Core:Section

Our capital markets are fueled by the unseen work of auditors who enhance the trust and confidence of company-reported financial information, giving the people that drive our economy the confidence they need to thrive.

In an effort to engage capital market stakeholders and better understand their information expectations, the CAQ commissioned KRC Research to conduct qualitative research with institutional investors whose portfolio consists primarily of equities in North America, working in a range of...

In an effort to engage capital market stakeholders and better understand their information expectations, the CAQ commissioned KRC Research to conduct qualitative research with institutional investors whose portfolio consists primarily of equities in North America, working in a range of investment settings from family offices to pensions and large banks.

The research was primarily designed to:
<ul>
 	<li>Understand what information institutional investors seek regarding public company auditing and the audit process, and</li>
 	<li>Explore attitudes toward potential standards and regulations related to additional reporting or audit requirements.</li>
</ul>
This research was also commissioned to understand how institutional investors perceive the state of corporate reporting and what they are looking for when it comes to existing and emerging types and sources of information.

<a href="https://thecaqprod.wpenginepowered.com/wp-content/uploads/2023/11/caq_perspectives-on-corporate-reporting-the-audit-and-regulatory-environment_2023-11.pdf">Download the full report</a> now to explore perspectives of institutional investors, who utilize the work of public company auditors, on corporate reporting, audit quality, and potential standard setting topics.

Perspectives on Corporate Reporting, the Audit, and Regulatory Environment: Institutional Investor Research Findings

Auditors

Global

Policymakers

Audit Committee

Preparers/Issuers

Academics

Investors

Publications

Cybersecurity

Company Management

Broker Dealers

Audit Quality

Anti-Fraud

Emerging Reporting Areas

On March 28, 2023, the Board issued for public comment a proposal for a new standard, AS 1000, General Responsibilities of the Auditor in Conducting an Audit. Comment letters were due May 30, 2023.

The PCAOB received 28 comment letters, with...

On March 28, 2023, the Board issued for public comment a proposal for a new standard, <a href="https://assets.pcaobus.org/pcaob-dev/docs/default-source/rulemaking/docket-049/pcaob-release-no.-2023-001-as-1000---proposed.pdf?sfvrsn=28304d26_2">AS 1000, General Responsibilities of the Auditor in Conducting an Audit</a>. Comment letters were due May 30, 2023.

<strong>The PCAOB received 28 comment letters, with more than half from accounting firms and related groups.</strong>
<h4>Who responded?</h4>
<img class="wp-image-14163 alignnone" src="https://thecaqprod.wpenginepowered.com/wp-content/uploads/2023/11/2023_11_AS-1000_Chart-1024x317.png" alt="AS 1000 Responses" width="800" height="248" />

In our analysis of comment letters received, key themes are:
<ol>
 	<li>The proposal expands the auditor’s responsibilities despite the Board’s statement that the amendments were clarifications of existing standards.</li>
 	<li>The proposal eliminates key concepts and principles from the extant standards</li>
 	<li>The proposal creates confusion about the auditor’s role and will have other unintended consequences</li>
 	<li>Accounting firms and related groups, among other commenters, oppose the clarification of the meaning of fair presentation and state it is important that the auditor’s evaluation of the presentation of the financial statements be applied within the applicable financial reporting framework.</li>
</ol>
For more details, read our full analysis <a href="https://thecaqprod.wpenginepowered.com/wp-content/uploads/2023/11/caq_comment-letter-analysis-as-1000_2023-11.pdf"><u>here</u></a>.

Comment Letter Analysis | CAQ Analysis of PCAOB Proposed Auditing Standard – General Responsibilities of the Auditor in Conducting an Audit and Proposed Amendments to PCAOB Standards (AS 1000)

Comment Letter

Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

Subscribe for the latest episodes on Spotify,...

Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

Subscribe for the latest episodes on <a href="https://open.spotify.com/show/0Eom56jIKUbXXufaJ98yBX">Spotify</a>, <a href="https://podcasts.apple.com/us/podcast/capital-markets-pulse/id1690673211">Apple Podcasts</a>, <a href="https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5idXp6c3Byb3V0LmNvbS8yMTkyMjg2LnJzcw==">Google Podcasts</a> or <a href="https://music.amazon.com/podcasts/a9d37ab7-2e09-4ce9-93a5-bc0399d25fae">Amazon Music</a>.
<div id="buzzsprout-player-13878243"></div>
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Podcast | Capital Markets Pulse, Episode 4

Blog Post

Podcast

Hosted by Julie Bell Lindsay, CEO of the Center for Audit Quality, Capital Markets Pulse dives into the latest key matters related to the capital markets featuring experts from across the corporate reporting world.

