This is my second President’s Report, which appears in the issue of The Auditor’s Report optimistically called "Spring." (We used to have a Winter issue of the Report, but apparently we tried to banish winter from the Auditing Section by changing this issue’s label. Unfortunately, this hasn’t worked, as the temperature in New England as I write this is 4o F, or –16o C.) But at least we Northerners got a few days of nice weather in January, a pleasant byproduct of the truly outstanding 2004 Auditing Section Midyear Conference held in Clearwater Beach, Florida. As reported elsewhere in this issue, the Midyear Conference drew a record attendance of 281. Special thanks are due to the Midyear Conference Co–Chairs, Steve Glover and Doug Prawitt (both at Brigham Young University), and to the other members of the conference program committee: Brian Mayhew (University of Wisconsin), Mark Peecher (University of Illinois), Bob Ramsay (University of Kentucky), Susan Scholz (University of Kansas), and Billy Soo (Boston College). One very important factor in our ability to develop a tradition of high–quality Midyear Conferences is the continuing generous support of the KPMG Foundation, which has provided funding for these meetings since their inception. We thank all the personnel of the KPMG Foundation for their support, and especially want to recognize Bernie Milano, who through the years has been instrumental in helping the Auditing Section.
The Midyear Conference program began with a speech by Dr. Douglas R. Carmichael, Chief Auditor of the Public Company Accounting Oversight Board. His speech on the social responsibility of the auditing profession is posted on the Section’s website. We very much appreciate Dr. Carmichael’s willingness to address our meeting, given the many demands on his time due to his responsibilities at the Board.
There were 33 research papers presented in paper sessions, as well as four instructional cases, and there were 20 additional papers presented in the Research Forum. These papers addressed a broad array of topics and research methods. In addition, there were several panel sessions, which were particularly informative in providing information to help improve our teaching and research. The plenary panel considered the topic of "Setting Auditing Standards in the National and International Environments." This panel was cosponsored by the Auditing Standards Committee and the Practice Advisory Council. Gary Holstrum (Consultant, Office of the Chief Auditor, PCAOB, and professor at the University of South Florida) discussed the role of the PCAOB in standard setting, and the Board’s progress to date. Lyn Graham (Auditing Standards Board, BDO Seidman LLP) presented his views on the future role of the ASB in setting standards for audits of private companies. Jim Sylph (International Federation of Accountants) described the structure and function of IFAC and of the International Auditing and Assurance Standards Board. The panel concluded with the first musical number ever presented in a Midyear Conference session (to my knowledge, at least): a rendition of the "Sarbanes–Oxley Blues." This is a very topical song making the rounds on the Internet, which presents a CEO’s lament about tougher standards under the Sarbanes–Oxley Act of 2002.
In addition, there were four concurrent panels. On Friday, Scott Reed and Mark Terrell, both with KPMG’s Audit Committee Institute, presented a panel on "Audit Committee Issues." Scott and Mark discussed current trends in the environment with respect to audit committees, including changes in the structure and function of those committees in response to new regulatory requirements. The lively discussion touched on a number of related topics, including the role of academic accountants on audit committees. (A poll of the audience of about 50 auditing academics, at all ranges of experience, showed that only one had ever served on a corporate audit committee.)
Friday’s program also included a panel featuring the U.S. General Accounting Office. Jeannette Franzel and Richard Vagnoni of the GAO discussed several topics, including: (1) the influence of the Sarbanes–Oxley Act on the accountability environment in governmental agencies; (2) the results of studies performed by the GAO in response to provisions of the Sarbanes–Oxley Act (e.g., on mandatory auditor rotation); and (3) the proliferation of standard–setting bodies in the auditing arena. Importantly, they reported that the Comptroller General of the U.S. has proposed periodic "summit" meetings of the heads of the GAO, PCAOB, and U.S. Auditing Standards Board, in order to coordinate efforts of those parties regarding auditing standards.
On Saturday, the Education Committee sponsored a panel on "The Implications of Current Audit Approaches for Audit Education." Presenters were Kevin Bouchillon (PricewaterhouseCoopers) and Steve Glover (Brigham Young University). Kevin and Steve used the current PwC audit approach as an example of how auditing faculty can use specific audit techniques implemented by firms to add richness to the content of auditing courses.
The fourth panel, sponsored by the Research Committee, was entitled "The Road Less Traveled: Field Research in Auditing and Corporate Governance." The Research Committee considered that while field research methods can prove to be very informative about current practice, and lead to theory development and further research using behavioral or empirical methods, many doctoral programs do not teach these methods. This panel was intended to assist faculty considering use of field research by providing insights of researchers experienced in this method. The panel was chaired by Steve Salterio (Queen’s University), and also featured Mike Gibbins (University of Alberta), Vaughan Radcliffe (University of Western Ontario), Arnie Wright and Jeff Cohen (both at Boston College).
