Companies making more disclosures about audit committees this year

Register now

Audit committees are disclosing more information about their auditors and audits this year, although the COVID-19 pandemic doesn’t seem to be having an impact on such disclosures, according to a new report from Big Four firm Ernst & Young.

The EY Center for Board Matters released an annual report on audit committee reports to shareholders. The report found that while the year-over-year change in the percentage of companies providing voluntary disclosures has changed only slightly, there has been a dramatic increase in disclosures in most categories since 2012. Nearly 80 percent of companies disclosed that the audit committee is involved in selecting the lead audit partner; none of them made that disclosure in 2012.

The report also found an increase in audit committees with two or more financial experts — up to 91 percent this year compared with 70 percent in 2012. “This could be indicative of the increasing complexity of risks that audit committees are dealing with, requiring more financial expertise,” said the report.

Nearly 90 percent of companies disclosed that the audit committee considers non-audit fees and services when assessing auditor independence, as opposed to only 19 percent in 2012. Almost two-thirds of companies said they consider the impact of changing auditors when assessing whether to retain the current external auditor, and 76 percent disclose the tenure of the current auditor. That’s up from only 3 percent and 25 percent, respectively, in 2012.

Sixty-four percent of companies disclose the factors used in the audit committee’s assessment of the external auditor qualifications and work quality, which is quadruple the 15 percent that disclosed such information in 2012.

One of the biggest changes this past year was in the disclosure of critical audit matters, or CAMS, in accordance with a recent standard from the Public Company Accounting Oversight Board. Fifteen companies (21 percent) provided voluntary disclosures relating to CAMs in the auditor’s report in the current year for the largest filers. Since 2019 was the first year that CAMs disclosures have been required by the PCAOB, EY had no previous data with which to compare that figure, but it found the disclosures generally noted that the audit committee reviewed and discussed with the external auditor any CAMs that arose during the current period audited.

Nearly 64 percent of companies included additional disclosures around risks beyond financial reporting that were being overseen by the audit committee. Some of the top risks overseen by audit committees include cybersecurity, data privacy, enterprise risk management and matters related to ESG (environmental, social and governance), health and safety. Many leading companies are also adding more specificity to the disclosures by highlighting any changes to oversight activities and some of the key focus areas for the audit committee for the year.

For reprint and licensing requests for this article, click here.
Audits CAMs Audit standards EY PCAOB Corporate governance