Audit committee disclosure in proxy statements—2017 trends
Deloitte’s analysis of the 2017 S&P proxies
Transparency into audit committee oversight activities and performance provide a better understanding for investors.
Overview of audit committee activities disclosures
Over the past several years, investors and other governance groups have sought expanded disclosures on how audit committees execute their duties. The desired disclosures include details on how audit committees select (or, in many cases, re-appoint) the independent auditor; how committees assess and mitigate risks, including cyber-risk; and how they evaluate auditor independence, including the impact of tenure. The SEC also weighed in on the discussion when it issued a request for public comment on these topics in a July 2015 concept release titled Possible Revisions to Audit Committee Disclosures.
The SEC has not yet changed audit committee disclosure requirements in response to these efforts, and there is no indication that rule changes are likely any time soon. However, over the past several years companies have generally increased voluntary disclosures about the role and activities of audit committees. Deloitte’s analysis of the 2017 proxies of S&P 100 companies1 indicates that 50 percent of the disclosure topics included in the analysis increased as compared to 2016. Thirty-seven percent showed reduced disclosures concerning those topics. Because the composition of the S&P 100 changes annually, the companies analyzed in 2017 differed from those covered by the 2016 analysis. Added detail provided in the footnote.
Deloitte’s 2016 analysis revealed that disclosures in three areas increased by 10 percent or more over 2015: the number of financial experts on the audit committee, the audit committee’s role in reviewing earnings or annual report press releases with management and the independent auditor, and the audit committee’s role in approving audit engagement fees. In contrast, the 2017 analysis indicates that disclosures did not increase by more than 10 percent in any area. For the remainder of the areas reviewed, changes in disclosure increased or decreased by no more than four percent. However, the analysis revealed that, across all areas, the number of increases in disclosure outpaced decreases by twelve percentage points.
These statistics may be affected by a number of factors, including that as more companies have increased their audit committee disclosures over time, the year-over-year increases have diminished. It is also possible that companies have reduced the amount of “routine but not required” audit committee disclosures in favor of more substantive disclosures. However, it is not possible to determine whether these or other factors have influenced the modest increases, whether either or both of these factors explains the decreases reflected in the 2017 data, or whether other factors were at play.
Deloitte’s analysis indicates that S&P 100 companies uniformly comply with disclosure requirements related to the audit committee, which are summarized in the appendix. Therefore, the focus of this article will be on disclosures that either expanded on or went beyond those required elements, especially in the areas of oversight of the independent auditor, oversight of the financial reporting process, and other oversight responsibilities.
1 The 2017 study included all sections of the most recent annual proxy statements filed as of June 15, 2017, for the companies included in the S&P 100 index as of April 15, 2017. Because the composition of the S&P 100 changes annually, the companies analyzed in 2017 differed from those covered by the 2016 analysis; five of the companies in the 2017 analysis were not included 2016 analysis.