business Research Study
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Congressional activity
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
Conclusion -- Moving Forward
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?