The Center for Audit Quality, an associate of the American Institute of Certified Public Accountants, released a survey titled “Audit Committee Practices Report: Common Threads Across Audit Committees” in late January. The study received 246 responses, with 86% of those who sat on public company audit committees responding. The results of that survey, including critical audit matters and environmental, social, and governance (ESG) issues, are summarized below.

Financial reporting and internal controls, including fraud threats, were the top priorities for virtually everyone (96%). Many others also expressed concerns about:

• Cybersecurity (53%)
• Data privacy (48%)
• Ethics and compliance (48%)
• Third-party risk (47%)
• Enterprise risk management (42%)

Almost everyone (98%) thought audit quality had improved or remained the same compared to the previous year. However, 42% said the likelihood of fraud had grown.

Cited was teleworking as a primary reason for the increased risk during the COVID pandemic. Even more, 74% said they had changed their company’s internal controls in the prior year to meet the remote work environment.

Critical audit matters

The following are examples of critical audit matters (CAMs):

• Have been communicated to the audit committee
• Are related to accounts or disclosures that are material to the financial statements
• Involved challenging judgment from the auditor

The CAM requirement improves the use of the auditor’s report for investors. However, just 28% felt that CAM talks gave information that wasn’t available before the Public Company Accounting Oversight Board enacted these standards.

Environmental, social, and governance issues

Approximately two-thirds of respondents (66%) stated their organizations publish ESG reports. In addition, 69% said they presently obtain (or are actively considering) third-party assurance on ESG data. According to respondents, the most critical ESG element for their company is:

• Human capital (36%)
• The environment (26%)
• Leadership and governance (20%)
• Business model and innovation (12%)
• Social capital (5%)

Investors are increasingly looking for ESG data that is both meaningful and trustworthy. They also believe that third-party certification would improve the reliability of the data.

Learning experiences

Once you have a completed audit report, go over the lessons acquired in the field about essential areas of concern, main sticking points, and the importance of ESG issues. Then, contact our RRBB accountants and advisors to learn how you can use those lessons to reduce risk, increase transparency, and make the audit process easier next year.

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