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May 2, 2012

Investors call for more communication: CAQ

A US Centre for Audit Quality (CAQ) study found investors believe financial statements are too compliance focused rather than effectively communicating the company’s financial results.

Additionally the CAQ report on the evolving role of the public company auditor found auditor involvement with information outside the financial statements could add an unwanted “filter” and investors prefer to hear directly from management.

The report was based on workshops held in New York in March aimed at exploring the benefits of auditor involvement with financial information outside financial statements.

The CAQ also observed that:

  • audited financial statements provide the baseline for investors’ decision making, but non-GAAP disclosure are also considered important.
  • more consistency and comparability is warranted in the use of KPIs in management’s discussion and analysis and earnings releases; and
  • some investors would like to see a requirement that the auditor read and discuss the earnings release with the audit committee.

The workshop hosted more than thirty participants, half of whom were investors and buy-side analysts; the remainder was a mix of audit committee members, preparers and auditors.

“It is vitally important that investors understand and continue to trust the work that auditors perform – and have confidence in our financial reporting system and the checks and balances that underlie the system,” CAQ executive director Cindy Fornelli said.

 

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