Subscribe for the latest episodes on <a href="https://open.spotify.com/show/0Eom56jIKUbXXufaJ98yBX">Spotify</a>, <a href="https://podcasts.apple.com/us/podcast/capital-markets-pulse/id1690673211">Apple Podcasts</a>, <a href="https://podcasts.google.com/feed/aHR0cHM6Ly9mZWVkcy5idXp6c3Byb3V0LmNvbS8yMTkyMjg2LnJzcw==">Google Podcasts</a> or <a href="https://music.amazon.com/podcasts/a9d37ab7-2e09-4ce9-93a5-bc0399d25fae">Amazon Music</a>.
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Podcast | Capital Markets Pulse, Episode 3

This hour-long webcast will showcase emerging issues facing public companies and their auditors. It will feature representatives from the SEC and PCAOB, followed by discussion panels consisting of public company auditors. Panelists will discuss the development, issuance and implementation of...

This hour-long webcast will showcase emerging issues facing public companies and their auditors. It will feature representatives from the SEC and PCAOB, followed by discussion panels consisting of public company auditors. Panelists will discuss the development, issuance and implementation of auditing standards that are currently underway at the PCAOB. Panelists will also discuss current projects that are the focus of the staff in the SEC’s Office of Chief Accountant.

<iframe title="YouTube video player" src="https://www.youtube.com/embed/Saf_Mnz1E3Y?si=ygLI4TiOTq5TK7QA" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>
<h4>Participants</h4>
<ul>
 	<li>Anita Doutt, Senior Associate Chief Accountant, U.S. Securities and Exchange Commission</li>
 	<li>Barbara Vanich, Chief Auditor, PCAOB</li>
 	<li>Liz Gantnier, Regional Accounting &amp; Auditing Director, FORVIS</li>
 	<li>Mark Shannon, Partner, SEC Regulatory Matters, Crowe,</li>
 	<li>Rohit Elhance, Partner, SEC Regulatory Matters, Grant Thornton LLP</li>
 	<li>Dennis McGowan, Vice President, Professional Practice, CAQ</li>
 	<li>Annette Schumacher, Senior Director, Professional Practice, CAQ</li>
</ul>
<strong>Note: CPE available only to participants who joined the live webcast on October 18, 2023.</strong>

Audit Insider Webinar

Event

&nbsp;

Happy Autumn, Capital Markets Pulse Readers. The season of crisp weather, college football (Go Bucks!), pumpkin spice everything, and, if you’re a public company auditor, new hire orientations, Q3 quarterly reviews, and interim testing.

This fall season is one the audit...

<img class="aligncenter wp-image-13866" src="https://thecaqprod.wpenginepowered.com/wp-content/uploads/2023/06/Header_JBL_1200x400_600x200_FINAL_Website.png" alt="Capital Markets Pulse with Julie Bell Lindsay" width="650" height="163" />

&nbsp;

<strong>Happy Autumn, Capital Markets Pulse Readers.</strong> The season of crisp weather, college football (Go Bucks!), pumpkin spice everything, and, if you’re a public company auditor, new hire orientations, Q3 quarterly reviews, and interim testing.

This fall season is one the audit profession has been watching closely in anticipation of several potential key developments, including the SEC’s final rule on climate disclosures and a final quality control standard from the PCAOB. We’re also awaiting the PCAOB’s 2021 fiscal year end inspection report results, which we know from their preview will reflect higher deficiencies than in previous years (I’ll dive into this topic below). And the PCAOB is currently sifting through comment letters that will likely influence a handful of their important proposals.

This month, I also had the opportunity to revisit a conversation with Wes Bricker and Lynn Turner about SOX and how we can use learnings from the past to inform the future of assurance.

This newsletter is designed to help all members of the financial reporting ecosystem understand how these developments and others impact public company auditing. Keep reading for what’s on my radar this month.

