Volume 3, Issue 10

October 2009

I. CAQ Individual Investor Survey: Confidence in U.S. Capital Markets Stabilizes

The Center for Audit Quality (CAQ) recently released the results of its 3rd Annual Individual Investor Survey. Despite two years of tumult in the global economy, the survey found that investor confidence in the U.S. capital markets has leveled off after dropping precipitously between 2007 and 2008.

The three years the CAQ has polled individual investors has coincided with tremendous economic uncertainty and market volatility. As the credit crisis in 2008 threw the global economy into a recession, investor confidence in U.S. capital markets declined sharply from 2007 (84 percent) to 2008 (70 percent). Yet as the economic crisis continued into 2009, investor confidence stabilized.

Roughly three-quarters of investors, surveyed in recent weeks, expressed confidence in the U.S. capital markets, a three percent increase from last year. Respondents’ confidence in investing in U.S. publicly-traded companies held steady at 75 percent. Confidence in audited financial statements released by public companies declined slightly to 70 percent, down three percent but within the survey’s margin of error.

“The survey findings demonstrate remarkable investor resilience following a period of great economic instability,” said CAQ Executive Director Cindy Fornelli. “The three years that we have surveyed investors coincide with unprecedented economic and market turmoil. Yet investor confidence in the U.S. capital markets, public companies and audited financial statements remains fundamentally strong. This stabilization in confidence mirrors recent positive economic news and demonstrates the resiliency of investors.”

In “Survey: Investors Want Enforcement, Not New Regulators,” Compliance Week’s Tammy Whitehouse said investors “consider enforcement (by financial market regulators) more important than regulatory action to minimize the likelihood” of a future economic crisis and that “44 percent (of investors) said capital markets need tougher enforcement of existing regulations while only 22 percent said the markets need a new rulebook for financial regulation.”

The global impact of the economic crisis also influenced investors’ opinions on international regulation and standard-setting. According to the survey results, investors overwhelmingly agree (71 percent) that the financial crisis of 2008 demonstrates the need for a more globally consistent approach to standards, regulation, and enforcement in such areas as accounting, auditing, ethics and supervision.

The telephone survey of 1,000 investors was conducted between August 27 and September 3, 2009, by The Glover Park Group. The margin of error was +/-3 percent. The survey summary and the complete questionnaire are posted on the CAQ’s Web site, http://thecaq.org/newsroom/pdfs/2009investorsurvey.pdf.

II. CAQ Wraps Up AS 5 Webcast Series

The CAQ’s 3-part Webcast series on the implementation of PCAOB Auditing Standard No. 5 (AS 5) recently concluded with “Evaluating Deficiencies and Wrapping Up the Audit.” Panelists for this webcast included Wendy Cama, Partner at Crowe Horwath LLP; Brian Croteau, Partner at PricewaterhouseCoopers LLP; and Greg Wilson, Deputy Director of Inspections at the Public Company Accounting Oversight Board. CAQ Executive Director Cindy Fornelli moderated the webcast.

The panelists addressed key AS 5 guidance; evaluating control deficiencies individually and in the aggregate; forming an opinion on the effectiveness of internal control over financial reporting (ICFR) under AS 5; obtaining written management representations; required communications to the audit committee and management and auditor reporting on ICFR.

Approximately 2,500 individuals registered for the AS 5 Webcast series, which is designed to inform smaller public companies and their auditors about compliance with auditor attestation requirements under Section 404(b) of the Sarbanes-Oxley Act of 2002. The series featured auditors and regulators with experience complying with AS 5, who shared their wisdom on approaching an integrated audit for the first time.

Panelists in the first two Webcasts addressed the fundamentals of an integrated audit, including: using a top-down, risk-based approach in planning tests of controls; performing tests of controls; and an overview of available resources for auditors conducting an audit of internal controls over financial reporting.