CAQ sees greater role for auditors
The Center for Audit Quality believes auditors should go beyond financial statements and vet other forms of corporate reporting that typically aren’t audited.
In a new report, the CAQ discusses the current role of auditors in different types of publicly disclosed information, along with how that role is evolving. Auditors today mainly focus on financial statements and audits of internal controls over financial reporting. However, companies are increasingly providing information outside the traditional financial statement or ICFR audits, but the information typically doesn’t undergo the rigorous assurance provided by auditors.
The report argues that auditors can meet investors’ and other stakeholders’ needs by providing assurance about 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
“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 in a statement. "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.”
Many CPAs are already providing assurance services in some of these areas. The report acknowledges that professional standards require auditors to read the other information in documents containing audited financial statements and consider whether information such as KPIs and non-GAAP measures, or the manner of their presentation, is materially inconsistent with the information in the audited financial statements or includes a material misstatement of fact.
Auditor involvement isn’t required in the area of sustainability reports, but a small percentage of companies do engage auditors to provide assurance on certain metrics. The American Institute of CPAs has published a guide, Attestation Engagements on Sustainability Information, to help auditors who have been engaged to perform an examination or review of a client’s sustainability information.