Post-SOX Audit Quality Has Improved, Say Nation’s Audit Committee Members

Respondents believe most SOX-related changes have had positive
impact
More than three-quarters of audit committee members who took part
in a recent survey commissioned by the Center for Audit Quality (CAQ) rate
overall audit quality "very good" or "excellent," and 82% say it has improved in
recent years.

The survey offers an unprecedented look at the views of key players in the
fight against corporate fraud—corporate board members who oversee the
preparation and auditing of public company financial statements. The findings
indicate that even in the face of market turbulence, audit committee members
have high confidence in the quality of audited financial statements and consider
the Sarbanes-Oxley Act (SOX) a positive influence.

About 53% of the audit committee members agreed that overall audit quality is
"very good," while 25% described it as "excellent." About 87% said the risk of
inaccuracies in financial statements due to fraud is "not very high," and 60%
agreed that the risk declined after the passage of SOX. Audit committee members
indicate they believe the risk of fraud and materially inaccurate statements is
low due to tightened internal controls and increased external auditor scrutiny.

Nearly two-thirds (65%) agreed that investors should have more confidence in
the markets as a result of the 2002 law.

"The findings confirm that public company audit quality is high and has only
gotten better in recent years, according to the people closest to the process,"
said CAQ Executive Director Cindy Fornelli.

The views of audit committee members echo the results of a CAQ poll of
investors last July. That survey found that 80%of investors had confidence in
audited financial information, and 56% thought SOX was a good idea.

The CAQ periodically measures attitudes toward the capital markets as part of
its mission to improve financial reporting and enhance investor confidence.

"The CAQ’s research tells us that Sarbanes-Oxley is working—for investors,
for audit committee members and for our capital markets," said Michele Hooper,
co-founder of The Directors’ Council and one of three public members on the
CAQ’s governing board. "We should always strive to do better when it comes to
safeguarding the integrity of the markets, but it’s good to know that we’re
making progress."

Participants in the audit committee survey represented a broad range of
publicly traded companies. All served on at least one audit committee in 2007.
Six in 10 served on two or more audit committees, and half were committee
chairs. About 56% began their service as audit committee members prior to
enactment of SOX.

Overall, 58% of the audit committee members said changes resulting from SOX
had a positive impact. They offered several reasons for the improvement, among
them:

  • Increased audit committee oversight—92%
  • Requirements regarding internal controls—87%
  • Better communication within audit committees—85%
  • CEO/CFO sign-off on financial statements—81%
  • Increased emphasis on quality by auditors—77%
  • More rigorous audits—76%
  • Audit committee oversight of auditors—76%

Nearly all of the audit committee members (99%) said they devote more time to
their committee work as a result of SOX. About 90% said they work more closely
with external auditors.

The audit committee members expressed mixed views on the efficacy of audited
financial statements filed with the U.S. Securities and Exchange Commission
(SEC). Although most described financial statements as "easily accessible" (81%)
and "relevant to investors" (87%), 78% said they are too complicated.

Since 1972, the SEC has encouraged the establishment of audit committees, a
committee of the board of directors of publicly held companies. The
Sarbanes-Oxley Act of 2002 expanded the role of audit committees by increasing
their responsibility and requiring them to limit their composition to
independent directors. Audit committees are charged with monitoring the internal
control processes, the hiring and firing of external auditors and overseeing the
audit and financial reporting processes.

The Internet survey of 253 audit committee members was conducted between
January 7 and February 20, 2008, by The Glover Park Group. The survey
questionnaire and complete results are posted on the CAQ’s Web site at www.thecaq.org/newsroom/pdfs/auditsurvey.pdf.

Source: The Center for Audit Quality (CAQ)

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