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Continuing a several year trend, this EY report shows that an increasing number of Fortune 100 companies are providing non-required and increasingly robust disclosure in their proxy statements about their audit committees and audit committee oversight practices.

The report, the latest in a several year series, notes that increased transparency is being driven by a number of factors and constituencies in the interest of – among other objectives – enhancing investor confidence in audit committee oversight work; improving communication with investors about audit committee responsibilities (including external auditor oversight); and better informing shareholders in their consideration of auditor ratification proposals.

Among the highlighted dislosure practices are:

– Centralization of audit committee-related disclosures in an “audit-related” section of the proxy statement or the audit committee report

– Improved accessibility of the audit committee charter via a direct link

– Increased transparency about external auditor oversight practices, for example:

 Auditor selection

• 46% of companies explicitly state their belief that their selection of the external auditor is in the best interest of the company and/or shareholders, up from 4% in 2012
• 44% of companies disclosed that the audit committee was involved in the selection of the audit firm’s lead engagement partner – compared to 1% in 2012
• 31% of companies explained the rationale for appointing their auditor, including the factors used in assessing the auditor’s quality and qualifications, compared to 16% in 2012

    

Approval of engagement fees and terms

• 80% of companies noted that they consider non-audit services and fees when assessing the independence of the external auditor.
• 19% of companies disclosed that the audit committee was involved in the auditor’s fee negotiations, up from just 1% in 2012

    

Auditor Tenure

• Auditor tenure was disclosed by 50% of companies – up from 26% in 2012
• 28% of companies disclosed that the audit committee considers what the impact would be of rotating their auditor – up from 3% in 2012

A table on page 3 of the report shows three-year comparisons for these and additional audit committee-related disclosures.

Prior year reports and additional resources about audit committee disclosure are available in our “Audit Committees” Practice Area.

Podcast: Audit Committee Disclosure

In this podcast, Allie Rutherford discusses audit committee disclosure trends based on EY’s review of 2014 Fortune 100 proxy statements, including:

• What were the key findings?
• Were there any major surprises?
• What do you believe are the primary drivers behind the increased disclosure?
• Do you think that the trends are limited to larger companies?
• What do you expect to see going forward?

 

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– PSLRA: Ineffective Motions to Dismiss
– Top Ten List of D&O Coverage Questions for Directors
– Bylaws Mandatory Arbitration Clauses Gaining Ground
– Survey: Board Tenure & Governance
– Weighing Pros & Cons of a Dual-Class Structure

 

– by Randi Val Morrison