<em>Please note that these perspectives are my own. If this email was forwarded to you, <a href="https://go.thecaq.org/l/834983/2020-04-22/fskb">subscribe here</a> so that you never miss a public company auditing update. </em> ​​​

<img class="aligncenter wp-image-13867" src="https://thecaqprod.wpenginepowered.com/wp-content/uploads/2023/06/Header_JBL_1200x400_600x200_RADAR-1024x256.png" alt="On my radar" width="600" height="150" />
<h2>CAQ Updates</h2>
<h3><img class="size-full wp-image-14128 alignnone" src="https://thecaqprod.wpenginepowered.com/wp-content/uploads/2023/10/2023_09_Header_JBL_1200x400_600x200_PODCAST-website.png" alt="" width="600" height="150" /></h3>
<h3>CAQ Explores How the Past Can Inform the Future of Assurance in New Capital Markets Pulse Podcast Episode with Wes Bricker and Lynn Turner</h3>
Last summer, I had the privilege of speaking with Lynn Turner, previous Chief Accountant at the SEC and current member of the PCAOB’s Investor Advisory Group (IAG) as well as its Standards and Emerging Issues Advisory Group (SEIAG), and Wes Bricker, also a former Chief Accountant at the SEC and current Vice Chair, US Trust Solutions at PwC, about SOX and its lasting impact on the audit profession. In this episode, we returned to discuss where we’re headed in terms of the future of corporate reporting and assurance, opportunities for auditors to better enhance trust in the capital markets, and insights for regulators as they work on new proposals.
<ul>
 	<li><strong>On</strong> <strong>opportunities for auditors to enhance trust</strong>, Wes said, “[We need to] look at the capabilities that build on the core elements of assurance, like trust, integrity, and ethics as a foundation, but also technical capabilities, like technology, understanding AI, understanding privacy expectations. Also of course the way financial disclosures incorporate that information and what investors need from it in order to make pricing decisions as they allocate their capitol, and decisions about governance. To me, Julie and Lynn, that’s where the conversation starts and it helps us to be anchored in the marketplace and where we need to go as a profession.”</li>
 	<li>On the <strong>investor and auditor expectation gap</strong>, Lynn said, “The auditor's role in the markets is to provide verification in investments, to say you can trust the numbers and it’s the whole truth. There really isn’t an expectation gap because investors have always expected auditors to tell them the truth in the numbers, that there’s completeness in the numbers. Unfortunately, due to simple mistakes, due to fraud, or other behaviors, the numbers turn out to not be truthful, and if so, then investors ask the question, did I get the verification that I thought it would get in the first place?”</li>
 	<li>On the <strong>PCAOB’s active standard-setting agenda</strong>, Lynn said, “The PCAOB’s agenda is reflective of the fact that they inherited a set of standards two decades ago that had been written by the profession itself. And the expectation was that they would be updated…the PCAOB has found itself at a point where it needs to do what it was established for, and that is to get these standards updated.” He added, “I think the PCAOB is headed in the right direction, but still has a lot of work to be done, as they haven’t finalized anything.”</li>
 	<li>On <strong>culture and ethics</strong>, Wes said, “It’s distressing to see cultural change and normative behavior shift. We have to work to uphold integrity and trust within the profession…I believe in the short-term talent is a core issue and a core proposition of the profession, bringing in an objective point of view with expertise. Objectivity is long-standing, the expertise changes rapidly, whether it's accounting, audit, technical capabilities, the role of generative AI, and how that comes into a disclosure process – those elements are shifting, and we have to be up to the task. I believe its a profession leadership issue to be up to the task.”</li>
</ul>
Listen to more of their insights here: <a href="https://www.thecaq.org/capital-markets-pulse-episode-2"><em>A Follow-Up Conversation with Former SEC Chief Accountants Lynn Turner and Wes Bricker</em></a> or on <a href="https://open.spotify.com/show/0Eom56jIKUbXXufaJ98yBX">Spotify</a>. And stay tuned for a few more exciting podcasts in the fall, where I interview profession leaders on the accountant shortage and how to attract the next generation of talent as well as the state of audit quality.​​​​
<h2>Talent Updates</h2>
The CAQ is working to enhance diversity across the accounting profession, focusing on the talent pipeline. Each month, I’ll spotlight our efforts on this critical issue.
<h3>Accounting+</h3>
<h4>ICYMI: CAQ Report Shows Significant Barriers Deter Students from Pursuing a Degree in Accounting</h4>
In case you missed it, in July 2023 the CAQ released a new report that sheds light on obstacles undergraduate business students and graduates encounter in pursuing a degree in accounting and CPA licensure.