In conjunction with the Midyear Conference, the Section also sponsors a Doctoral Consortium. There were 36 students in attendance at this year’s Consortium, whose feedback on the program was highly positive. Speakers included Jane Kennedy (University of Washington), Bill Kinney (The University of Texas at Austin), Mark Penno (Purdue University), Rachel Schwartz (Washington University), and Dan Simunic (University of British Columbia). The Editors’ panel, chaired by Mark Nelson (Cornell University), featured Bill Messier (Georgia State University), Editor of Auditing: A Journal of Practice & Theory; Jane Kennedy, Associate Editor of The Accounting Review; and Dan Simunic, Associate Editor of Contemporary Accounting Research and Co–Editor of the Asian Journal of Accounting and Economics. Many thanks go to the Doctoral Consortium Planning Committee, chaired by Ron King (Washington University) and including Mark Nelson and Mark DeFond (University of Southern California), for developing this fine program. The Doctoral Consortium provides doctoral students with the ability to interact on a personal level with some of our top scholars, and to hear their perspectives on the main types of research within the auditing discipline. Support for the Consortium is provided by the KPMG Foundation, over and above their support for the Midyear Conference. We again thank the KPMG Foundation for enabling the Auditing Section to provide this valuable benefit for our new scholars.
Prior to the Midyear Conference, a CPE session was held on the topic of "Practice Insights on Sarbanes–Oxley 404." John Murphy (assurance partner from KPMG’s Tampa office) instructed faculty members in a CPE session on the challenges and progress auditors are facing with providing assurance on the adequacy of internal controls over financial reporting. John demonstrated tools and methods that are used by KPMG for providing this new assurance service, which was mandated by Section 404 of the Sarbanes–Oxley Act. John answered numerous questions about the challenges faced by auditors in providing this service. He also gave insights into public companies’ needs to have the systems in place that allow management to assert that their controls are effective and for auditors to test managements’ assertions. The session was one of the highest attended CPE sessions in recent history with 54 faculty participants. We appreciate KPMG’s support in helping us gain practice insights into this new assurance service. Thanks to the CPE Committee: Mark Zimbelman (Chair), Bill Heninger, and Greg Burton (all at Brigham Young University).
I want to highlight one feature of the Midyear Conference program that may be underappreciated, and that is the granting of the Auditing Section’s awards. The Section gives five awards annually, celebrating the achievement of members in teaching, research, and service. This year’s winners, who are at very different stages of their careers, are all truly inspiring in their talent and dedication to the pursuit of knowledge and the education of students at all levels. Andy Bailey, this year’s winner of the Distinguished Service Award, has served as President and Historian of the Auditing Section, as well as President of the American Accounting Association (among many other key roles). We were pleased to announce at the Midyear Conference that Andy has just been selected as Deputy Chief Accountant at the Securities & Exchange Commission. Among his responsibilities will be to serve as a liaison between the SEC and the PCAOB. We all wish him well in that endeavor. Mike Gibbins (University of Alberta) and Jim Newton won the Notable Contributions to the Auditing Literature Award for their 1994 Journal of Accounting Research article, "An Exploration of Complex Accountability in Public Accounting." In accepting the award, Mike told us that Jim and his wife have moved to South Africa to manage a charitable foundation devoted to helping children with AIDS. (For those of you wishing to know more about this foundation, its address is
http://www.edzimkulu.org/.) Dan Simunic (University of British Columbia) is this year’s winner of the Outstanding Educator Award. Dan was recognized for his many contributions to auditing education, both in terms of his teaching as well as his research. (As noted elsewhere is this Report, Dan has been selected as the incoming Editor of Auditing: A Journal of Practice & Theory.) Christine Earley (University of Connecticut) won this year’s Innovation in Auditing and Assurance Award, for developing course materials on integrating integrity into the auditing course. Kathryn Epps (Mercer University) is this year’s winner of the Outstanding Dissertation Award for her thesis paper entitled, "Performance Evaluation in Concurring Partner Review: A Test of a Cognitive Model." Kathryn’s dissertation chair was Bill Messier (Georgia State University), who was recognized with the Outstanding Dissertation Chair Award.
