S&P 500 companies are being more transparent about how their audit committees are choosing and paying audit firms.
A new report by Audit Analytics and the Center for Audit Quality found that one-quarter of S&P 500 companies show enhanced discussion of the audit committee’s considerations in recommending the appointment of the audit firm, up from 13 percent last year. In addition, 16 percent of S&P 500 companies explicitly stated the role played by audit committees in determining the audit firm’s compensation, doubling from 8 percent in 2014.
Disclosure of the criteria considered when evaluating the audit firm more than tripled among S&P MidCap 400 companies, rising from 7 to 25 percent, according to the report, the second annual edition of the Audit Committee Transparency Barometer. Disclosure of this criterion among S&P SmallCap 600 companies increased from 15 to 22 percent.
“These efforts by audit committees to enhance their disclosures are encouraging, given the importance of meaningful, tailored information for investors and other stakeholders,” said CAQ executive director Cindy Fornelli in a statement. “By tracking this data and providing examples, the Barometer can provide fresh perspective to companies as they assess their approach to these disclosures in coming proxy seasons.”
The report suggests audit committees are responding to increased interest from investors, regulators, and other stakeholders in the roles and responsibilities of audit committees by providing more meaningful information about their role in external auditor oversight. The report offers several examples of leading disclosure practices that show audit committees are tailoring these enhanced disclosures specifically to the company, and not using a one-size-fits-all approach.
“Year two of the Barometer has shown that audit committee disclosure is becoming more meaningful,” said Audit Analytics CEO Mark Cheffers. “We hope that the disclosure intelligence we are providing through this research will continue to aid in measuring this improvement and providing insight to investors.”
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