Auditors should take more responsibility for what goes into a company's annual report in order to restore investors' confidence in the contents, the head of one of the world's largest accounting firms said Monday.
Dennis M. Nally, chairman and senior partner at PricewaterhouseCoopers LLP, said audit reports “should cover the Management Discussion & Analysis, the proxy and other nonfinancial operating data.”
“As a profession, we should work with company management and the audit committee to … consider incorporating into the audit report disclosures that are critical to helping investors understand the company's business.” Nally said in a speech to the Economic Club of Detroit.
In typical report, auditors now offer “reasonable assurance” to investors that a corporation's balance sheet and statements of income and cash flows are free of “material misstatement.”
“Our audit report would extend to cover information in the MD&A relating to the impact of, say, exited businesses on the company's sales, on its margins, on its overall reported profits and, ultimately, on its cash flow,” Nally said.
The Securities and Exchange Commission has advocated similar changes for more than a year, said spokeswoman Christi Harlan.
“We welcome anyone who wants to join us in that effort,” she said.