Auditor Resilience Contributes to Capital Markets During the Pandemic

Capital markets are complex. Many factors contribute to their stability: public company financial performance, investor confidence, and legislative and federal government intervention, to name a few.

The list is long, but one often overlooked contributor to the stability of capital markets is public-company auditors, who are demonstrating their resilience to deliver high-quality audits during the COVID-19 pandemic.

As the US Securities and Exchange Commission said of auditing in April, “the proper functioning of our capital markets depends on a regular supply of high-quality financial information that enables investors, lenders, and other stakeholders to make informed decisions.” And the proper functioning of the capital markets is an essential component of our national response to, and recovery from, COVID-19.

As public-company boards are well aware, COVID-19 is creating new and evolving risks that could require changes to the design and operation of internal controls or other processes related to financial reporting.

US public-company audit firms have vast experience with numerous accounting issues across myriad organizations. As a result, they can draw on this expertise to navigate complex accounting issues that may be new to many public companies in this crisis. For example, management is required to conduct going concern evaluations quarterly, but some companies are for the first time facing substantial doubt that they can continue to operate. Auditors serve as a vital communication link between all of the different relevant parties inside a company to make sure they are aware of their responsibilities and are performing robust going concern evaluations.

Auditors have also stepped up in other ways to address the challenges facing public companies and their boards during the pandemic. After the onset of the pandemic, auditors quickly adapted to the new normal of remote auditing while remaining laser-focused on audit quality. Audit firms quickly reinforced or instituted new policies and procedures to react to the facts on the ground. This was an essential step that contributed to the continuation of high-quality financial reporting during the immediate challenges the pandemic presented.

Auditors continue to serve as gatekeepers of the financial reporting ecosystem. They’re in regular communication with regulators, audit committees and boards, and company management, sharing information about what they’re seeing on the ground and how they are addressing those issues.

To help inform public companies and other financial reporting stakeholders of the ways in which auditors are stepping up to help maintain the orderly operation of capital markets during the pandemic, the Center for Audit Quality (CAQ) recently launched the Audit in Action campaign. The campaign highlights auditors through compelling videos, blog posts, and other dynamic stories to put a face to the people who play a significant role in keeping our capital markets functioning. 

Boards can leverage such auditor expertise and innovation to help them navigate complex accounting challenges during the pandemic. To further help with such challenges, the CAQ has developed a set of resources for financial reporting stakeholders, including boards, that cover everything from going concern to non-GAAP financial measures to goodwill impairments, and more.

Auditors know the strain facing public companies during the pandemic may be far from over. Thus, they will need to remain resilient and adaptable for as long as the pandemic continues. I have confidence they will do just that.

Ultimately, it takes all stakeholders in the financial reporting ecosystem, including public-company management, audit committees, internal auditors, and external auditors, to provide high-quality financial information that contributes to market resilience during these unprecedented times.

Julie Bell Lindsay is the executive director at the Center for Audit Quality.