The Center for Audit Quality has published Value of the Audit: A Brief History and the Path Forward. Value of the Audit provides an introduction to the financial reporting process and its participants and explains how their work supports the functioning of the capital markets. The paper presents these issues from the perspective of the auditing profession. However, for new audit committee members or others seeking a foundation in the basics of financial reporting and the auditor’s responsibilities, it is a useful and understandable summary of the financial reporting ecosystem.
The paper has four sections. It first summarizes the importance of well-functioning capital markets to the economy. Second, Value of the Audit discusses the importance of audited financial statements to the operation of the capital markets. The third section – the heart of the paper -- analyzes the roles and responsibilities of the various participants in the financial reporting supply chain, including management, audit committees, and independent auditors. With respect to auditors, the paper emphasizes the importance of both expertise and independence: “Many factors lead to a quality audit, but it is the combination of auditor expertise and independence that bolsters the level of trust and confidence in company financial statements and forms the basis of audit quality—and, thus, value to capital markets.” The final section discusses the growing importance to investors and other financial statement users of information outside the financial statements, such as non-GAAP measures, key performance indicators (KPIs), and environmental, social, and governance (ESG) disclosures. The paper concludes by suggesting that “public company auditors [are] a viable option for companies, audit committees, investors, and other stakeholders seeking assurance on the reliability of other company-reported information, such as ESG information, non-GAAP financial measures, and KPI disclosures.”