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The Center for Audit Quality’s (CAQ) biannual Audit Partner Pulse Survey, now in its second year, asked audit partners at the country’s leading public company audit firms about the current business environment in the United States. Topics covered include U.S. economic health, challenges and risks facing businesses, and how leaders are adjusting their strategies in the current environment. The survey also gained insight into audit partner perspectives on emerging opportunities and risks, including the accounting talent shortage, cybersecurity, and artificial intelligence (A.I.).

Audit partners have extensive experience and understanding of how the companies they audit respond to risks and pressures that affect their businesses and the industries in which they operate. By the nature of their work, public company audit partners have unique insights into how America’s businesses are operating in the current environment. In the fall survey, conducted in September and October 2023, continued concerns over macroeconomic matters like inflation, as well as domestic and global political upheaval, were fresh on the minds of audit partners.


Economic Outlook

Overall Economic Views

In general, audit partner perceptions of the economy continue to improve. In the Fall 2022 survey, a high of 57% expressed pessimism for the U.S. economy over the next 12 months. By the Fall 2023 survey, overall pessimism dropped to a low of 27%.


In the uncertain economy, inflation continues to be a top economic issue despite the Federal Reserve’s attempt to tame inflation with interest rate hikes. Two-thirds of audit partners surveyed anticipate the current inflation cycle will have an impact on companies for longer than 12 months, similar to responses in the Fall 2022 survey.

Consistent with this outlook, the top priorities noted for the next three months were cost management (57%), financial performance (52%) and growth (40%).

Negative Effects of Rulemaking

New to the Fall 2023 survey, audit partners were asked about the impact of regulatory action on businesses. Most audit partners said regulation has had a discernable effect on business, with the vast majority (74%) concluding the effects have been negative under current standard setting or rulemaking in the U.S.

When audit partners were asked how companies have been negatively affected, they cited compliance costs and legal and regulatory risk as the top two issues. Another negative effect of rulemaking reported in the survey was the talent and experience gap, which also aligns with student perceptions of the regulatory environment. Recent CAQ talent pipeline research found the regulatory environment has made pursuing CPA licensure less appealing.

Climate in Focus

While U.S. businesses await a final rule from the SEC on climate disclosures, they are bracing for new reporting requirements and working to comply with new standards. In October 2023, California enacted legislation that will require large companies “doing business” in the state to disclose Scope 1, 2, and 3 greenhouse gas emissions and information about climate-related financial risks. The initial reporting requirements will come into effect starting January 1, 2026, and certain disclosures will be subject to assurance requirements.

In addition, the International Sustainability Standards Board issued inaugural global sustainability disclosure standards in June 2023, creating a global baseline for disclosing the effect of climate-related risks and opportunities. The European Union’s Corporate Sustainability Reporting Directive (CSRD), which is expected to affect a number of U.S. companies, requires detailed reporting related to environmental, social, and governance topics and independent assurance. Compliance with the CSRD will be phased in and become effective for the first reporting companies starting January 1, 2024.

By far, environmental and climate-related rulemaking are receiving the most attention (65%), followed by compliance with laws and regulations (49%), driven by the recent proposal of the Public Company Accounting Oversight Board (PCAOB). This result is not surprising, as climate disclosures are expected to be subject to rigorous regulations that are likely to result in enhanced reporting requirements, potentially increasing costs of compliance and requiring changes in business operations.

Expanding Disclosures

As the call for additional and increased levels of disclosures continues from investors, analysts, and other users of financial information, audit partners say companies are voluntarily increasing or enhancing disclosures over the next 12 months. Top areas for expanded voluntary disclosures are environment and climate (45%), cybersecurity (44%), and financial performance (41%). According to the CAQ’s S&P 500 10-K Analysis, the number of companies mentioning climate-related information in their 10-K increased roughly 5% from a similar analysis of 2021 10-Ks.

Proposed Standard on NOCLAR

As noted above, another area of standard setting that companies are paying close attention to, according to partners surveyed (49%), is the auditor’s responsibility for the company’s non-compliance with laws and regulations (NOCLAR). The PCAOB received 139 comment letters in response to its recent proposal, which has garnered the attention of a diverse group of stakeholders, the majority of whom (78%) object to the proposal according to a CAQ analysis of comment letters.

Under current auditing standards, auditors make inquiries to management and the audit committee concerning the company’s compliance with laws and regulations and knowledge of violations or possible violations of law or regulations. A vast majority (90%) of audit partners in this survey report that under current standards they do have conversations with company management and boards about material noncompliance with laws and regulations.

In addition, fraud risk is not increasing according to most audit partners surveyed as a vast majority (77%) said fraud risk remained unchanged over the past 12 months.

When it comes to fraud prevention, companies continue to increase their use of technology such as A.I. and machine learning to manage risk, fraud, and cybersecurity threats (59%), followed by modernizing internal controls to address remote work (39%), and an increased focus on fraud by internal auditors and audit committees (38% each respectively).

Cybersecurity as a Concern

Cybersecurity was the third largest economic risk facing companies over the next 12 months according to audit partners, reflecting an increasing trend – significantly rising from 32% in the Fall 2022 survey to 52% in this survey.

Cyber also moved up on the list of voluntary disclosure areas to second (44%) as indicated in the Expanding Disclosures section, from third in the Spring 2023 survey. This increase coincides with the SEC’s final rule requiring disclosure of material cybersecurity incidents on Forms 8-K and periodic disclosure of a registrant’s cybersecurity risk management, strategy, and governance in annual reports. Strengthening cyber-related disclosure controls (65%) and enhancing the risk management process (62%) are by far the top two actions that companies are using to prepare for the disclosure requirements outlined in the SEC’s rule.

Human Capital and the Accounting Pipeline

There has been increased attention in the accounting and auditing profession (and in the media) about the shortage in the number of accountants, and companies are focused on this matter as well as more broadly addressing workforce skills. Companies are addressing the shortage of talent with initiatives to attract a new and more diverse generation of employees, along with other recruitment practices. While half (51%) of companies are focused on upskilling, approximately 1 in 3 are increasing compensation and workplace flexibility for current employees despite significant drops in both since Fall 2022.

The AICPA recently reported a continued, but stabilizing, drop in university enrollments of accounting majors and accounting graduates. Not only is this a critical issue for the future of the profession, but, in the near term, it also creates increased workload and pressure on accountants (78%) as well as increased challenges in recruitment and/or retention (76%), according to audit partners.

As there are fewer accountants entering the profession, succession planning becomes increasingly important. The survey indicated the top actions taken for succession planning within accounting and financial functions are providing cross-training opportunities (59%) and leadership training and development programs (46%).

Other Observations: A.I. Interest Grows, but Barriers to Adoption Exist

A.I., particularly large language models, is a hot topic as companies consider whether and how to use the technology. A majority (62%) of audit partners report that business operations are the primary areas where companies would deploy generative A.I. technologies, with financial reporting at 32%.

The European Union has already passed legislation related to A.I., with the June 2023 approval of the Artificial Intelligence Act by the European Parliament. Although the U.S. has not yet passed legislation, President Biden issued an Executive Order in October 2023 on A.I. standards.

According to audit partners, although A.I. was lower on the list of companies’ priorities over the next 12 months, it is high on their list of challenges. Top challenges for deploying generative A.I. in the financial reporting function were data quality concerns (47%); the maturity, or lack thereof, of the technology (45%); data security risks (42%); and gaps in talent and expertise (40%) to implement and manage the technology.

Download the full report PDF for a detailed appendix of all survey questions and responses.

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