Fortune 100 companies are becoming more transparent about their audit committees, going beyond the minimum disclosure requirements to, among other things, reveal more in their proxy statements about how they oversee external auditors.
According to a new report from Ernst & Young, first reported in Accounting Today, 31% of a sample of Fortune 100 companies explained the rationale for appointing their auditor, including the criteria used in assessing the auditor’s quality and qualifications, compared to 16% in 2012.
Forty-six percent of companies explicitly stated to shareholders that their selection of the external auditor was in the best interest of the company, shareholders, or both, up from 4% in 2012.
“The 2014 proxy season saw significant growth in audit committee transparency,” Ernst & Young said. “Continuing the trend of the past several years, an increased number of Fortune 100 companies are going beyond the minimum disclosures required.”
The accounting firm reviewed a total of 80 companies that filed proxy statements for three consecutive years as of August 15, finding a “consistent movement by Fortune 100 companies to enhance the depth and scope of audit committee-related disclosures.”
This trend, the report says, is being driven by the U.S. Securities and Exchange Commission and a variety of stakeholders, including regulators, investors and policy organizations, that are paying “significant attention” to audit committee disclosures.
In May, SEC Chair Mary Jo White said she intended to explore whether disclosures can be improved. “The audit committee plays a critical role in financial reporting oversight, and investors have expressed interest in increased transparency into the audit committee’s activities,” she noted.
In other findings from the EY report, 8% of companies disclosed the topics that the audit committee discussed with the auditor — beyond those required to be discussed under regulatory rules — and 8% acknowledged a change in fees to the external auditor and explained the circumstance for the change.
“The enhanced disclosures … afford investors and other key stakeholders greater insight and confidence in the important oversight work audit committees are undertaking to execute their responsibilities,” Allie Rutherford, director of corporate governance at the EY Center for Board Matters, said in a statement.
Source: Accounting Today Companies Increasing Audit Committee Transparency