Audit committees voluntarily disclosing more about auditor oversight

Audit committees increasingly are providing more information about their oversight of external auditors to investors and other stakeholders, according to a new analysis.

The percentage of S&P 500 companies disclosing information on certain key areas of external auditor oversight, including auditor appointment and audit partner rotation, grew by double digits over the past two years, according to the Audit Committee Transparency Barometer analysis for 2016.

The analysis was conducted by the Center for Audit Quality (CAQ), which is affiliated with the American Institute of CPAs, and by Audit Analytics.

Nearly one-third (31%) of S&P 500 company proxy statements present enhanced discussion of what the audit committee considered in recommending the appointment of the audit firm, up from 13% in 2014. Companies in the S&P MidCap 400 (up to 22% from 10%) and the S&P SmallCap 600 (up to 17% from 8%) also saw such disclosures grow over the past two years.

“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,” CAQ Executive Director Cindy Fornelli said in a news release.

Disclosures of length of audit firm engagement also rose to 59% from 47% two years ago for S&P 500 company audit committees, although the S&P MidCap (up to 45% from 42%) and the S&P SmallCap (48%, down from 50%) numbers showed little change on this disclosure.

S&P SmallCap audit committees showed a significant jump to 69% from 58% over the past two years in disclosures about how non-audit services may affect independence. This disclosure changed less for S&P 500 (81%, down from 83%) and S&P MidCap (73%, up from 69%) audit committees.

—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine editorial director.