Volume 4, Issue 9

September 2010

I. The View from Main Street

Despite fluctuating markets over the past year, individual investors remain confident in investing in U.S. companies that are publicly traded and in audited financial information, according to the “Main Street Investor Survey,” the Center for Audit Quality’s (CAQ) fourth annual survey of the investing public.

For the third year in a row, 75 percent of respondents in the individual investor survey said they have confidence investing in U.S. public companies. Similarly, investor confidence in audited financial information released by public companies remains strong at 70 percent, unchanged from last year (see chart).

“This is the third year of a depressed economy and the fact that investors continue to have fundamental confidence in publicly traded companies and the capital markets is encouraging," Executive Director Cindy Fornelli told the media during a September 9 briefing.

Investor confidence in capital markets declined somewhat, with confidence in U.S. capital markets dropping from 73 percent in 2009 to 68 percent in 2010. Confidence in capital markets outside the United States continued a decline that began in 2008, falling 10 percentage points in the past year to 47 percent. Roughly half (48 percent) of investors say they had changed their investment behavior in the previous six months in reaction to the economy, down from 61 percent in 2009.

When asked who does the best job of protecting their interests aside from themselves, one third of investors (32 percent) cite public company auditors as their first or second choice, with 16 percent of respondents selecting auditors as the single group that does the best job.

The telephone survey of 1,001 investors was conducted July 14-22, 2010 by The Glover Park Group. The margin of error was +/-3 percent. Investors were defined as those with investments valued at $10,000 or more.

II. Cindy Fornelli Discusses Financial Reporting Fraud with The Deal

Cindy Fornelli visited with The Deal’s Mary Kathleen Flynn recently to discuss the CAQ’s anti-fraud initiative and soon-to-be-released report.

Fornelli explained that three conditions can exist within a company that may lead to financial reporting fraud: the opportunity commit fraud; the pressure to commit fraud; and the rationalization of behavior. In a video interview for the financial media company’s Web site, she stressed the need for more communication among members of the “financial reporting supply chain” as part of a collaborative effort to more effectively deter and detect fraud.

The CAQ's report, entitled “Deterring and Detecting Financial Reporting Fraud – A Platform for Action,” will be issued October 6.

III. Next CAQ Webcast to Feature SEC’s Staff Perspectives on Issues Facing Smaller Public Companies

In keeping with our vision of enhancing investor confidence in the global capital markets by fostering high quality performance by public company auditors, the CAQ next month will host the second in a series of Webcasts of special importance to smaller public company audit firms.

Moderated by Cindy Fornelli, the Webcast will feature representatives from the SEC’s Division of Corporation Finance. From financial reporting issues facing smaller issuers to key developments at the SEC, the October 12 Webcast – like the CAQ’s PCAOB-focused Webcast last May – will be of particular benefit to public company auditing firms operating in the smaller business environment.

Joining Fornelli for the two-hour program will be: Wayne Carnall, SEC Division of Corporation Finance, Chief Accountant; Steven Jacobs, SEC Division of Corporation Finance, Associate Chief Accountant; and Brian Bhandari, SEC Division of Corporation Finance, Accounting Branch Chief.

IV. CAQ’s 2nd Annual Research Symposium Brings Auditors and Academics Together

Feedback from attendees of the CAQ’s 2nd annual Research Symposium, “Audit Research Meets Audit Practice,” was overwhelmingly positive. The August 1 symposium, hosted by Deloitte LLP, provided a forum for coordinating academic research with the practical realities of public company auditing. Shown preparing for their panel discussion on the topic of fraud deterrence are (left to right): Mark Beasley of North Carolina State University; John Desmond of PricewaterhouseCoopers LLP; Sam Ranzilla of KPMG LLP; Randy Fletchall of Ernst & Young LLP; and John Fogarty of Deloitte LLP.