Some of the interesting findings from the research include:
<ul>
 	<li>While openness to accounting exists at the undergraduate business school level, the most significant reasons for not choosing accounting as a major included a lack of interest or passion for the major (driven in part by negative experiences with introductory accounting classes), higher starting salaries in other majors and students not wanting to pursue the 150 academic credit hours required for CPA licensure. The 150 credit hour requirement was more pronounced for Black and Hispanic accounting majors.</li>
 	<li>The CPA license is highly regarded by both accounting majors and graduates. However, a variety of structural supports are correlated with plans to pursue the license, including encouragement of a professor/mentor and whether a student’s college offered a 150 credit hour program (i.e., an accelerated undergraduate program covering 150 credit hours or a 5-year Masters in Accounting program). Black and Hispanic majors and graduates reported less access to such structural supports.</li>
</ul>
Download the report, <a href="https://www.thecaq.org/increasing-diversity-in-the-accounting-profession-pipeline"><em>Increasing Diversity in the Accounting Profession Pipeline: Challenges and Opportunities</em></a>, July 2023, for more of the results.
<h2>Profession Updates</h2>
<h3><u>Enhancing Confidence in the Audit Profession </u></h3>
<h4>PwC Announces 12 Voluntary Actions to Drive Trust</h4>
Our capital markets evolve constantly, resulting in new expectations from investors and other stakeholders for more transparency, more meaningful data, and more high-quality audits. In light of this, our member firms are demonstrating leadership in these times of change by adapting and pivoting to market conditions.

One such example is PwC, who this month, announced 12 voluntary actions, to be implemented between 2024 – 2026, to enhance the relevance of the audit profession and the quality and confidence in the information that drives the capital markets as well as continue to build trust with clients and stakeholders. The plan includes actions such as:
<ul>
 	<li>Focusing on accountability by providing public certifications by senior firm management regarding quality controls and disclosing compensation at risk provisions for firm leadership,</li>
 	<li>Focusing on audit quality by enhancing procedures related to fraud and going concern, adding additional firmwide training on public interest and the role of the CPA in the capital markets, ethics, independence and objectivity, and fraud/going concern, expanding content in the audit report to cover a broader range of topics, and seeking an audit representation-type letter from the audit committee chair,</li>
 	<li>Enhancing independence by ceasing the provision of certain types of permitted consulting services,</li>
 	<li>Enhancing the audit quality report with additional KPIs and new conflicts of interest reporting, and,</li>
 	<li>Increasing engagement by committing 1 million hours for a multi-year campaign to raise awareness of accounting and audit, establishing an investor advocacy center and annual investor day, and establishing an audit committee institute to provide training on the role of independent accountants.</li>
</ul>
I know our member firms will continue to innovate and aim higher. I will continue to support all our member firms at the CAQ, including PwC, in their efforts to fulfill their public interest role and stay focused on the priority – high-quality audits that deliver to investors and the public decision-useful information from an independent voice.

Read PwC’s full plan here:<a href="https://www.pwc.com/us/en/services/trust-solutions/how-to-improve-audit-profession-confidence.html"><em> PwC US is taking action to enhance confidence in the audit profession</em></a>.
<h3><u><strong>Audit Quality</strong></u></h3>
<h4><strong>The PCAOB and Measuring Audit Quality </strong></h4>
According to the PCAOB’s most recent inspections spotlight (released July 2023), we can expect a higher number of deficiencies in their final inspection reports released this fall – approximately 40% of 2022 audits inspected contained at least one error—a 6% increase over 2021. Based on these findings, Chair Williams has called into question the overall quality of audits.

