November 16, 2022

Audit Partners See US Businesses Adjust Cost Management and Labor Strategies in Response to Economic Challenges

Audit Partners See US Businesses Adjust Cost Management and Labor Strategies in Response to Economic Challenges

Wednesday, November 16, 2022

Washington DC, November 16, 2022 – Rising inflation, labor shortages and ongoing disruptions to the supply chain are causing the leaders of US public companies to adjust their strategic priorities, according to a survey of audit partners conducted by the Center for Audit Quality (CAQ). The Audit Partner Pulse report, a biannual survey of audit partners, provides independent and objective perspectives on a range of topics, including the overall health of the economy and business transformation.

“With ongoing concerns about inflation and a potential recession, it’s no surprise that business leaders are re-examining their growth strategies,” said Julie Bell Lindsay, Chief Executive Officer, Center for Audit Quality. “But the ways they’re adjusting, including throttling back on mergers and acquisitions and scaling back on hiring, stood out to us and suggest that cash flow is a top priority, at least in the short term.”

The nature of their work allows audit partners to obtain unique insights across a broad spectrum of industries. Below are key findings from their observations.

Audit partners’ outlook for the economy remains pessimistic while new risks have emerged:

  • 57% of auditor partners are pessimistic to very pessimistic on the outlook for the US economy, a 13-point increase since public company auditors were surveyed in the spring.
  • Concerns over increasing costs have grown, with 75% of audit partners identifying inflation as the largest economic risk to public companies in their industry sector, followed by labor shortages and supply chain issues.

Public companies are shifting strategies to mitigate negative impact  

  • While public companies were focused on mergers and acquisitions (M&A) in the spring, M&A activity has declined according to audit partners.
  • Rather, audit partners indicated that re-evaluating or decreasing spend, focusing on cash flow and liquidity and decreasing revenue and growth forecasts are the top mitigation strategies public company management is taking in response to economic challenges.
  • Overwhelmingly, audit partners reported that public companies’ growth strategies are focused on the US (88%) vs. abroad (12%).

Human capital actions are also shifting

  • While labor shortages are still a large risk for public companies, business leaders have migrated to focusing more on investing in existing talent than attracting new talent.
  • Increasing flexibility in the workplace, increasing compensation and upskilling workers are the top actions audit partners surveyed have observed business leaders taking to retain their employees.
  • Reducing headcount was another trend observed by survey respondents as an action taken by or being considered more frequently by public companies with a 14-percentage point increase since the spring survey (22% up from 8%).

Emerging risks:

  • Audit partners observed that business leaders at US public companies are taking several other factors into account when developing their corporate strategies:
    • Resource scarcity (86% of audit partners)
    • Emerging technology (63% of audit partners)
    • Climate change (59% of audit partners)

Download the report, Fall 2022 CAQ Audit Partner Survey, to access the full survey results.

About the Center for Audit Quality
The Center for Audit Quality (CAQ) is a nonpartisan public policy organization serving as the voice of U.S. public company auditors and matters related to the audits of public companies. The CAQ promotes high-quality performance by U.S. public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions.