The Future of Assurance in Capital Markets (Forthcoming in Accounting Horizons)
Efficient capital markets rely on a continuous supply of reliable and timely information and auditors are critical to this process. The economic value of an audit derives from making information more reliable to users (i.e., to reduce the risk of erroneous or manipulated information influencing the judgments of market participants). Traditionally, the focus of auditing has been on annual financial reports; however, given the speed of information creation and dissemination, the role of auditors may need to adapt or expand in the future. There are three areas where auditors might help improve information quality: (1) non-GAAP earnings, (2) ESG reporting, and (3) cybersecurity risks disclosures. To provide assurance over these types of information, audit firms need to identify the appropriate subject matter for assurance, obtain the expertise to provide assurance, develop a verification process for providing assurance, and commit to a system of organizational support for the assurance process. Multidisciplinary practices have the potential to provide expanded assurance over more information, as well as assurance related to the processes that generate the information. However, success is not inevitable, and market, social, and regulatory forces will have much to say about the emergence of new assurance initiatives.
Authors
Knechel is a professor at the University of Florida Fisher School of Accounting since 1981. He is also a Visiting Research Professor of Auditing at the University of Auckland Business School, Research Professor in Auditing at KU Leuven and Visiting Professor Accounting & Information Management at the University of Maastricht. Knechel is a member of the Standing Advisory Group of the Public Company Accounting Oversight Board and a board member of The Foundation for Auditing Research. Knechel received his B.S. in Accounting from the University of Delaware and his Ph.D. from the University of North Carolina at Chapel Hill. In june 2018, Knechel received an honorary doctorate from BI Norwegian School of Business.