More Auditor Disclosure Seen This Proxy Season

Fortune 100 companies have been disclosing more about their auditor in proxy statements — a trend likely to continue, says a new report.
Kathy HoffelderSeptember 16, 2013

More Fortune 100 companies disclosed information about their audit committees and external auditors this proxy season than is required, according to a new EY Corporate Governance Center report.

Out of the 78 companies in the study, 50 percent disclosed the audit committee was responsible for the appointment, oversight and compensation of the audit firm, which is up from 37 percent of those who revealed this information in their proxy statement in 2012.  

Most companies in the report that provided more audit- and audit-committee related disclosures in 2013 than in 2012 did so in the section of the proxy statement relating to the ratification of the auditor. For example, the findings show that 23 percent disclosed that the selection of the auditor is in the best interests of the company and shareholders, which was up from just 4 percent who disclosed this information in 2012.

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More auditor transparency also occurred in the selection of the lead partner in 2013. Seventeen percent of the firms disclosed that their audit committee was involved in the selection of the lead audit partner compared with only 1 percent who revealed this information in 2012.

Fifteen percent of the firms in the study noted in their 2013 proxy statement that the audit committee considered the impact of changing auditors when assessing whether to retain the current external auditor; this information was only disclosed by 3 percent of the firms in 2012.

The findings show CFOs and other corporate executives are listening to investors’ desires for such transparency, said Allie Rutherford, director of EY’s Corporate Governance Center, and a co-author of the report. “Transparency increases the level of confidence. In this case, enhanced transparency is informing investors and increasing investor confidence in the work of the audit committee and the auditors.”  

The EY report tracked the 2012 and 2013 proxy seasons and those companies that had an annual meeting by June 30, 2013. Proxy season runs typically from the end of the federal tax season on April 15 to the end of June.

Audit committees are already required to include in the proxy statement whether or not the auditor sent written disclosures relating to independence, the report notes. They must also state whether the audit committee has a charter, and if so, where it can be found. But companies generally do not provide a direct link to the charters in proxy statements, and navigation to the charter is not always intuitive, the report notes.

However, more disclosure should help. “We knew companies were making changes. The data proves there is movement in this area. This is the start of a new trend,” adds Rutherford.  

Increased auditor disclosure in proxy statements will likely continue for 2014. “It’s our understanding that investors will continue to focus on this. We expect to see additional transparency going forward,” she says. According to the report, companies may decide that the enhanced communication and transparency is in their self interest as well as the public’s interest.