Risk & Compliance

Audit Committees Say More About Auditor Choices

Public companies' most recent proxy statements contain more disclosure from their audit committees about the selection and oversight of external au...
David McCannNovember 5, 2018
Audit Committees Say More About Auditor Choices

Audit committees are continuing a long-term trend of providing more disclosure about their selection of independent auditors.

For the fifth year, the Center for Audit Quality (CAQ) and Audit Analytics (AA) analyzed all proxy statements filed by the S&P Composite 1500 companies between July 1 and June 30.

Both the overall rate of disclosure and the extent of increased disclosure since the year-prior proxy were highest among the S&P 500. For example, this year, 46% of the large-company group disclosed the criteria used in evaluating audit-firm performance. That was up from 38% last year and just 8% in the first CAQ/AA study in in 2014.

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40% of the large-company group disclosed their considerations in appointing their audit firm. That was up three percentage points from 2017 and 27 points higher than the first CAQ/AA study in 2014.

Trend lines pointed in the same direction for the proportion of S&P 500 companies that disclosed:

  • Considerations in appointing an audit firm (40% this year, 37% last year, 23% in 2014)
  • Length of audit-firm engagement (70%/63%/47%)
  • That the audit committee was involved in audit-partner selection (52%/49%/13%).

The report noted that the trends were consistent with recent findings by Deloitte’s Center for Board Effectiveness and EY’s Center for Board Matters, both of which track audit committee disclosure in the Fortune 100.

“Over the past five years, audit committees have provided increasingly robust disclosures about their important investor-protection role in overseeing the external audit,” said CAQ executive director Cindy Fornelli.

Calling it “a clear success story,” Fornelli said the trend “strengthens both the confidence of investors and their ability to make sound decisions in the capital markets.”

Still, many opportunities remain for enhanced transparency and clarification of the audit committee’s involvement in overseeing the external auditor, according to the report.

“The opportunities are well worth exploring,” the report said. “In addition to communicating regulatory requirements to oversee the external auditor, providing insights into how that oversight is executed is useful to investors and other stakeholders.”