There is no question that audit quality is a continuous journey and that the profession must always strive to improve. But, inspections data alone does not suggest there is a problem with audit quality, and in this <a href="https://news.bloombergtax.com/tax-insights-and-commentary/audit-quality-is-more-complex-than-one-boards-inspection-data">opinion editorial</a> in Bloomberg Tax, my colleague Dennis McGowan breaks down why:
<ul>
 	<li>In large part, the PCAOB selects audits and audit areas using a risk-based approach, focusing on highly complex areas that are more likely to have material misstatements.</li>
 	<li>Financial statements are also a key benchmark of audit quality. By this measure, audit quality is high. Based on a Center for Audit Quality analysis of PCAOB inspection reports of the largest firms in 2021, none of the audits identified as deficient by the PCAOB resulted in changes to the audit opinion or a restatement of company financials. That means none of the PCAOB-identified deficiencies had a material effect on the auditor’s opinion.</li>
 	<li>This result isn’t an anomaly; over the last 20 years, there has been on average a 10% year-over-year decline in restatements.</li>
</ul>
The profession will always strive to do better and continue to work with the PCAOB and others to push for higher audit quality.

As part of this, we look forward to continuing to engage with the PCAOB on their active standard-setting agenda, including a proposal we recently commented on, the auditor’s responsibility with respect to <em>A Company’s Noncompliance with Laws and Regulations</em>, or “NOCLAR.” To further enhance and maintain high levels of audit quality, my hope is that the significant feedback from the public on this proposal –including our comment letter for audit committee sign on that received signatures from <strong>200 audit committee members from nearly 200 public companies with over $2T in market cap</strong> – will inform the PCAOB’s deliberations and final rulemaking.
<h3><u><strong>The Evolving Assurance Landscape</strong></u></h3>
<h4><strong>As SEC Looks to Finalize Climate Rule, States Make Their Own Plans</strong></h4>
The public company audit profession, investors, and other capital markets stakeholders have been awaiting the SEC’s final rule on climate disclosures, which is anticipated this fall (though the final timeline <a href="https://www.wsj.com/articles/sec-chair-gensler-declines-to-give-timeline-for-final-climate-disclosure-rule-bd7028e0">continues to be in question</a>). Much like their recent <a href="https://www.wsj.com/articles/clorox-cyberattack-brings-early-test-of-new-sec-cyber-rules-b320475">cybersecurity rule</a>, the final climate rule will have a significant impact on U.S. public companies and their corporate reporting. I know the CAQ and our member firms are particularly interested in how assurance will be incorporated into the final rule.

While we wait for a nationwide rule, in mid-September, California became the first <a href="https://www.forbes.com/sites/jonmcgowan/2023/09/19/newsom-commits-to-sustainability-esg-reporting-in-california-by-2026/?sh=54666511ccc0">state to take action</a> by passing legislation requiring large companies to provide sustainability disclosures by 2026. To me, this comes as no surprise, considering the continued demand from investors and other stakeholders for company-prepared information outside financial statements, like climate disclosures. And in most cases, public companies are already disclosing some form of climate information. According to our <a href="https://www.thecaq.org/sp-500-and-esg-reporting">annual analysis of the S&amp;P 500</a>, the majority of public companies in the U.S. disclosed some level of ESG-related information for periods ending in 2021, an increase of 30 companies from 2020. Globally, the number of companies who reported some ESG information in 2021 was 89%, according to a <a href="https://www.ifac.org/knowledge-gateway/contributing-global-economy/publications/state-play-beyond-g20?utm_source=Main+List+New&amp;utm_campaign=69a96878e1-EMAIL_CAMPAIGN_2023_09_20_01_41&amp;utm_medium=email&amp;utm_term=0_-69a96878e1-%5BLIST_EMAIL_ID%5D">recent report</a> from the International Federation of Accountants, and 48% of those companies received some form of assurance.

As we await the final rule, one thing is certain: public company auditors are uniquely qualified to enhance the reliability of company-prepared climate and other company-reported information. For more on the current state of corporate reporting and what to expect leading up to the SEC’s climate rule, hear from my colleague Desirè Carroll:

<iframe title="YouTube video player" src="https://www.youtube.com/embed/omddlE8mf7w?si=ARBvKdMPPlmDfPvk" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>

<strong>See you next month, readers. </strong>In the meantime, in the words of Linus from Charlie Brown, “never jump in a pile of leaves with a wet sucker.”

<hr />

<h3 style="text-align: center;">Julie Bell Lindsay</h3>
<p style="text-align: center;"><em>Chief Executive Officer, CAQ</em></p>

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