The Center for Audit Quality (CAQ)
Request for Proposals For Academic Research in Auditing

Proposal Deadline: Friday, March 1, 2013, 8:00 pm EST

The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors' objectivity, effectiveness, and responsiveness to dynamic market conditions.

The CAQ is committed to providing opportunities for the academic community to work closely with the profession. In 2008, the Center established a Research Advisory Board (RAB), comprised of representatives from academia and the profession. In the past four years, the RAB has awarded a number of grants for independent academic research projects on several topics of interest to the profession.

The CAQ also convenes an Auditing Research Symposium that provides an opportunity for a robust dialogue between the profession and academia on issues facing the profession. At the 2012 CAQ Symposium, senior practice leaders and academic scholars participated in panel presentations and breakout discussions on audit quality indicators and the current going concern uncertainty model. The CAQ is interested in academic research that can help to inform the discussion on these topics.

TOPICS: For 2013, the CAQ invites proposals for academic research in auditing and encourages the development of projects that address one of the topics listed below. These topics, and the examples presented, are illustrative of areas that the CAQ believes will prove helpful to practice.

AUDIT QUALITY INDICATORS: Discussions at the Symposium explored the perspectives of various stakeholders with respect to audit quality: regulators, audit committees, company management, investors/creditors, and the audit firms themselves. Key stakeholders have different views on how to assess audit quality and different reasons for wanting the information. There is a large body of academic research on audit quality, but no common definition and no consensus on appropriate metrics of audit quality. Audit firms view audit quality as a continuous process, and utilize a wide range of information to drive improvements in audit methodology, training, supervision, monitoring, etc. Other stakeholders may place greater emphasis on audit outcomes (e.g., restatements, litigation, PCAOB inspection results, discretionary accruals, etc.) or inputs (e.g., experience of audit staff, industry expertise, audit hours, etc.). Symposium attendees were challenged to explore audit quality indicators from the viewpoint of various stakeholders - how the stakeholder group would use the information, what quality indicators would address that need, and potential issues that would impact a decision to publicly disclose those indicators. The CAQ is interested in research that would provide perspective on the matters discussed above, as well as perspectives on key contributors to audit quality at a firm, engagement and profession level.

GOING CONCERN: Recently the FASB has undertaken a project to consider requiring companies to consider and disclose risks related to the ability to continue as a going concern. At the same time, the PCAOB has indicated that it will undertake a project to evaluate the audit standards regarding the consideration of an entity's ability to continue as a going concern. Discussions at the Symposium explored the utility of the current binary model, the definition of substantial doubt, and the practicality of the 12 month time period used in assessing the ability of a company to continue as a going concern. There is a high proportion of false positives under the current model - companies whose auditors' report includes a going concern uncertainty modification tend to survive, but there exists little data to provide an understanding of why that is. Also discussed was whether management should be required to identify, assess and disclose challenges related to the entity's ability to continue as a going concern in order to provide users of the financial statements with perspectives on those challenges prior to them reaching a "substantial doubt" threshold. However, there was some concern regarding whether such disclosures would be duplicative of other risk disclosures included in a public company filing (e.g. disclosure of risk factors, etc.). The CAQ is interested in research that identifies issues with the current auditor's reporting under going concern, such as the root cause of false positives, the practicality of the 12-month assessment period and the effectiveness and consistency of the interpretation of when "substantial doubt" is reached. The CAQ is also interested in research that provides perspectives on how users evaluate risks related to a company's ability to continue as a going concern, including the current auditor-driven reporting as well as other risk information included in public company filings.

