Welcome to another edition of Capital Markets Pulse, a monthly newsletter from the Center for Audit Quality that brings you insights, resources, and tools on the latest issues impacting the capital markets.
I’m back from an extended trip around the world (literally). Over the holidays, I had the privilege of visiting some amazing historical sites and natural wonders. It’s true what they say – seeing the world helps you understand your place in it. From the people I met to the cultures I got to be a part of for just a moment in time, it was a truly unforgettable experience that I am so grateful to have been a part of.
Our capital markets continued to move while I was away, and I returned to several important developments in the world of audit. Read on for what’s on my radar this month.
Please note that these perspectives are my own. If this email was forwarded to you, subscribe here so that you never miss a public company auditing update.
CAQ Updates
As regulators turn fresh attention to fraud and non-compliance, investors seek more information
I have been closely following the latest developments on the PCAOB’s proposed rule, Non-compliance with Laws and Regulations, or “NOCLAR.” The rule received nearly 140 comment letters – a significant number for the PCAOB – with significant opposition from a diverse group of stakeholders. As a result, Chair Williams stated she plans to hold a public roundtable to respond to comments received on March 6.
The panelists will include a subset of commenters with diverse viewpoints including those representing investors, auditors, preparers, and audit committees; subject matter experts in the fields of economics, corporate and securities laws, accounting, financial reporting, and auditing; and commenters and experts who serve on the Board’s Advisory Groups.
As we await this important discussion, one thing is clear: investors have concerns about the current proposal. According to a recent CAQ survey of institutional investors, nearly seven in ten believe the potential cost to implement the proposal is too high. When provided a range of potential cost increases for NOCLAR implementation, over half said an increase of more than 30% is not appropriate to balance the costs versus the benefits. Given the concerns expressed by investors and others about the proposal, the CAQ applauds the PCAOB for its efforts to engage stakeholders in dialogue about the pending rule and drive resolutions.
While the CAQ’s most recent survey found that investors are concerned about the PCAOB’s proposal, some investors do want more information on the fraud landscape broadly and want to see all members of the financial reporting supply chain work together to provide this information. Specifically, most investors surveyed said they would like to see more from regulators and company management in detecting non-compliance.
This is a topic that auditors are working to address, and the PCAOB is not the only regulator or standard setter to take a fresh look at its rules on noncompliance and fraud. Recently, the International Auditing and Assurance Standards Board (IAASB) proposed revisions to its standard for requiring auditors to look for signs of fraud in a client’s financial statements. Among other things, the revisions clarify the auditor’s responsibilities relating to fraud in an audit and stress professional skepticism.
We’re supportive of regulators taking a fresh look at rules and standards to make sure that auditors are meeting the needs of investors and other capital markets stakeholders. Auditors are also doing their part to deter and detect fraud by working with leaders of the financial reporting supply chain to develop anti-fraud resources and provide educational thought leadership via the Anti-Fraud Collaboration (AFC). Recently, the Association of Certified Fraud Examiners took a step to strengthen the global fraud risk management community by joining the AFC. This milestone and strategic partnership will strengthen shared goals of both organizations and provide resources that support efficient and effective financial fraud risk management programs across all industries.
Accounting+ Updates
CAQ Honors Black History Month
From helping our capital markets thrive to founding professional organizations, to paving the way for other minority CPAs, Black accountants have been making important contributions to the profession for over one hundred years. In recognition of Black History Month, the CAQ is featuring two individuals who have made significant contributions to the profession.
Professor Kecia Williams Smith, Ph.D., CPA, North Carolina Agricultural and Technical State University, spotlights interesting facts and milestones about diversity in the accounting profession, including information on the first HBCUs, NABA and various efforts to improve diversity within accounting in this blog
In this blog, Yousdad Celne, Associate at PwC US, recounts how her parents, Haitian immigrants, taught her the value of education. This led her to ultimately pursue a career in accounting and inspired her to champion diversity within the profession. Read her story here.
Both powerful pieces demonstrate why we continue to strive for diversity within accounting via Accounting+, not just this month, but every month.
Profession Updates
SEC Chair Gensler Warns Public Companies of “AI-Washing”
At separate events at Yale recently, Chair Gensler warned public companies of potential pitfalls associated with artificial intelligence (AI), including public companies over-hyping, or “AI-washing,” capabilities and over-reliance by public companies on only a handful of technology platforms. These risks and more, he warned, could introduce instability to the financial reporting system.
One thing is for sure: Artificial intelligence is here to stay, and public companies and their external auditors need to prepare. Recently during an NACD and CAQ event, Cory Hrncirik, Microsoft Modern Finance Lead, outlined steps public companies can take to prepare for their AI journey:
- Tone at the top: Lead from the front and be a strategic innovator. Embrace and encourage the use of AI in a thoughtful and deliberate manner.
- Grassroots: Learning – Encourage employees to learn and train them on AI.
- Foster AI innovation – Encourage employees to use new technology.
- Strategically adopt AI – Reassess existing processes and strategically embed AI.
A follow up blog by my colleague, Vanessa Teitelbaum, Senior Director, Professional Practice, outlines additional actions audit committees can take to mitigate risk.
The Latest Episode of the Capital Markets Pulse Podcast
In the last editions of the Capital Markets Pulse Podcast, I spoke with leaders in audit about the accountant shortage and how to attract the next generation of talent as well as the state of audit quality. See below for the episode’s highlights.
- Episode 3 featured Guylaine Sainte Juste, President and CEO of NABA, Inc., and Mark Taylor, 2023-2024 President of the American Accounting Association and Director of the Lynn Pippenger School of Accountancy at the University of South Florida. I talked to them about how they are approaching the pipeline challenge from different angles but sharing the same goal: a strong, diverse accounting talent pool.
- Episode 4 featured Seth Siegel, CEO of Grant Thornton, and Prat Bhatt, former Chief Accounting Officer at Cisco and current CAQ Governing Board member. We discussed the state of audit quality and different perspectives on how to “measure” it, the PCAOB’s latest inspection results, and the PCAOB’s standard-setting agenda. Additionally, we explored how preparers, board members, and external auditors continuously work together to deliver high-quality audits that deliver decision-useful information to investors.
Listen to these podcasts here: The Talent Pipeline: Addressing the Accountant Shortage feat. Guylaine Sainte Juste and Mark Taylor and The State of Audit Quality feat. Seth Siegel, CEO of Grant Thornton, and Prat Bhatt, former Chief Accounting Officer at Cisco.
Julie Bell Lindsay
Chief Executive Officer, CAQ