Financial Reporting

Voluntary Audit Disclosures Continue to Grow

An EY report says more companies are disclosing how they oversee and appoint external auditors and the reasons for changes in fees.
Matthew HellerSeptember 28, 2016

Large U.S. companies are continuing to increase voluntary audit committee-related disclosures in a number of areas including how they oversee and appoint external auditors and the reasons for changes in fees.

In a review of the 2016 proxy statements of Fortune 100 companies, EY’s Center for Board Matters says firms are exceeding the minimum disclosure requirements in response to the concerns of investors. 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 82% specifying that the audit committee is responsible for the appointment, compensation, and oversight of the auditor, compared with 65% in 2014.

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The percentage of companies that disclosed factors considered by the audit committee when assessing the qualifications and work quality of the external auditor increased by 50%, up from 42% in 2015.

“As institutional investors demand enhanced transparency and better communications from boards, audit committees at Fortune 100 companies continue to respond by offering greater insights into their oversight work,” Ann Yerger, executive director of the EY Center, said in a news release. “It’s encouraging that voluntary audit-related disclosures continue to grow.”

EY reported a significant increase in disclosures stating that the audit committee believed the choice of external auditor was in the best interests of the company and/or the shareholders. In 2016, 73% of companies disclosed such information, up from 63% in 2015 and only 3% in 2012.

As far as fee-related disclosures, 31% of companies provided information about the reasons for changes in fees paid to the external auditor, compared to 21% the previous year.

The report noted that over the past year, the SEC has taken a series of actions to consider whether and how to improve transparency around audit committees, audits and financial reporting more generally.

“The combined effect of these activities has been to increase engagement by issuers, audit firms, investors and other stakeholders in discussions about the current state of financial reporting-related disclosure as well as how it should change,” EY said.