There’s less than a year to go until the new audit report’s required disclosure of “Critical Audit Matters” (or “CAMs”) goes into effect for large accelerated filers – so the Center for Audit Quality’s “Key Concepts & FAQs” on CAMs are pretty timely. Here’s an excerpt on the process of deciding whether a particular matter is a CAM:
The determination of whether a matter is a CAM is principles based, and the new standard does not specify that any matter(s) would always be a CAM. When determining whether a matter involved especially challenging, subjective, or complex auditor judgment, the auditor takes into account certain nonexclusive factors (as specified in the new standard), such as the auditor’s assessment of the risks of material misstatement, including significant risks.
For example, the new standard does not provide that a matter determined to be a significant risk would always constitute a CAM. Some significant risks may be CAMs, but not every significant risk will involve especially challenging, subjective, or complex auditor judgment.
Similarly, the new standard does not require that matters such as material related party transactions or those involving the application of significant judgment or estimation by management always be a CAM.
Audit Committees: Trend Toward More Proxy Disclosure Continues
We’ve previously blogged about the trend toward more disclosure about various aspects of the audit committee’s work. This Deloitte report on the latest proxy season says that trend is continuing – although at a slower pace. Here’s an excerpt:
Our analysis of the S&P 100 companies demonstrates that companies are indeed voluntarily increasing disclosures included in the proxy, albeit at a slower pace in some areas. 2018 results show that disclosures did not increase by more than 10% in any areas covered, except for one, though 80% of the areas analyzed saw an increase in disclosure over last year. The greatest year-over-year percentage increase occurred in disclosures on the audit committee’s role in the oversight of cybersecurity, which increased by 13% since last year.
Other key observations include increases in disclosures around audit committee practices, specifically discussion of management judgments and/or accounting estimates, which increased 6%, and the audit committee’s review of significant accounting policies, which rose 4 percent. However, the analysis demonstrated only a 2% increase in the discussion of issues encountered during the audit.
The report suggests that the requirement for auditors of large accelerated filers to begin disclosing CAM in their audit reports next year may well trigger an increase in company disclosures in related areas.
Annual Meetings: Big Tech Directors Can’t Be Bothered?
This Reuters article confirms every Big Tech company stereotype you’ve ever heard:
A large portion of Alphabet, Facebook, Netflix and Twitter directors have not attended annual shareholder meetings in recent years, company records and securities filings show, in some cases in growing numbers.
Recent high-profile no-shows at the meetings – which are often the only chance “mom-and-pop” retail investors get to ask directors questions – include Alphabet Chief Executive Larry Page and Facebook board member Peter Thiel. The companies declined to discuss the absences in detail.
While big asset managers can get access to directors, shareholder activists and corporate governance experts say the empty seats at annual meetings mean small investors and campaigners challenging directors to make corporate changes may not get to engage with boards.
The article says that only 4 of 8 Facebook directors showed up at this year’s annual meeting. And only 4 of 11 directors at Alphabet – aka “The Company Formerly Known as Google.” Incredibly, Alphabet’s CEO Larry Page didn’t even show up to his own meeting!
Attendance was even worse for some high-profile tech companies that went the virtual annual meeting route. For example, at Netflix’s meeting, only 2 of 11 directors attended – while the CEO was the only director to attend Twitter’s meeting.
Having your directors blow off your annual meeting is a very bad look for any company – much less companies in a sector that’s getting as much negative publicity as Big Tech is.
– John Jenkins