Financial Reporting

S&P 500 Firms Beefing Up Audit Disclosures

A survey finds disclosure of information on key areas of external auditor oversight has more than doubled in the past two years.
Matthew HellerNovember 2, 2016
S&P 500 Firms Beefing Up Audit Disclosures

The percentage of S&P 500 companies that disclose information on key areas of external auditor oversight has more than doubled in the past two years, according to a new survey.

The 2016 Audit Committee Transparency Barometer, issued jointly by the Center for Audit Quality and Audit Analytics, found that 31% of S&P 500 proxy statements included enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm. That was up from 13% in 2014.

For mid-cap companies, the percentage rose to 22% from 10%, while small-cap firms showed an increase to 17% from 8%.

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S&P 500 companies disclosing that the audit partner rotates every five years increased to 39% from 16% and those explicitly stating the role audit committees play in negotiating audit fees was up from 8% to 17%.

“In our third year of analyzing proxy disclosures, we continue to observe encouraging trends in 2016 with respect to voluntary, enhanced disclosure around external auditor oversight, an important facet of the audit committee’s broader financial reporting oversight role,” the survey said.

It added, “Audit committees are responding to increased interest by investors, regulators, and other stakeholders in their roles and responsibilities by providing the marketplace with more meaningful information about the audit committee’s role in external auditor oversight.”

The results of the survey are consistent with data from EY’s Center for Board Matters, which reported in September that Fortune 500 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.

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.

The Transparency Barometer also found that 34% of S&P 500 companies disclose the evaluation or supervision of the audit firm, more than quadrupling from just 8% in 2014.