Snapshot | October/November 2021
Wednesday, November 17, 2021
COP26: Insights for Auditors
The highly-anticipated COP26 Climate Summit took place this month. Several important negotiations and pledges took place, from new coal and methane targets to the U.S. – China deal. Here are some important developments auditors should be aware of:
- New standards on the horizon: The IFRS Foundation announced its plans develop the International Sustainability Standards Board (ISSB) to serve as a global foundation for sustainability disclosures for the world’s financial markets, and commitment by the Climate Disclosure Standards Board, and Value Reporting Foundation to consolidate into the ISSB.
- Why it matters: The public company auditing profession has long acknowledged the value of climate and other ESG disclosures to investors. A globally accepted system for corporate sustainability disclosure standards can help decision making through reliable and comparable information. See the CAQ’s formal statement on this development here.
- Increased demand for climate accounting: A major global investor group shared letters with Reuters calling for governments to require companies and auditors to account for climate information.
- Why it matters: Investors and other stakeholders around the world are calling for more transparency around public companies ESG practices and regulatory action is likely. In the U.S., the SEC is currently considering rules on mandating climate disclosures. Public companies should be looking closely at their current reporting structures to ensure they are prepared to meet future ESG requirements.
COP26 made clear that the world remains laser-focused on addressing climate change. As the ESG landscape evolves in the U.S., auditors can play an important role. Learn more here.
PCAOB Releases Inspection Results, Sees New Members Appointed
It’s been a big month for the PCAOB.
Recently, the Board the results of its 2020 inspection reports of the six global network firms. The verdict? Audit quality remains strong.
- Of the six global network firms inspected in 2020, there were no restatements as a result of inspections and no changes were needed to the audit reports issued.
- In its inspection reports of the six global network firms, the PCAOB found that the majority of the audits inspected (84%) had sufficient appropriate audit evidence to support the audit opinion.
- Of the audits inspected, 43 out of 263 (16%) engagements were included in Part 1.A of the PCAOB’s report, which spotlights deficiencies in audit evidence. This is down compared with 24% and 27% according to the PCAOB’s 2019 and 2018 reports, respectively.
The inspection reports demonstrate a continued positive trend of improvement, but the profession remains committed to making investments in audit quality and maintaining an ongoing dialogue with the PCAOB.
Speaking of the Board, this month the SEC appointed longtime SEC official Erica Y. Williams as the new chair of the PCAOB and named new members Kara M. Stein, Anthony C. Thompson, and Christina Ho, who was also sworn in this month. Duane DesParte will also continue serving as a board member. Read the CAQ’s statement on the new PCAOB here.
CAQ Issues Report on Audit Committee Disclosures
The 2021 Audit Committee Transparency Barometer, now in its 8th year, found that the most dramatic increase continues to be disclosure of audit committee responsibility for cybersecurity risk oversight, from 11% of S&P 500 companies in 2016 to 46% of S&P 500 companies in 2021, which can be attributed to rising cybercrime and trends towards remote work that have exposed new vulnerabilities.
Despite the positive trend of increased disclosures observed, there remains several opportunities for audit committees to further increase their disclosures, particularly around oversight of audit firm compensation, including fee negotiations, connection to audit quality, and changes in fees.
Why it matters: Audit committees are vital to investor protection, but investors don’t always have insight into the oversight activities they perform. Disclosures are a powerful tool for audit committees to demonstrate the important work they do.
International Fraud Awareness Week
This week is International Fraud Awareness Week! This is an important time for all members of our profession to share messages and insights on what we do to fight financial fraud and protect audit quality. As a member of the Anti-Fraud Collaboration (AFC), the CAQ works to advance critical anti-fraud strategies and demonstrate the shared responsibility of fighting fraud across all members of the financial reporting ecosystem. Here are three ways you can participate this week:
- Tune in to the AFC’s Linkedin Live event this Wednesday, November 17th at 2pm EST as we discuss how you can enhance your organization’s fraud risk management programs.
- Follow the Anti-Fraud Collaboration on Linkedin and Twitter for more resources on how your organization can integrate culture, risk management, skepticism, and technology into your anti-fraud efforts.
- Join the conversation on social by using #FraudWeek.
Auditor Independence: A Cornerstone of Audit Quality
Our capital markets are an important engine for driving and maintaining our economic and societal well-being and they rely on the independent third-party assurance that auditors are able to provide. Enhancing the trust and reliability of this information is a key aspect of the public interest role that public company auditors play.
Watch the CAQ’s Vanessa Teitelbaum, Christopher Tower, National Managing Partner – Quality, Independence and Assurance Risk Management at BDO and Shawn Gilbert, National Partner in Charge, Independence at KPMG discuss the importance of auditor independence in this video from the CAQ’s Audit in Action series.
ICYMI: Leading the Headlines
- Technology reshapes future of audit quality, Accounting Today
- Audit fees rise faster than inflation, CFO Dive
- SEC Questions Auditor Independence as Firms’ Advisory Work Booms, Bloomberg Tax
- PCAOB gets new chairperson, board members, Journal of Accountancy
- Audit Committee Disclosures in Proxy Statements Keep Increasing, Accounting Today
- New PCAOB Short-Term Priorities Include Investor Engagement, Reuters Tax