Even as inflation has pushed prices to all-time highs this year, a majority of partners at auditing firms are hopeful inflation and price increases will end within the next six to 12 months, according to a new survey by the Center for Audit Quality.
Nevertheless, 57% of the 648 auditor partners polled were pessimistic to very pessimistic on the outlook for the U.S. economy, a 13-point increase since public company auditors were surveyed in the spring.
Concerns over increasing costs have increased, with 75% of audit partners pointing to inflation as the biggest economic risk to public companies in their industry sector, followed by labor shortages (48%) and supply chain issues (44%).
"With ongoing concerns about inflation and a potential recession, it's no surprise that business leaders are reexamining their growth strategies," said CAQ CEO Julie Bell Lindsay in a statement. "But the ways they're adjusting, including throttling back on mergers and acquisitions and scaling back on hiring, stood out to us and suggest that cash flow is a top priority, at least in the short term."
In a previous survey this spring, the audit partners reported that public companies were focused on M&A as a top mitigation strategy but the latest survey this fall found that M&A activity was down among the respondents. Instead, the public companies where they work are more focused on cost management. Most frequently, they are reevaluating their investments and spending less, while increasing their focus on cash flow and liquidity and decreasing their revenue forecasts.
Partners’ attitudes are impacting recruiting trends. This spring, public companies were focused on hiring new talent, but they're now more focused on retaining their talent and in some cases reducing headcount to maintain costs. That matches recent headlines about major layoffs at public companies like Amazon, Twitter and Meta. Reducing headcount is an action taken by or being considered more frequently by public companies, with a 14-percentage point increase since the spring survey (22% up from 8%). Increasing compensation and upskilling workers were the top actions for retaining employees at U.S. public companies cited by the audit partners surveyed.
The audit partners polled by the CAQ see U.S. public companies taking several factors into account when developing corporate strategies to manage risks, including resource scarcity (86% of audit partners), emerging technology (63%) and climate change (59%).