Financial Executives International (FEI) announced earlier today that it has joined a collaborative effort led by the Center for Audit Quality (CAQ) that is aimed at deterring and detecting financial reporting fraud. Other leading organizations that are part of this effort include The Institute of Internal Auditors (IIA) and the National Association of Corporate Directors (NACD).
Collaborative Effort Will Focus On Four Areas
Initial efforts will focus on four areas:
- Advancing the understanding of conditions that contribute to fraud
- Developing techniques to enhance the application of skepticism
- Moderating the risks of focusing only on short-term results
- Leveraging the role of technology in deterring and detecting financial reporting fraud
CAQ Releases Report On Fraud
In related news, CAQ announced today the release of its report, Deterring and Detecting Financial Reporting Fraud – A Platform for Action. As noted in CAQ's press release:
The report defines financial reporting fraud as 'a material misrepresentation resulting from an intentional failure to report financial information in accordance with generally accepted accounting principles'...
[The report] is the result of CAQ-sponsored roundtable discussions and in-depth interviews on the issue of financial reporting fraud at public companies. The discussions and interviews featured corporate executives, members of boards of directors and audit committees, internal auditors, and external auditors – the takeholders that are participants in the “financial reporting supply chain” – as well as investors, regulators and academics, among others. The report offers the perspectives of more than 100 roundtable participants and related points to
ponder, as well as insights gained from research and guidance on the topic of fraud.
Additionally, as noted in the cover letter introducing the report:
[T]his report represents a first step in longer-term initiatives and collaborations for the deterrence and detection of financial reporting fraud, to benefit investors and other participants in the capital markets. The CAQ plans to play a leadership role in encouraging collaborative action to advance the understanding of conditions that contribute to fraud and develop enhanced deterrence and detection techniques and tools for all participants in the financial reporting process, including management, boards of directors, audit committees, internal auditors, and external auditors.
Effort Intended To Complement PCAOB Fraud Center
The CAQ Report also states:
We intend these efforts to complement the activities of the Public Company Accounting Oversight Board’s (PCAOB) Financial Reporting Fraud Resource Center, and look forward to opportunities for collaboration with the Center.
The PCAOB's Financial Reporting Fraud Resource Center was formed in response to one of the recommendations of the U.S. Treasury Department's Advisory Committee on the Auditing Profession (ACAP), which issued its Final Report in October, 2008.
Read more in this FEI press release, which provides a link to a video featuring CAQ Executive Director Cindy Fornelli, and FEI President and CEO Marie Hollein, speaking about this important new initiative, involving participants in the financial reporting system joining forces on the goal of detecting and preventing financial reporting fraud.
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