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Audit Committees Shed More Light on Auditor Oversight

Audit committees are increasing the amount of information they are giving investors on the actions they are taking to oversee their outside auditing firms, according to a new report.

The annual Audit Committee Transparency Barometer report from the Center for Audit Quality and Audit Analytics found double-digit growth in the past two years in the percentage of S&P 500 companies that disclose information on issues such as auditor appointment and audit partner rotation.

The report looked at S&P 500 large-cap companies, the S&P MidCap 400, and the S&P SmallCap 600. It found that 31 percent of S&P 500 companies’ proxy statements provide an “enhanced” discussion of the audit committee’s considerations in recommending the appointment of the audit firm, up from 13 percent in 2014. Of the MidCap companies, 22 percent provide such a discussion (an increase from 10 percent in 2014) compared to 17 percent of SmallCap companies (up from 8 percent in 2014).

On top of that, 17 percent of S&P 500 companies explicitly spelled out the role of audit committees in negotiating audit fees, more than double the 8 percent back in 2014. The report also found that 34 percent of S&P 500 companies disclose evaluation or supervision of the audit firm, more than quadrupling the 8 percent in 2014.

“Audit committees play important roles in enhancing audit quality and representing investor interests, so it is encouraging to observe how public companies continue to shed more light on audit committee practices,” said CAQ executive director Cindy Fornelli in a statement.

The report includes examples of disclosure practices that show audit committees are tailoring their disclosures for their specific company, avoiding a one-size-fits-all approach.

“To see the continuous improvement and greater transparency in audit committee disclosure is very motivating to our research team,” said Audit Analytics CEO Mark Cheffers in a statement.

As a supplement to the report, the CAQ has created a YouTube video that features interviews with audit committee chairs discussing the appointment, compensation and oversight of audit firms. 

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