Auditors build trust and confidence in information through the assurance services they provide. Assurance may mean different things to different people. Many companies informally use the terms assurance, comfort, certification, verification, opinion, compliance, and even audit interchangeably—but they do not mean the same thing. Assurance by CPAs involves the testing of processes, systems, and data, as appropriate, and then assessing the findings in order to support an assurance opinion based on an examination (e.g., “In our opinion, A is presented in accordance with B.”). Explore the 4 areas where the auditing profession has strengthened its trust and confidence-building role.
Independence, objectivity, and skepticism are core CPA principles. These fundamental principles, an overarching commitment to continuous quality improvement, and an obligation to protect the public interest all guide the judgment and performance of auditors.
Auditors must meet stringent professional requirements, including continuous technical training to perform an audit or attestation engagement.
Personnel working on an audit or attestation engagement must also abide by any relevant professional standards in the planning and performance of the engagement and the preparation of the report.
Accounting firms operate under a sturdy framework of regulations and standards, and the profession engages constructively with its regulators, notably the SEC and the PCAOB, as well as standard-setters such as the AICPA.
In short, an audit report in this context is designed to enhance the reliability of that information for the intended users of that assurance report by providing an objective and impartial assessment of the assertions, data, and other disclosures by management. Moreover, technology and data have given rise to entirely new business models and company structures, with much of the value of companies being driven by information outside of audited financial statements. Stakeholders, including certain institutional investors, increasingly are interested in—and rely on—unaudited information when assessing a company’s value. While the type of information investors and other stakeholders rely on or desire may vary depending on the stakeholder and context, there is nonetheless a strong demand for information outside of audited financial statements that is useful for capital allocation and governance decisions. Investors, lenders, and other users of audited financial statements can more confidently use this information because auditors have provided an independent perspective. This assessment, in other words, builds trust and confidence. Without that trust and confidence, market volatility would likely increase, investors and lenders would likely charge a higher cost of capital for their risk, and fewer funds would be available to fuel business investment and growth. Consistent, reliable, and comparable financial statements underpin robust capital markets. Typically, companies in the United States prepare financial statements in accordance with US GAAP. Auditors conduct an audit to obtain sufficient appropriate evidence to obtain reasonable assurance as to whether management has prepared financial statements that are fairly presented in accordance with US GAAP in all material respects. Auditors then issue an opinion as to whether the financial statements present fairly—in all material respects—that the financial position, results of operations, and cash flows of the company are in conformity with US GAAP. What do public company financial statements consist of? Audits have a positive effect on companies by serving as guardrails for management on accounting financial reporting practices. Auditors also provide an independent perspective and resource for audit committees in their role in the financial reporting process. Before an audit opinion is issued, auditors spend countless hours evaluating the design and effectiveness of the company’s internal controls and identifying potential issues in financial statements. As a result of this interaction and dialogue, companies improve their financial processes and controls, remedying issues before they become major financial concerns. This behind-the-scenes scrutiny also bolsters a culture of professionalism, discipline, and accountability within public companies. The US system of financial reporting has a track record of success. Financial restatements have trended down since 2010, as has the magnitude of what gets corrected. Meanwhile, levels of investor confidence have stayed healthy. In fact, nearly three-quarters of retail investors in a 2019 survey expressed confidence in US capital markets, which is consistent with past years. When audit failures occur, they are investigated and addressed, with the lessons learned incorporated into the cycle of continuous improvement. While auditors will continue the essential work of auditing historical financial statements, they could also bring their ability to enhance trust and confidence in other types of data and information issued by companies. Investors and others are increasingly focused on how companies measure the value they are creating for their shareholders and stakeholders. While some of these measurements are contained within financial statements, others exist beyond financial statements in other company-prepared information about value creation. In communications about value creation, it is important that there is clarity regarding what companies are measuring, quality in the preparation of the measurements, and good oversight of the process. Also critical for investors and others to understand is whether the information has the level of trust and confidence that is brought by an independent perspective. Having auditors associated with this information brings discipline to management’s process and helps minimize the chances of misunderstanding, mistakes, or challenge. Auditor association signals to stakeholders the importance of the information being reported.Where auditors now play a strong role in capital markets
Where auditors could play a greater role in company-prepared information
