November 1, 2017

Report: Audit Committees Continue to Increase Transparency of External Audit Oversight

Washington, DC – The amount of information available to investors and other stakeholders on audit committee oversight of the external auditor continues to increase, according to the latest edition of the Audit Committee Transparency Barometer, an annual report issued jointly by the Center for Audit Quality (CAQ) and Audit Analytics.

“For the fourth year in a row, audit committees have continued to enhance transparency around their oversight of the external auditor by voluntarily and broadly increasing disclosure,” said CAQ Executive Director Cindy Fornelli. “With robust data and real-world examples of effective proxy disclosures, the Audit Committee Transparency Barometer is a resource for companies looking to better communicate with investors, regulators, and the public.”

Each year since 2014, the Barometer has measured the robustness of proxy disclosures among companies in the S&P Composite 1500. This index is comprised of the S&P 500 (large-cap companies), the S&P MidCap 400, and the S&P SmallCap 600.

The fourth edition of the Barometer provides year-over-year comparisons of key audit committee disclosure areas for companies of all sizes. Notable findings include:

  • Thirty-seven percent of S&P 500 companies’ proxy statements present enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm, up from 13 percent in 2014.
  • Twenty-four percent of mid-cap companies show enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm (up from 10 percent in 2014) compared to 17 percent of small-cap companies (up from 8 percent in 2014).
  • Thirty-eight percent of S&P 500 companies disclose criteria considered when evaluating the audit firm, a jump from 8 percent in 2014. 
  • Twenty-eight percent of mid-cap companies disclose criteria considered when evaluating the audit firm (up from 7 percent in 2014) compared to 27 percent of small-cap companies (up from 15 percent in 2014).

The 2017 Barometer includes an opportunity for audit committees to enhance transparency regarding the disclosure of whether the evaluation of the external auditor is at least an annual event. Since the CAQ believes providing constructive feedback to the external auditor can improve audit quality, the disclosure that annual evaluations occur can be an important point of transparency for investors and other stakeholders.

“Audit Committees and investors have a tremendous resource in the Audit Committee Transparency Barometer,“ said Mark Cheffers, CEO of Audit Analytics.  “Now with four years of data and analysis, professionals can really see the areas in which companies have enhanced transparency around the oversight of the external auditor and cite concrete examples of effective disclosure.”

The Barometer offers examples of leading disclosure practices that show how audit committees are tailoring these enhanced disclosures specifically to the company.

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About the CAQ

The Center for Audit Quality (CAQ) is an autonomous, nonpartisan public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit www.thecaq.org.

About Audit Analytics®

Audit Analytics is an independent research provider that enables the accounting, legal, and investment communities to analyze auditor market intelligence, public company disclosure trends, and risk indicators. For more information, please e-mail info@auditanalytics.com or call 508-476-7007.