2023 Profession Outlook

Dear Readers,

After years of uncertainty due to the global pandemic, 2022 felt like the year that we could finally begin to move forward, whether this meant taking vacations, not thinking twice about going to a restaurant, attending concerts or sporting events or other hallmarks of normalcy. Things moved forward in the world of public company auditing, too. Auditors continued to deliver high quality audits, whether in theoffice or remotely, while using valuable skills they gained during the pandemic, such as using technology to facilitate audits or applying creativity to new challenges. The SEC and PCAOB fulfilled their promise to establish robust regulatory agendas and issued much-anticipated proposals. And the CAQ launched a collaborative, multimillion-dollar initiative to attract a diverse talent pipeline and bring awareness to the U.S. public company audit profession’s focus on diversity, equity, and inclusion (DEI).

The 20th Anniversary of SOX

This year also was a time of reflection for the profession. Twenty years ago, the Sarbanes-Oxley Act (SOX), was signed into law, heralding a new era for public company auditing by strengthening auditor independence, improving the accuracy and reliability of the information that drives investments in our capital markets and establishing a strong regulator for the profession via the PCAOB.

Throughout 2022, we had the opportunity to hold discussions with regulators, investors, audit firm leaders and other stakeholders about what SOX has achieved and how it might evolve as access to advanced technologies like artificial intelligence, and investor demand for non-traditional financial reporting, like greenhouse gas emissions, continue to transform the financial reporting landscape.

In July, SEC Chair Gensler joined a CAQ event commemorating SOX and he observed that the “quality of public company audits has improved” since the legislation was established 20 years ago. While audit quality remains high, it is critical that the audit profession remain vigilant to maintain its trusted role as a gatekeeper in the capital markets.

Regulatory Developments

Both the SEC and PCAOB have set ambitious rulemaking agendas that have impacted and will continue to impact the public company audit profession in 2023. We are watching several of the SEC’s proposals, including on climate disclosures, which would bring a shift from the current voluntary system of reporting to a mandate-based system. Should this, and other proposals on cybersecurity, human capital and more, be finalized, we can expect to see public company auditors playing an increasingly significant role in assurance of such information.

The PCAOB has proposed new standards and updates to existing standards that will impact auditors, including on firms’ systems of quality control and lead auditors use of other auditors, to name a few. The PCAOB has also signaled that it plans to strengthen the approach to oversight, which they have already made clear with increased enforcement actions. During a December panel event I moderated, PCAOB Chair Williams said, “I have said before, and I will say again, the PCAOB means business when it comes to enforcement. We intend to use every tool in our enforcement toolbox and impose significant sanctions, where appropriate, to ensure there are consequences for putting investors at risk and that bad actors are removed. This includes substantial monetary penalties and significant or permanent individual bars and firm registration revocations.”

Both the SEC and PCAOB are critical to audit quality and reinforcing auditor independence, and we look forward to continuing to promote the work of public company auditors with both in 2023.

There are several critical issues impacting the profession that will continue into next year.

Independence and Audit Quality

Independence and high audit quality are the foundation of our profession. I believe auditors will play an even more important role to investors, from institutional investors managing billions in assets to retirees  across the country managing their IRAs, in making it possible for capital markets to function and allocate resources efficiently.  While we see the role of the auditor evolving, we also believe auditors will remain committed to their core mission: exercising independence and objectivity and use their expertise to bolster the level of trust and confidence in company financial statements and other company reported information that forms the basis of audit quality.

The Role of the Auditor

I expect to see the skillset of auditors being applied to information beyond the traditional financial statement even more so than we see today.

When it comes to environmental, social and governance (ESG), many auditors are already playing a role in providing assurance over greenhouse gas emissions (GHG) and other metrics. According to our most recent S&P 500 analysis, the majority of public companies are reporting some form of ESG information, and more than half receive some form of assurance from a third-party. Our 2022 analysis also finds a slight increase in audit firms engaged as assurance providers and we expect this number will increase further, particularly if the SEC’s climate proposal is finalized. Public company auditors have an important role to play, and in our comment letter to the SEC, we voiced support for requiring certain public companies to subject Scope 1 and Scope 2 GHG emissions disclosures to attestation as this will enhance the reliability and quality of these disclosures for investment decision-making. The reliability of ESG reporting is just one critical issue to aid investors in evaluating climate information; comparability also proves essential to investor trust and confidence, and we are pleased to see the International Sustainability Standards Board (ISSB) moving towards a framework that can be globally used.

