Investors Could See Significant Improvements in 2015

Good things lie in store for investors in 2015.

By that, I don't mean to suggest that stocks or bonds will perform well. Market predictions are not my thing; I leave those to braver souls.

What I do see is a strong likelihood that hard work on key issues in corporate governance—on the part of both the private sector and policymakers—will bear fruit in 2015. Institutional and retail shareholders, at home and globally, stand to benefit from new insights and greater transparency.

The Tide is Flowing With the Investor

This prediction probably won't surprise regular readers of my Influencer posts. As I've discussed previously, my colleagues and I at the Center for Audit Quality strongly believe that efforts from stakeholders across the private and public sectors over the past decade have led to meaningful improvements in financial reporting, audit quality, and the functioning of the system of investor protection. The tide has been flowing with investors, not against them.

We see evidence of this trend in many places.

• Investor confidence: According to the CAQ's annual Main Street Investor survey (conducted in August), confidence in investing in U.S. public companies reached an all-time high of 80%. Additionally, 73% of investors indicate they have some, quite a bit, or a great deal of confidence in U.S. capital markets, an increase of four percentage points from 2013 and the highest level since 2009.
• Restatements: Research from multiple sources shows the number of financial restatements has declined significantly since its peak in 2006.
• Audit committee reporting: Research from the CAQ and EY shows that companies across the spectrum are increasingly providing investors with more disclosure regarding the work of audit committees.

Three Developments to Watch in 2015

In 2015, we should see considerable action on several issues with great potential to benefit investors.

One is the auditor's report. Regulators, such as the U.S. Public Company Accounting Oversight Board (PCAOB), have been working for years on a way to enhance the auditor's report. This is the section in financial statements where the auditor opines on whether the financial statements are fairly presented. The International Auditing and Assurance Standards Board has finalized new standards on the auditor's report, and the PCAOB will likely issue its final standard in January, with the new rules for 2016 year-end audits.

Another is the development of audit quality indicators (AQIs). For years, the public company auditing profession and policymakers have pushed to develop metrics that could provide audit committees and others with a broader understanding of audit quality. The PCAOB is likely to put forward a concept release on AQIs in 2015.

Finally, watch the issue of disclosure effectiveness. Securities and Exchange Commission (SEC) Chair Mary Jo White has been outspoken on corporate disclosure. Last January, she said “I believe we should rethink not only the type of information we ask companies to disclose, but also how that information is presented, where and how that information is disclosed, and how we can take advantage of technology to facilitate investors’ access to information and make it more meaningful to them." The SEC will likely put forward a rule proposal on this topic in 2015.

The Importance of Staying Engaged

So the tide is flowing with investors, and we're likely to see developments on key issues. But that doesn't mean we should simply sit back and watch. All of us need to stay involved and proactive. The policy process requires participation and public input to ensure that rules are effective and reflect marketplace realities.

If we provide this engagement and input, we can improve the environment for investors. Companies, markets, and the economy will benefit too.

A securities lawyer, Cindy Fornelli has served as the Executive Director of the Center for Audit Quality since its establishment in 2007.

Photo: Simon Cunningham/Lendingmemo.com, on Flickr.