Auditors Can Bring Trust, Confidence, and Reliability to Currently Unaudited Corporate Reporting
Tuesday, December 3, 2019
Expanding the role of auditors beyond financial statements would benefit investors, capital markets
Washington, DC – Auditors are uniquely qualified to enhance confidence in a wide range of company-prepared information outside financial statements, according the Center for Audit Quality (CAQ). In a white paper entitled The Role of Auditors in Company-Prepared Information: Present and Future, the CAQ provides a foundational understanding of the current role of auditors in various types of publicly disclosed information, as well as how that role is evolving.
“Investors and other market stakeholders increasingly rely on information beyond financial statements to make decisions and assess company value, yet much of this information doesn’t undergo independent review,” said CAQ Executive Director Julie Bell Lindsay. “Employing their critical thinking, skepticism, business knowledge, and technical expertise, auditors stand ready to enhance the reliability of corporate information for the benefit of the capital markets, investors, and the public.”
Today, the role of auditors is largely limited to the audit of financial statements—the bedrock foundation for financial information reported by companies—and audits of internal control over financial reporting (ICFR). The auditing profession has steadily strengthened trust in financial statements and improved accountability within public companies through core capabilities and principles, technical expertise, professional standards, and robust regulatory oversight.
Driven by changing business models and investor demand, companies are increasingly providing information that falls outside the purview of the traditional financial statement or ICFR audits. This information typically does not undergo the rigor of assurance provided by an auditor.
But as investors and other stakeholders consider the “decision-usefulness” of information beyond the financial statements when evaluating the financial health and prospects of a company, the need and call for reliability—for verification, trust, assurance—around this information rises. Auditors are poised to meet stakeholders’ needs, enhancing confidence in the following types of company-prepared information:
- Non-GAAP financial measures, such as adjusted earnings per share
- Key performance indicators, such as sales per square foot
- Environmental, social, and governance information, such as sustainability reporting
- Cybersecurity reporting outside of the financial statements, such as how companies manage cyber-risks
- Other communications about value-creation outside of financial statements, such as intellectual property
The full report can be found here.
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About the CAQ
The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high-quality performance by public company auditors; convenes and collaborates with other stakeholders to advance the discussion of critical issues that require action and intervention; and advocates policies and standards that promote public company auditors’ objectivity, effectiveness, and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit thecaq.org.
Andrew T. Gillies
Center for Audit Quality