Our capital markets are an important engine for driving and maintaining our economic and societal well-being for working family investors. Audited financial statements because of their reliability have long been a critical component of our strong capital markets.
“Audits serve as the backbone to the capital markets,” said Vanessa Teitelbaum, Senior Director, Professional Practice at the CAQ. “I sometimes think of the capital markets as invisible to the average American but they’re vitally important for businesses and individuals to have financial stability as well as to grow.”
Public company auditors ensure high-audit quality in a variety of ways.
“At a fundamental level, audit quality is about doing a great audit in accordance with standards and execute policies and procedures the right way,” said Kazi Islam, Assurance Strategy Leader at PwC. “It’s about bringing a challenging mindset to what we’re looking at and ensuring the financial statement items are appropriate. However, audit quality is multi-dimensional – there’s an important element in providing value and insights as well as experience to our people and our clients.”
And audit quality in the US has never been higher.
“One of the ways we know audit quality is high is because audits are overseen by a strong regulator, the PCAOB, who performs robust inspections of audits,” said Teitelbaum. “In the past several years, the PCAOB found that 97% of audits contained an appropriate opinion and their inspections are risk based and focused only on the highest-risk areas. So, thousands of audits are performed each year with flying colors.”
Jennifer Knecht, Partner at Crowe, added, “financial restatements are another indicator of audit quality. Financial restatements are a requirement that a company fix errors it made in a financial statement. So, a reduction in restatements indicates that audit quality is strong. The good news is restatements have dropped for five years to a 19-year low.”
Despite the current state of high audit quality, the profession will never rest on its laurels. In addition to regulatory requirements, firms are taking action to further enhance audit quality, including significant investments in technology and quality controls.
“At Crowe, we nourish a culture of innovation that allows us to constantly advance our methodologies, processes and tools to support exceptional audit quality,” said Knecht. “Our innovation builds upon the foundation of our profession – integrity, objectivity and professional skepticism. We are investing in our people and technology. We take the time to continually evaluate and optimize our core processes. We are working to assess, design and test emerging technologies that might be incorporated into our audit approach. Continuous improvement is critically important.”
Islam added, “PwC is advancing the audit quality agenda on multiple fronts. Whether it be our quality control system, the trainings we roll out to our partners and people, or how we think about the expectations of our stakeholders – whether its regulators, management, auditors and boards – we ensure we’re advancing all of the elements that directly and indirectly contribute to audit quality.”
Read the CAQ’s report, Value of the Audit: A Brief History and the Path Forward, to learn about the benefits of independent audits.