Let me turn now to a report on the Section’s Business Meeting, which took place at the Midyear Conference. The Section’s members voted this fall to fill the offices of VP–Academic (President–Elect), VP–Practice, and Secretary. The 260 members who cast votes elected Mark Beasley (North Carolina State) as incoming VP–Academic (President–Elect), Scott Showalter (KPMG LLP) as VP–Practice (Scott is currently serving in the position, having taken on the role in midterm), and Kay Tatum (Miami University) as Secretary. Mark and Kay will assume their positions at the Section’s luncheon at the AAA Annual Meeting this August in Hawaii.
The Treasurer’s report was also featured at the Business Meeting. As you will note from this report (published elsewhere in this issue), the financial condition of the Section continues to improve. The Section’s cash balance stood at $173,085 on November 30, 2003 (the end of the first quarter of the current fiscal year), up from $87,582 at the same time last year. While some of the increase is due to different timing of certain events across years (given the AAA’s cash basis system), this still represents a substantial increase. Jeff Cohen reported that the improved cash balance results from recent increases in member dues and subscription fees, as well as the escrow of a portion of editorial support fees to support the 25th Anniversary Conference of Auditing: A Journal of Practice & Theory in 2005.
Bill Messier (Georgia State University) presented the Editor’s report for Auditing: A Journal of Practice & Theory, which also appears elsewhere in this newsletter. The September 2003 issue contains articles handled by Bill and his Associate Editors, Mark DeFond (University of Southern California), K. Raghunandan (Florida International University), Hun–Tong Tan (Nanyang Technological University), and Rick Tubbs (The University of Iowa). Also, the September issue contains some articles retained and completed by the journal’s prior editor, Arnie Wright (Boston College) and his editorial team. Our heartfelt thanks to all those involved in the editorial process of Auditing, whose combined efforts have made this journal a very high–quality outlet for our research.
The Business Meeting also featured reports by Chairs of the Section’s standing committees, through which much of the Section’s work is done: Auditing Standards Committee, Communications Committee, Education Committee, Membership and Regional Coordinators Committee, and Research Committee. Dana Hermanson, Chair of the Auditing Standards Committee, noted that this fall, the ASC has written comment letters on the proposed COSO Enterprise Risk Management framework, and the PCAOB’s internal control and documentation standards exposure drafts. The COSO comment letter was published in the The Auditor’s Report, Fall 2003. The internal control and documentation exposure draft comment letters appear elsewhere in this issue. Future comment letters will be posted to the Section’s website as soon as they are written, with email notification to Section members. This will ensure that the comment letters are available to you in a timely manner, so that you may consider them when preparing your teaching materials. The ASC also cosponsored the 2004 MYC panel session on national and international auditing standards, described above.
Jeff Payne (University of Oklahoma), Chair of the Communications Committee, reported that the redesign of the Section’s web page was completed. Also, the Communications Committee will now manage the distribution of complimentary issues of Auditing to VIPs, including standard setters, members of Congress, financial press reporters, etc.
Don Tidrick, Chair of Education Committee, presented its report. Committee activities include publishing summaries of educational resources in The Auditor’s Report column, "Have You Seen These Educational Resources?" Columns in the current year include resources for teaching auditing and accounting ethics appeared in The Auditor’s Report, of Fall 2003 and resources for teaching internal auditing appearing in this issue. The Education Committee’s next initiative is to compile information regarding ideas for group projects in the auditing course. The Education Committee also sponsored the Midyear Conference panel session on how auditing faculty should consider the firms’ current audit approaches in their courses.
Julia Higgs (Florida Atlantic University), Vice Chair of the Membership and Regional Coordinators Committee, presented the Committee’s report for Chair Dave Sinason (Northern Illinois University). The Membership Committee report voiced concern that educators from smaller, more teaching–oriented schools are not well represented within the Section. They are proposing three initiatives: (1) giving free memberships in the Section to new auditing faculty, (2) promoting Section membership at the AAA New Faculty Consortium, and (3) encouraging members from smaller and nonresearch schools to be more involved in Section leadership. To investigate this issue, the Executive Committee has authorized a study of the membership composition of the Section, and of its committee structure. Also, we are pleased to announce that the Executive Committee approved the granting of free two–year student memberships in the American Accounting Association and the Auditing Section to all Doctoral Consortium attendees. This additional benefit will be extended to the participants of the 2004 Doctoral Consortium, as well as to those of future consortia.
