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Snapshot | June 2021

Wednesday, June 30, 2021

Profession Voices Support for Climate Disclosures

Since his confirmation as POTUS in January, President Biden has made it clear that climate change is one of his top priorities (along with ice cream, of course). And his pick to lead the SEC, Gary Gensler, recently signaled in the SEC’s annual regulatory agenda that the SEC is considering rulemaking related to climate disclosures and other ESG matters.

This month, both the AICPA and CAQ submitted comment letters to the SEC to voice support for this agenda. The letters:

  • Support a globally accepted ESG reporting system built from existing standards and frameworks
  • State that assurance of climate-related and ESG information performed by a public company auditor can enhance the reliability of this information and offer increased investor protection
  • Call for aspects of implementation, including transition periods, to be considered by the SEC staff

The CAQ recently convened a roundtable discussion on this topic bringing together board members, public company management, institutional investors, and public company auditors. Two key  takeaways:

  • 87% of participants were supportive of a system for ESG disclosure (including climate) that is built from existing standards and frameworks
  • 90% of participants believe that climate-related and other ESG disclosures should be subject to assurance from public company auditors either currently or over time

Why it matters. Climate change remains a serious concern and the current administration has signaled an interest in addressing the issue at all levels of government. As the SEC begins the process of rulemaking for climate disclosures and other ESG matters, public company auditors can play an important role.

CAQ Explores Value of the Audit in Foundational Paper

Independent audits are a core component of the US financial system and help give investors, and capital markets, the confidence to invest in public companies. In a foundational paper, Value of the Audit: A Brief History and the Path Forward, the CAQ explores the historical importance of the audit in well-functioning capital markets to the US economy, examines independence and expertise as the two key cornerstones of audit quality, and describes how independent public company auditors can apply their skills and knowledge to meet growing investor demand for company-reported information outside of the historical financial statements.

Why it matters. Audit quality in the U.S. is strong. In fact, financial restatements have trended down significantly to an 18-year low. It is important to understand the potential pitfalls of public policy proposals that seek to apply more stringent requirements on auditor independence, as they may be to the detriment of expertise and quality.

Speaking of Independence, recent amendments to SEC independence rules became effective this month. These amendments modernize the rules, which were established in 2002, and more effectively focus the independence analysis on relationships and services that may pose threats to auditor objectivity and impartiality. The CAQ issued an Alert, Amendments to SEC Independence Rules, to provide an overview of the key changes to the amendments and assist auditors and other stakeholders with understanding and applying the new rules.

Fighting Fraud Remains a Shared Responsibility

In a follow up to the release of the Anti-Fraud Collaboration’s (AFC) publication, Mitigating the Risk of Common Fraud Schemes: Insights from SEC Enforcement Actions, the AFC facilitated a roundtable discussion among participants representing the financial reporting supply chain to discuss some of the common fraud schemes identified in the report. The roundtable explored the various fraud schemes, accounting and reporting issues, and other contributing fraud factors identified in the report, and considered lessons learned from the perspective of their roles. Key lessons related to SEC enforcement actions learned include:

  • ​​​​​Failure to implement or maintain adequate internal controls was a pervasive issue in all cases
  • Risk assessment procedures should be thoroughly reevaluated as circumstances change
  • An aggressive tone at the top combined with a weak culture can enable fraud

Read more about the practical observations and lessons learned from the report here.

Want to learn more about your role in fighting fraud? The Anti-Fraud collaboration has launched a new website with resources that highlight how all members of the financial reporting supply chain can work together to fight fraud. Follow the AFC on Twitter and LinkedIn to stay up-to-date with the latest insights.

Audit in Action: EY’s Danica Dilligard Shares How She Found Balance in a Career in Audit

​Danica Dilligard, Partner at Ernst & Young LLP, shares her inspiring story about how she conquered both personal and professional challenges on her path to becoming partner. She also shares her perspectives on the importance of career mentors and her advice for those just starting out in the profession.

Watch the full interview here.

Register Now for CAQ Symposium 2021

Once again the Center for Audit Quality’s Annual Symposium is going virtual and inviting you to register for the panel sessions. CAQ Symposium 2021, hosted by Crowe LLP, will take place Monday-Tuesday, July 26 & 27, from 1:00 pm-3:00 pm EDT each day.

The program will feature the following panel sessions:

 Monday, July 26: ESG Reporting 

  • The Current State of ESG Disclosures
  • Accuracy and Reliability of ESG Disclosures

Tuesday, July 27: Future of the Audit Workforce 

  • Observations on the Virtual Audit
  • Impacts on Talent and Learning & Development

If you are interested in attending this event on one or both days, click here to register. The Registration deadline is Monday, July 19, 11:59 pm EDT.

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