The Commission's most recent work regarding audit committee independence and disclosure has cemented this principle. It is equally well accepted that an independent audit is necessary for the committee to perform its function. More pointedly, independent audits are critical to the efficiency and integrity of the capital markets. As the Commission noted in Release 33-7870, Capital formation depends on the willingness of investors to invest in the securities of public companies. Investors are more likely to invest, and pricing is more likely to be efficient, the greater the assurance that the financial information disclosed by issuers is reliable.
Independent auditors play a key role in providing that assurance. . .
Based on the independent auditor's opinion, investors have reason to believe that financial statements are materially accurate, fair, and complete. Recognizing this increasing complexity, it is CalPERS' view that well-defined standards, principles and rules must be adopted. We note that some suggest that Rulemaking is unnecessary because of a lack of empirical data precisely linking each of the independence issues identified in the Proposed Rules with some financial harm to the company and its investors. A decade ago, this was also said about much of what has now been well established as good corporate governance practices. The concept that an auditor with a greater financial incentive to please corporate management than to criticize it will tend to find ways to avoid negative comment is intuitive and obvious.