Steve Salterio, Chair of the Research Committee, reported that under his leadership, this Committee has had three goals: (1) to obtain more exposure for auditing research, (2) to increase Section members’ access to research data and subjects, and (3) to provide information to members on opportunities for further development of their research skills. The Research Committee has had more success with respect to the first and third of these goals. The Committee has published articles in The Auditor’s Report on obtaining more exposure for auditing research and on developing new research skills. Further, the Committee sponsored the panel session in the 2004 Midyear Conference on field research in auditing and corporate governance.
Next, I want to remind you of our upcoming meetings. This year’s AAA Annual Meeting will be held in Orlando, Florida, on August 9–11. Mike Ettredge (University of Kansas) is the Auditing Section’s liaison to the AAA Annual Meeting Planning Committee. Mike reports that he has received 80 paper submissions and one special session proposal. (The number of submissions is down somewhat from last year, primarily due to the relatively large numbers of papers from Asia and Australia that were submitted to last year’s Hawaii meeting.) There should be an excellent program for Auditing Section members in Orlando, and we hope the Section will be well represented. Be sure to mark your calendars for the Section’s usual Monday lunch.
Our next Midyear Conference will be held at the Astor Crowne Plaza Hotel, in New Orleans, on January 14–15, 2005. Preceding the Midyear Conference on January 13 will be a separate research conference occasioned by the 25th anniversary of Auditing: A Journal of Practice & Theory. The call for papers for the 25th Anniversary Conference appears in this issue. Papers accepted for the 25th Anniversary Conference will appear in a supplemental issue of Auditing. Papers submitted to the 25th Anniversary Conference and not accepted will be forwarded to the Midyear Conference program chairs, Billy Soo (Boston College) and Mark Peecher (University of Illinois), unless the authors direct otherwise. There will not be a separate registration fee for the 25th Anniversary Conference (i.e., the Midyear Conference registration fee will cover both events). We hope that this very special event will signal the pride that we all take in the quality of the Auditing journal, and in its value to the practitioner and academic auditing communities.
Looking a bit further down the road, Linda Mc Daniel (University of Kentucky), President–Elect, announced at the Business Meeting that the 2006 Midyear Conference will be held jointly with the AAA International Section. The location is to be determined, but according to our normal rotation, will probably be held in the Western U.S. The idea of a combined meeting was proposed to the Executive Committee by the International Section. We appointed a Task Force to study the proposal, headed by Jeff Cohen (Boston College), and also consisting of Mark DeFond (University of Southern California), Todd DeZoort (The University of Alabama), and Morley Lemon (University of Waterloo). The Task Force responded favorably to the proposal, and the Executive Committee voted to approve a combined meeting with limited overlap (about one–half day). Planning for the meeting will go forward under the leadership of Mark DeFond and Todd DeZoort, 2006 Midyear Conference program chairs.
Finally, I want to report on activities that the Executive Committee has undertaken with regard to liaisons with auditing practitioners and regulators. These interactions are very crucial for auditing educators, in two basic ways. First, they facilitate communication of current information on the auditing environment, which keeps our teaching and research up to date. Also, this interaction enables auditing professionals and regulators to be informed by the insights we provide, which come from our scholarship and from our teaching experience. One very important means of accomplishing these goals is through our Practice Advisory Council (PAC). The PAC is composed of individuals from various auditing firms and professional organizations. There are two key items currently under discussion at the PAC: (1) a research initiative, involving PAC sponsorship of research on specific topics of importance to the profession, possibly including assistance with access to data; and (2) an education initiative, involving close interaction with academics to develop education–oriented events for meetings and educational materials. I hope to be able to provide further details on these initiatives very shortly.
Our other main initiative involves developing a close relationship between the Auditing Section and the Public Company Accounting Oversight Board. Joe Carcello (University of Tennessee), Past President, reported on the status of the Section’s approach to the PCAOB at the Business Meeting. The Executive Committee is working on several areas for involvement with the PCOAB and its staff: (1) interaction through the Section’s Auditing Standards Committee, (2) assisting the PCAOB with identifying members of the Auditing Section who are willing to serve on the Board’s Standing Advisory Group; (3) urging the PCAOB to sponsor an Academic Accounting Fellows Program, and (4) in the longer term, promoting PCAOB sponsorship of funded research projects. The Auditing Standards Committee has been successful to date interacting with the PCAOB, and has written comment letters on two PCAOB Exposure Drafts. The comment letters were well received by PCOAB members and staff. We submitted a set of nominees for the Standing Advisory Group, which should be named within the coming months. However, the accounting fellows program and funded research projects are delayed until the PCAOB’s organizational structure is fully operational.
In closing, I extend my sincere thanks to the members of the Executive Committee, and to members of other Section committees as well, for their diligence in performing all the tasks necessary to achieving the Section’s goals.