Big Firms Expanding Voluntary Audit Disclosures

More companies are disclosing how they oversee external auditors and the audit committee's involvement in the auditor selection process.
Matthew HellerSeptember 9, 2015
Big Firms Expanding Voluntary Audit Disclosures

Large U.S. companies have significantly increased voluntary audit committee-related disclosures over the past four years, reflecting the demands of investors, policymakers, and other stakeholders for greater transparency, EY reports.

In a review of the 2015 proxy statements of Fortune 100 companies, EY’s Center for Board Matters says firms are continuing to exceed the minimum disclosure requirements. Under the Sarbanes-Oxley Act of 2002, audit committees took on a much larger role in oversight of auditors, but the law didn’t require them to disclose much about their efforts.

According to EY, more companies are disclosing how they oversee external auditors, with 71% specifying that the audit committee is responsible for the appointment, compensation, and oversight of the auditor, compared with 41% in 2012 and 65% in 2014.

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Sixty-one percent of companies disclosed that the audit committee was involved in the selection of the audit firm’s lead engagement partner — something no company did in 2012.

As far as disclosures related to the audit committee’s responsibility for compensating the auditor and pre-approving all fees paid to the auditor, 21% of companies disclosed that the audit committee was responsible for the auditor’s fee negotiations, compared with none in 2012, while 80% of companies said they consider non-audit services and fees when assessing the independence of the external auditor, compared with 11% in 2012.

Auditor tenure, meanwhile, was disclosed by 59% of reviewed companies, an increase from 25% of companies that did so in 2012. The median disclosed tenure was 18 years.

“Initiatives by regulators, investors, corporate governance leaders, and other stakeholders have encouraged these disclosures by raising awareness of the role of audit committees and noting the benefits of greater transparency such as increased investor confidence,” EY said.

The firm noted that the U.S. Securities and Exchange Commission is seeking public comment on current audit committee reporting requirements. “This and other actions by policymakers in 2015 likely will amplify the discussion — and affect the evolution — of the audit-related disclosure landscape in the coming years,” EY predicted.