On December 2, the Center for Audit Quality and Audit Analytics released the Audit Committee Transparency Barometer which presents the results of their analysis of 2014 audit committee disclosures in proxy statements of 1,500 companies. The CAQ/Audit Analytics report applies a “barometer” -- The Audit Committee Transparency (ACT) Barometer – which the report states is “focused on measuring the content of proxy statement disclosures in certain key areas, including auditor oversight and audit committee scope of duties.” This information is intended to “serve as a baseline reference point measurement for reporting by companies in these indices in future proxy seasons.”
The report analyzes proxy statement disclosures made by the 1,500 companies that comprise the S&P 500 large-cap index, the S&P MidCap 400, and the S&P SmallCap 600. The barometer project builds on the CAQ’s 2013 work with the Audit Committee Collaboration and the publication in 2013 of Enhancing the Audit Committee Report: A Call to Action (see November-December 2013 Update) and on the evaluation of trends in audit committee disclosures recently published by Ernst & Young’s Center for Board Matters (see September 2014 Update).
Key findings of the 2014 barometer analysis include:
- 83 percent of S&P 500 companies, 69 percent of S&P MidCap companies, and 58 percent of S&P SmallCap companies discussed how non-audit services may impact auditor independence.
- 47 percent of S&P 500 companies, 42 percent of S&P MidCap companies, and 50 percent of S&P SmallCap companies disclosed the length of time their auditor has been engaged.
- 13 percent of S&P 500 companies, ten percent of S&P MidCap companies, and eight percent of S&P SmallCap companies discussed factors the audit committee considered in appointing the company’s auditor, such as qualifications, geographic reach, and firm expertise.
- 13 percent of S&P 500 companies, four percent of S&P MidCap companies, and one percent of S&P SmallCap companies discussed audit fees and their connection to audit quality.
The report includes examples of audit committee disclosures in these and other areas.
Comment: Support for expanded audit committee reporting – voluntary or otherwise – has gathered considerable momentum during the past year. Audit committees may want to review the CAQ’s barometer, the 2013 Call to Action, the E&Y report, and similar sources in order to get a sense of how their disclosures compare to those of comparable companies. As a new proxy season approaches, committees should give thought to including in their reports the additional information that is becoming common, if they are not already doing so. As noted in the October-November 2014 Update, the SEC apparently intends to turn its attention during 2015 to mandating additional audit committee disclosures.