During the 2013 proxy season, the majority of Fortune 100 companies disclosed more information about their audit committees and external auditors than is required, according to a new report by Ernst & Young.
The EY report, Audit Committee Reporting to Shareholders, examined trends at 78 Fortune 100 companies that filed proxy statements for 2012 and 2013 and had an annual meeting by June 30, 2013.
The report found more disclosures in areas in which investors were asking for more information. For example, companies disclosed when the selection of the auditor was in the best interests of the company. While only 4 percent of the companies for the report disclosed this in 2012, 23 percent of the reviewed companies disclosed this in 2013.
Other disclosures involved when the audit committee was involved in the selection of the lead audit partner. While just 1 percent of the companies reviewed by EY disclosed this in 2012, 17 percent of the reviewed companies disclosed this in 2013.
An increasing number of companies also disclosed whether the audit committee considered the impact of changing auditors when assessing whether to retain the current external auditor. Only 3 percent of the reviewed companies disclosed this in 2012, but 15 percent of them disclosed this information this year.
EY expects to see more disclosure in the future, noting that the number of audit committees with at least two financial executives has been increasing in recent years, with the reviewed companies having an average of 2.7 financial experts on their audit committees in both 2012 and 2013. In addition, the reviewed companies’ audit committees that disclosed information about their assessments of their external auditor said the assessment was based on leadership criteria such as independence, integrity, expertise and the quality of the auditor’s personnel and communications.
Independence is an important factor when audit committees assess their auditors. “A statement that the audit committee considers non-audit fees and services when assessing the independence of the auditor was disclosed by 47 percent of companies in the audit committee report, while 32 percent made it elsewhere in the proxy,” said the report.
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