The Evolving Role of the External Auditor Is Examined by the Center for Audit Quality
Earlier this year, the Center for Audit Quality (which is affiliated with the AICPA) held a series of roundtables to obtain the input from investors, board members, lawyers, and business executives on the role of the external auditor. One internal auditor was present at a roundtable.
No clear conclusions were reached in terms of change. My reading of the report (available here for free download) left me feeling that most of the participants were quite content with the current situation and no major change was being advocated.
The one item that does stand out in terms of desire for change was this observation:
Annual reports are in a state of “disclosure overload” and are too complex to be useful to financial statement users. Examples cited include redundancy in information disclosed between the financial statements and MD&A and a risk factors discussion that contains “anything and everything” (all participants).
One comment which I agree with was voiced by a number of people on the topic of whether the external auditor should provide an opinion or otherwise comment on the risk factors disclosed in filings with the SEC: that the auditors don’t have sufficient perspective, let alone training and experience, to be able to comment on whether the risk factors that are disclosed are complete or what the risk level is.
I also agree that the auditors should not be asked to second-guess management when it comes to such matters as the business outlook and forecast.
What do you think? How should the role of the external auditor be changed?
Posted on Oct 7, 2011 by Norman Marks
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