Institutional investors trust audits, but want independence

Overall, institutional investors continue to place strong trust in public company audits as an essential check on the financial statements issued by companies, but auditor independence remains a focus for them, according to a new survey.

The survey, released Wednesday by the Center for Audit Quality, found that 90% of the 300 institutional investors polled said they rely on audited financial statements, while 91% said they trust their accuracy. However, 35% of the respondents expressed considerable concern about the independence of audit firms from the clients, including 14% who said they were extremely concerned and 21% who said they were very concerned about auditor independence. 

Institutional investors also said that traditional U.S. public company financial reporting delivers what they need for investment decisions, with an overwhelming 96% indicating it has yielded the necessary information in the past two years.

Investors would like assurance to keep pace with the emerging areas of corporate information that they now use to gauge risk, but nearly all of the investors polled said at least some improvement is needed across major corporate disclosure areas to feel confident in accuracy. When asked what would boost their confidence most, investors pointed to clearer standards and reporting frameworks (44%), better comparability (42%) and consistency (40%), and increased regulatory requirements (38%) as the top factors. 

"Trust is earned when standards are clear, work is independent, and results are consistent," said CAQ CEO Julie Bell Lindsay in a statement. "That is how assurance can stay ahead of what investors need." 

Nearly 90% of the investors who responded to the survey said that technology is very or extremely important for auditors to keep innovating with new technology to improve audit quality and reliability. The biggest potential gains from using artificial intelligence in audits are seen as stronger fraud detection and the ability to review larger data sets, which can raise confidence in audit findings. But they also cited risks, led by data security, the importance of human judgment, and a lack of clear standards for how AI should be used in audits.  

When asked about oversight, 96% of the investors polled said regulatory oversight increases their confidence in audited financial statements. Nevertheless, 27% of respondents believe the regulatory burden on audit firms is too high, suggesting investors want rules that improve audit quality without adding costs that don't help them spot what matters.