ADDITIONAL TOPICS: Other topics of interest to the profession include the following:
- Professional Skepticism (PS) is a key component of audit quality. There are various definitions of professional skepticism in the standards and the academic literature. Audit firms continually seek ways to foster the proper application of skepticism in practice. The following questions are illustrative of PS issues that are of interest to practice:
What influences the ability of senior audit team members to be skeptical in the field?
What would enhance the application of skepticism in the field?
What are effective ways to document the consideration of alternatives/evidence such that the audit documentation demonstrates skeptical thinking in the assessment of audit evidence?
Does the increased use of specialists impact skepticism? Do specialists exhibit the same level of professional skepticism as other members of the engagement team?
How do cultural normsimpact auditor skepticism in multi-jurisdictional audits?
Does the use of more prescriptive auditing standards in the U.S. impact the degree of skepticism? Do differences exist in the regulatory structure/ mindset across other jurisdictions that promote or impede skepticism?
How does the increased use of electronic vs. face-to-face communications impact the ability to be skeptical?
- Professional judgment is used by preparers and auditors in the application of financial reporting standards. The CAQ is interested in academic research that can provide insights into how preparers and auditors apply professional judgment and what factors might impact the application of judgment. Some specific areas of focus include the evaluation of the reasonableness of estimates of fair values, impairments, development stage intangibles, contingent liabilities; the auditability of accounting estimates; the effects of a principles-based versus a rules-based approach to accounting/auditing standards).
- Fraud Deterrence and Detection continues to be an area of key importance to the CAQ, and the focus of its major collaborative partnership with the Financial Executives International, The Institute of Internal Auditors, and the National Association of Corporate Directors. Broad areas of interest include understanding the conditions that contribute to fraud; mitigating the risks of short-termism on financial reporting; the role of information technology in facilitating the deterrence and detection of fraudulent financial reporting; and the effectiveness of whistleblower programs.
- Impact of communication and information technologies on the audit (e.g., impact on audit such as determinations of the sufficiency of evidence; confirmation process - areas of use, reliability of information, response rates, form of confirmation requests, impact of third party service providers, challenges associated with an electronic form of confirmation; communications between audit staff and company personnel.)
- Value of the audit (e.g., debt and equity market effects; the value proposition of audited financial statements; the view of stakeholders.)

Note: The examples above under each topic and are illustrative. The CAQ will consider proposals for research with a domestic or international dimension on any of these topics. Any appropriate research method can be employed.

PAPER SUBMISSION PROCEDURE: Proposals should contain the following elements:
- Statement of the Research Question/Problem - proposals should include a description of the general question that the research will address and how the proposed project relates to that question/problem (what parts of the question the project will address). It should also describe how the research will inform practice.
- Theory-Proposals should include a well-developed narrative about the theory behind the proposed research question(s) to be addressed.
- Relationship to Existing Research - How does the proposed project differ from existing research? Explain how the proposed study builds on the extant research on the topic.
- Hypotheses/Specific Research Questions - What specific hypotheses will be tested/questions addressed?
- Method-How will the research be conducted? Proposals should provide a detailed research plan.
- Resource Needs - What resources are required? Proposals should articulate what resources will be needed to complete the study (e.g., funding request, access to profession staff, secondary data sources).

While there is no restriction on the number of pages, proposals should be focused. In addition, researchers are strongly encouraged to include an executive summary (no longer than two-pages) that is written for a non-academic audience. Other required information includes the following:
- Itemized budget including budget rationale. Note that the CAQ requires a waiver of university overhead and does not pay for travel to conferences.
- Detailed timeline with milestones and deliverables.
- Identification of proposed members of the research team (e.g., project director, research assistant, staff scientist, faculty), including a brief description of their role.
- Level of effort (in hours and fees) proposed for each of the research team members.
- Curriculum vitae for the proposed project director and other key members of the research team.
- Other information that the research team believes will assist the review of the proposal.

The number of projects selected for funding will depend on the quality and number of proposals received and the total dollar amount of funds requested. The RAB anticipates making available a total of $200,000 to fund multiple projects during this submission period.

To be considered, proposals should be received by 8:00 pm, Friday, March 1, 2013. Please send proposals to:

Margot Cella
Center for Audit Quality
1155 F Street, NW, Suite 450
Washington, DC 20004

Electronic copies may be submitted by the deadline to: researchproposals@thecaq.org

Proposals will be reviewed by the CAQ's Research Advisory Board. Grants will be announced on or about May 31, 2013.