Technology is also playing a critical role in our profession by advancing audit quality. Businesses are deploying innovative technologies that enable them to work differently to deliver value and evolve to meet the needs of their consumers. And auditors are no different. They are continually adapting to the technologies being utilized by the companies they audit – as well as implementing their own to transform how audits are done as businesses evolve their operations. Firms heavily invest year-over-year in advanced technologies like artificial intelligence and machine learning to enable both remote work and the automation of basic tasks, much of which goes to improved efficiency. The continued investment in technology by firms will mean less time, energy and expertise is spent on routine tasks and will be re-directed to higher-value work on the audit, which will allow firms to improve overall audit quality and provide insights and value to their clients.

With several high profile collapses this year, such as TerraUSD and FTX, we expect to see continued attention from regulators to blockchain and digital assets. The PCAOB in August issued a bulletin to companies encouraging them to make sure their auditors have the right skillset to assure this information. Whatever the future holds for blockchain and digital assets, financial markets stakeholders, including public company management, audit committees and external auditors, should understand the digital assets landscape and their financial reporting responsibilities.

Unfortunately, fraud is always a threat in our capital markets, and  public company auditors will continue to play a vital role as the last line of defense.  But all members of the financial reporting ecosystem must demonstrate vigilance, a resolve to exercise skepticism, focus on culture and attention to risk. Our Anti-Fraud Collaboration continues providing insights and resources that can be used to efficiently and effectively perform those functions that focus on fraud deterrence and detection, as well as fraud risk management.

Talent is one of the single most important issues impacting the accounting profession. Recent headlines suggest that many college students simply do not want to work in accounting – even those who majored in it. While there are numerous issues impacting the talent pipeline, perceptions about what a career in accounting and auditing entails are a significant disincentive. We need to change this.

2023 Outlook: Talent a Critical Imperative

Further expanding on the talent issue, a recent report found that accounting graduates trended downward in the 2019–2020 academic year, with decreases of 2.8% and 8.4% at the bachelor’s and master’s levels, respectively. Moreover, the profession continues to experience a lack of diverse talent, including within the talent pipeline. The number of Black and Hispanic or Latino students entering the profession continues to lag, whether due to the perception issues, the fact that they don’t see people who look like them currently in the profession, or simply lack of awareness about a career in accounting and auditing.

In 2022, the CAQ took action to address this diversity challenge by launching Accounting+, a multi-year, multimillion dollar campaign aimed at increasing the pipeline of diverse talent entering the profession. Backed by foundational and ongoing, real-time data and research, the Accounting+ campaign is targeted to Black and Hispanic/Latino high school and college students to raise awareness about a career in accounting and auditing, debunk misperceptions (e.g., accounting is “boring” or all about math) and provide resources to see students through all stages of their educational journey to a career in the field.  Importantly, we are not doing this alone.  The collective pipeline and diversity problem in our profession needs to be addressed by a collective approach. Accordingly, we have built the campaign with over 30 – and growing – collaborative partners, including accounting firms of all sizes, state CPA societies, other industry organizations, such as the Institute of Internal Auditors, and more.

Already, we’ve been successful in reaching students and raising awareness of the opportunities a career in accounting offers through Accounting+. We’ve also formed more in-depth strategic partnerships with leading organizations in this space, such as NABA, Inc., who will provide holistic support, including resources to connect students with mentors and tutors bolstering students in their successful progression from two-year to four-year accounting programs. Another partnership, with leading digital curriculum creator EVERFI, is bringing innovative curriculum to expose students to careers in accounting, attract greater diversity and representation within the profession.

I am incredibly proud of what we and our partners have accomplished with Accounting+ in 2022 but our work is not finished. With a budget for the next two years, we plan to:

• Broaden our ability to raise awareness among students of the benefits of a career in accounting,
• Connect students with tailored resources relevant to their academic and career pursuits in accounting,
• Champion our partners’ own collective initiatives to attract and retain diverse talent, and
• Ultimately, strengthen the accounting pipeline while closing the DEI gap so that the accounting and auditing profession reflects the communities it serves.

Achieving these goals is not only imperative for the future of the profession but also for audit quality. Auditors recognize that they are strengthened when their teams are represented by individuals with diverse backgrounds, ideas, and experiences.

While talent is one of our top objectives for 2023, the CAQ will also remain laser-focused on fulfilling our mission to:

• Promote high-quality performance by public company auditors and high quality audits,
• Convene capital market stakeholders to advance the discussion of critical issues impacting the profession, and
• Continue to develop and provide the profession with useful, relevant, and data-driven resources

Thank you for engaging with us, supporting the CAQ and supporting public company auditors.  To stay up-to-date on the CAQ’s work, visit caq.org or follow us on LinkedIn or Twitter.

Julie Bell Lindsay,
Chief Executive Officer, CAQ