Audit Committee Responsibilities, Disclosures, Continue to Expand According to Joint Reports
Wednesday, November 30, 2022
Washington, DC (November 30, 2022) – Audit committees are increasingly including disclosures about several key areas of oversight within public company proxy statements according to a new report from the Center for Audit Quality and Audit Analytics – an Ideagen solution. The results of the 9th annual Audit Committee Transparency Barometer reflect a long-term positive trend of increased transparency in several areas by audit committee members.
The report found several positive disclosure trends among the S&P 500. Among them, cybersecurity disclosures continue to increase year-over-year, consistent with expectations as cybersecurity threats grow. Fifty-four percent of the S&P 500 audit committees reported having responsibility for cyber risk oversight, an eight-percentage point increase since 2021. Given the rise in environmental, social and governance (ESG) reporting, the report also for the first time tracked disclosure of audit committee oversight related to ESG. For S&P 500 companies, 39% of audit committees disclosed having an ESG or sustainability expert on the board, while 18% of audit committees disclosed responsibility of oversight of ESG.
“Now in its ninth year, the Audit Committee Transparency Barometer continues to be a unique resource for audit committees and other market stakeholders,” said Michael Nohrden, VP Strategy Audit and Risk for Ideagen. “We are pleased to continue to partner with the CAQ in developing the only report with such comprehensive data across the S&P 1500 related to audit committee transparency.”
The report also identifies areas where audit committees can provide more tailored disclosures. While 71% of audit committees of S&P 500 companies disclose auditor tenure in the proxy statement, only 9% of such audit committees disclose how the audit committee considers length of auditor tenure when re-appointing the external auditor. And while 51% of audit committees of S&P 500 companies disclose that they are involved in the selection of the audit engagement partner, few disclosed what their involvement in the selection of the audit engagement partner entails.
“We know that audit committee disclosures are correlated with enhanced audit quality and auditor independence, and we’re pleased to observe a continued positive trend of these disclosures in proxy statements,” said Julie Bell Lindsay, Chief Executive Officer, CAQ. “We encourage audit committees to consider how they can provide even more detailed disclosures in areas such as the execution of oversight responsibility to give investors insight into the processes, considerations, and decisions made by the audit committee.”
Given the increasing scope of oversight, how audit committees manage and disclose these responsibilities is an important consideration in today’s environment. These considerations are discussed in a separate report developed by the CAQ and academic researchers at the University of Tennessee Knoxville’s Neel Corporate Governance Center and the Pamplin College of Business at Virginia Tech. Published in conjunction with the Barometer, “Audit Committee: The Kitchen Sink of the Board,” offers leading practices for audit committees, including how boards can effectively allocate oversight responsibilities to the audit committee, how audit committee members can keep up with an ever-evolving workload, and how audit committees can improve their disclosures related to their oversight responsibilities.
In a statement, the researchers from the University of Tennessee and Virginia Tech said, “Our study is based on 2,200 minutes of interviews with audit committee chairs or members as well as other stakeholders. Forty percent of audit committee members interviewed described their audit committees as the ‘kitchen sink’ of the board given their increasing scope and workload. Audit committees are an essential component to the health of our financial reporting ecosystem and capital markets. It’s vital that they have the tools and resources they need, including peer insights and leading practices, to play an effective role in oversight and, ultimately, investor protection. This report provides a step-by-step guide for audit committee members to provide ideas for managing this evolving workload and enhancing their disclosures.”
About The Center for Audit Quality
The Center for Audit Quality (CAQ) is a nonpartisan public policy organization serving as the voice of U.S. public company auditors and matters related to the audits of public companies. The CAQ promotes high-quality performance by U.S. public company auditors; convenes capital market stakeholders to advance the discussion of critical issues affecting audit quality, U.S. public company reporting, and investor trust in the capital markets; and using independent research and analyses, champions policies and standards that bolster and support the effectiveness and responsiveness of U.S. public company auditors and audits to dynamic market conditions.
About the Researchers
Lauren Cunningham, PhD, CPA (TN), is the Keith Stanga Professor of Accounting at the University of Tennessee, Knoxville, and the Director of Research for the C. Warren Neel Corporate Governance Center. Sarah Stein, PhD, CPA (CO), is an associate professor and the Deloitte Foundation Faculty Fellow in the Department of Accounting and Information Systems at Virginia Tech. Kimberly Walker, PhD, CPA (NC), is an assistant professor in the Department of Accounting and Information Systems at Virginia Tech. Karneisha Wolfe, CPA (NC), is a PhD candidate in the Department of Accounting and Information Systems at Virginia Tech.
About the Neel Corporate Governance Center
The Neel Corporate Governance Center at the University of Tennessee, Knoxville’s Haslam College of Business was founded in 2003 following the wake of corporate scandals that preceded the Sarbanes-Oxley Act of 2002. The center’s mission is to conduct and disseminate nationally recognized research on corporate governance with a focus on public policy. Faculty members from Haslam’s accounting, economics and finance departments, as well as from UT’s College of Law, collaborate to provide an interdisciplinary view on a variety of topics.
About Pamplin College of Business
Virginia Tech’s Pamplin College of Business is catalyzing the next generation of business leaders through its nationally ranked undergraduate and graduate academic programs in Blacksburg, the greater Washington, D.C., metro area, and across the commonwealth. Pamplin emphasizes technology and data analysis that improve business, entrepreneurship that leads to innovation, international opportunities for learning and research, and an inclusive collaborative community.
About Audit Analytics – An Ideagen Solution
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, email firstname.lastname@example.org or call 508-476-7007.
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