A group of corporate governance and policy organizations is urging audit committees at public companies to strengthen their public disclosures so they can convey key elements of their critical work to investors and stakeholders more effectively.
The organizations issuing the “Call to Action” include the Center for Audit Quality, the National Association of Corporate Directors; the Association of Audit Committee Members, Inc.; The Directors’ Council; Tapestry Networks; NYSE Governance Services and Corporate Board Member.
“We believe that greater transparency about the audit committee’s roles and responsibilities is one way of increasing investor confidence, and an opportunity to communicate more clearly to shareholders about audit committee-related activities,” they said in a paper released Wednesday. “To this end, we believe that public company audit committee reporting can and should be strengthened, and we encourage all public company audit committees to renew their focus on this important issue.”
They contend that those with a stake in our financial markets should understand and have confidence in the audit committee’s work, and through their public disclosures, audit committees have the opportunity to educate others about their critical responsibilities.
Some of the recommendations they provide for the audit committee report include clarifying the scope of the audit committee’s duties, clearly defining the audit committee’s composition, disclosing the relevant factors considered when selecting an audit firm, providing relevant information about the audit committee’s involvement in the selection of the lead audit engagement partner, disclosing the key factors considered when compensating the external auditor, providing relevant information about how the audit committee oversees the external auditor, and providing relevant information about the evaluation of the external auditor.
The organizations came together last year to collaborate on projects aimed at expanding audit committee member access to tools and materials to strengthen their performance and transparency. They contend that audit committees play a critical role in the governance of public companies and in the integrity of the overall external financial reporting system. Audit committees of public companies are broadly charged with overseeing a company’s financial reporting process and for hiring, compensating, and overseeing the work of the external auditor.
“The Call to Action shows how some entities have successfully enhanced their audit committee disclosures without the need for new regulation or an expansion of the committee’s scope of work,” said Holly Gregory, a partner in the corporate governance and financial regulatory practice at Weil, Gotshal & Manges LLP.
The paper includes examples of emerging, voluntary practices of strengthened audit committee disclosures and cites studies examining recent trends in these practices. The recommendations do not require audit committees to take on additional responsibilities. Instead they focus on encouraging audit committee members to provide greater transparency to investors and others about the important work they are already doing.
The organizations behind this effort believe meaningful information and communication among the key players in our financial markets promotes investor confidence and that it is critical for audit committees to explore ways, such as those suggested in the paper, to improve the meaningfulness of the information they provide to the marketplace.
Individuals or organizations that want to officially indicate their support for the “Call to Action” in principle can do so by signing on at www.auditcommitteecollaboration.org.
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