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Trends in audit committee reporting
Deloitte’s latest audit committee proxy statement analysis
For the past several years, various governance groups and investors have encouraged audit committees to disclose more information on how they execute their duties. Deloitte’s latest proxy statement study confirms that voluntary disclosure is increasing at a slow and steady pace. While it is not necessary, or possible, to disclose everything an audit committee does each year in fulfilling its duties, providing additional insight into the structure and key activities of the audit committee can help increase investor confidence in both the audit committee and the company as a whole.
Deloitte's latest audit committee proxy statement analysis
For the past several years, various governance groups and investors have encouraged audit committees to disclose more information on how they execute their duties. As recently as November 2016, the United Brotherhood of Carpenters’ Pension Fund announced that it would send letters to 75 companies encouraging their audit committees to enhance auditor independence disclosures in 2017 proxy statements—a request they have been making since 2013. The Securities and Exchange Comission (SEC) weighed in on the discussion when it issued a request for public comment on this topic in a July 2015 concept release titled Possible revisions to audit committee disclosures.
While the SEC has not yet changed disclosure requirements as a result of such requests from governance groups and investors, there has been increased voluntary disclosure by audit committees, as evidenced in Deloitte’s latest proxy statement study, in which we reviewed the proxies of Standard & Poor's (S&P) 100 companies1, as we did in 2015. While our review confirms that voluntary disclosure is increasing, a year-over-year comparison of disclosures suggests that the pace of change is slow and steady rather than dramatic.
Disclosure in three areas increased by more than 10 percent in 2016: 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. Most other disclosures fluctuated by three percent or less.
For the 2016 disclosure review, we analyzed some additional areas, including the audit committee’s role in overseeing risk. We found that nearly every file included some level of disclosure on this topic, with most including details on the extent of the audit committee’s responsibilities. Most notable was the acknowledgment that more than half of S&P 100 audit committees play a key role in overseeing risk beyond the traditional areas of financial reporting, internal controls, and compliance.
Our review indicates that S&P 100 companies uniformly comply with required disclosure requirements related to the audit committee, which is summarized in the appendix. We, therefore, focused our review 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 Our review included all sections of the most recent annual proxy statements filed as of October 1, 2016, for the companies that were included in the S&P 100 index as of August 1, 2016. Because the composition of the S&P 100 changes annually, the companies analyzed in 2015 and 2016 differed; 16 of the companies in the 2016 analysis were not in the S&P 100 in 2015.