While there are many notable investor education sites, noted the Center for Audit Quality in a letter to the SEC, they typically do not focus on the audit process and there is not a lot of easily digestible information available to the public on the role independent auditors play in the financial reporting processes of public companies. CAQ was responding to the SEC’s request for public comment on the effectiveness of existing private and public efforts to educate investors.
While a recent survey revealed that individual investors largely remain confident in the audited financial statements released by U.S. public companies, CAQ is concerned about the long standing expectation and information gaps investors have with respect to the role of the public company auditor.
CAQ believes investors should have a basic understanding of financial reporting requirements, trading and markets, and the system of investor protection. This requires increasing efforts to expand educational outreach by utilizing traditional and emerging methods of communication and presenting information in a variety of formats that speak to a range of audiences and age groups. CAQ hopes to contribute to this effort and commends the Commission for its timely focus on investor education.
CAQ has redoubled its efforts to educate investors about the role of the auditor and the audit process. The CAQ recently released an In-Depth Guide to Public Company Auditing, which expands on the original Guide to Public Company Auditing published in May 2009. The new Guide describes the audit process, beginning with how a public company audit firm decides to accept a new audit engagement, how it assesses the risk that the financial statements contain material misstatements as part of determining the audit’s scope, and then how the auditors perform and report their findings.
Recently, the IAASB launched a consultation to determine how the independent audit report, and more broadly the role of the outside auditor, can be enhanced to provide more useful auditor reporting to investors and other users of financial statements. As part of the consultation, the Board will examine the perceived expectation and information gaps and explore options for change that could enhance auditor reporting and the communicative value of the auditor's report.
Broadly, explained the Board, the expectations gap is the difference between what users of company financial statements expect from the auditor and the financial statement audit, and the reality of what an audit is. The information gap is when users of corporate financial information point to the existence of a gap between the information they believe is needed to make informed investment and fiduciary decisions, and what is available to them through the entity‘s audited financial statements or other publicly available information.