The economy, cybersecurity, climate change, and cryptocurrency are among top concerns for the year ahead expressed by 700 U.S. public company audit partners as part of the Center for Audit Quality’s (CAQ) first “Audit Partner Pulse Survey” released July 6.
“We’re excited to launch this first-of-its-kind survey of the U.S. public company audit industry that will offer a bird’s-eye view of the state of the economy that only auditors can provide,” said CAQ Chief Executive Julie Bell Lindsay. “We intend for this survey to be a regular initiative by CAQ.”
Here are highlights of the survey’s findings:
State of the economy: Most audit partners are not feeling optimistic about the economy over the next 12 months, with 84 percent responding they are pessimistic or neutral. The survey was conducted in the second half of May 2022, at a time when the S&P 500 was experiencing its lowest performance since early 2020. The Covid-19 pandemic, changes in demand and spending, and the war in Ukraine have led to rising inflation; 75 percent of partners believe inflation will be a factor beyond the next 12 months, and 77 percent expect companies to raise consumer prices in response.
The top economic risks facing companies identified in the study were inflation (62 percent), labor shortages (52 percent), and supply shortages and supply chain disruptions (50 percent).
To respond to these economic risks, the top corporate priorities identified for 2022 were talent and labor (53 percent). Audit partners observed public companies are facing challenges attracting and retaining talent because of the so-called “The Great Resignation.” The top retention methods companies are using are increasing workplace flexibility (75 percent) and compensation (73 percent).
Other priorities noted were growth (40 percent), cost management (38 percent), and financial performance (38 percent).
Cybersecurity: There have been significant increases in cyberattack threats, and the government and companies have heightened their focus on cybersecurity in response. Cybersecurity was cited as a top economic risk by 39 percent of audit partners surveyed, with perceived risk being highest for the financial services and technology, telecommunications, media, and entertainment sectors.
Partners indicated more progress is needed in this area, and public companies across industry sectors overall are only moderately prepared, although the sectors with the highest risk have higher preparedness related to cyberattacks.
Half or more of those surveyed reported companies have more work to do in the areas of managing cyber risk, aligning cybersecurity with company goals and culture, and enhancing related disclosures. On the plus side, 54 percent of the partners did note significant progress has been made in communications of cybersecurity matters between management and the board.
Climate change: Partners noted climate change is both a short- and long-term priority for public companies, including sustainability reporting improvements (47 percent) and climate-related risk (46 percent). Overall, 63 percent of those surveyed said public companies are incorporating climate in developing their corporate strategies, with variances by industry and market cap.
Corporate actions related to diversity, equity, and inclusion are also increasing, including board diversity, tracking metrics, and DEI transparency and disclosures.
Those surveyed indicated there are reporting challenges for companies to respond to the increasing demand for environmental, social, and governance (ESG) information and potential regulatory changes. These include a lack of tools for collecting and analyzing ESG data (49 percent), diversity of standards and frameworks (40 percent), and lack of expertise (38 percent).
Cryptocurrency: Public companies are not prioritizing acceptance of cryptocurrency as a form of payment, according to 69 percent of partners, although the financial services and telecommunications, media, and entertainment sectors are more likely to do so.