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CAQ Snapshot: October 2014

Thursday, October 30, 2014

Investor Confidence Hits New Highs in Annual CAQ Survey

U.S. investors show strong levels of confidence, according to the Center for Audit Quality’s 2014 Main Street Investor Survey. Eighty percent of retail investors exhibited confidence in U.S. public companies, the highest level recorded since the CAQ began surveying on the topic in 2008. Investor confidence in U.S. capital markets has climbed to 73%, up 12 percentage points since 2011.

“These findings should encourage anyone with an interest in the health of our capital markets,” said CAQ Executive Director Cindy Fornelli in a statement accompanying the survey’s release. “They bode well not just for investors, but for the entire U.S. economy, which relies on vibrant financial markets as an engine of capital formation and economic growth.”

Asked how much confidence they have in a number of different entities when it comes to effectiveness in looking out for investors’ interests, investors express the most confidence in auditors (75%), followed closely by audit committees (71%). They also show a robust level of confidence in stock exchanges: 70%, up from 48% in 2011.

In addition to core confidence measures, the 2014 survey explored investors’ top concerns regarding risk. A strong majority see growing geopolitical instability (75%), government regulation (73%), and cyber risks in the capital market system (71%) as the greatest threats to their investment portfolios.

Other notable results from the survey include the following:

  • Confidence in audited financial information produced by publicly traded companies rose to 75%, the highest level since 2008.
  • Nearly half of investors trust financial planners or advisors the most for investment information and advice (48%).
  • Confidence in capital markets outside the U.S. has climbed to 43%, up from a low of 35% in 2012.

The Main Street Investor Survey garnered significant media coverage in a wide range of publications, including Compliance Week and The Hill. Fornelli also discussed the survey findings in video interviews with the Wall Street JournalC-SpanChina Central Television (CCTV) America, and Canada’s Business News Network.

Fornelli: “We Cannot Wait for Regulators and Lawmakers to Act”

Key stakeholders and market participants must stay proactive on policy through voluntary initiatives, the CAQ’s Fornelli told a gathering of the Sustainability Accounting Standards Board (SASB). She made her remarks, which are available on the CAQ website, to SASB’s Consumption Sector Delta Series Conference in New York City.

“We cannot wait for regulators and lawmakers to act,” said Fornelli, who noted both SASB and the CAQ have spearheaded voluntary policy initiatives that can respond to evolving investor needs. 

Beyond a proactive approach, Fornelli urged policymakers and stakeholder to focus on effectiveness in regulation—and to avoid “monolithic thinking.” She cited the Securities and Exchange Commission’s efforts on disclosure reform as an instance where regulators had taken such a focus.

Consistency is another key ideal in today’s regulatory environment, Fornelli added. “Consistency in the financial regulatory context produces efficiency,” she said. “It lowers regulatory burden, which benefits investors.” . 

In conjunction with its New York event, SASB announced that former Robert H. Herz, a former Chairman of the Financial Accounting Standards Board would join its Board of Directors. Herz serves on the CAQ’s Stakeholders Advisory Panel. 

Student Teams Compete Using Anti-Fraud Collaboration Case Study

A team of students from Loyola Marymount University took top honors in an October competition featuring the “Carolina Wilderness Outfitters” case study. The “Internal Audit Student Showcase Competition,” was hosted by the Los Angeles Chapter of The Institute of Internal Auditors (IIA) and brought together accounting and auditing students from across the Los Angeles area.

Carolina Wilderness Outfitters is the second in a series of case studies developed by the Anti-Fraud Collaboration. The Collaboration is made up of key organizations across the financial reporting supply chain—including The IIA and the CAQ—that are dedicated to building awareness of financial fraud detection and deterrence. 

A hypothetical examination of a potential material fraud at a fictitious public company, Carolina Wilderness Outfitters is designed to facilitate a discussion of how and when to conduct an internal investigation when fraud is suspected. The case study also aims to raise awareness of the environments in which financial reporting fraud might flourish, as well as how to mitigate risks.

The Anti-Fraud Collaboration is currently developing a third case study that will focus on the proper application of skepticism.

New Brochure Provides Succinct Overview of the CAQ

Need a quick rundown on the CAQ? Check out Leading the Way on Audit Quality, a new fold-out brochure that concisely explains the who, what, why, and where of the CAQ. Contact the CAQ to request print copies of the brochure, or download the PDF version, available at the CAQ website

Provide Your Input: What Format Should the Next Version of the CPA Exam Take?

The accounting profession evolves constantly, anticipating and responding to significant changes in the business and regulatory environments. Accordingly, the American Institute of CPAs (AICPA) is developing the next version of the Uniform CPA Examination to address changing circumstances, expectations and demands and to continue to effectively protect the public interest.

On September 2, the AICPA released a document for public comment on what format should be taken by the next version of the Uniform CPA Examination. Access the Invitation to Comment to provide your feedback and help determine the knowledge and skills newly licensed CPAs need in today’s market. Deadline for comment is December 2, 2014. Read more in this item from the Journal of Accountancy.