November 16, 2021

Audit Committee Disclosures: Audit Quality & Non-Financial Risks Getting More Attention

EY is out with their 10th annual survey of audit committee disclosures – finding that committees are continuing to share more info about their role and work. The survey primarily looks at 2021 proxy statements from Fortune 100 companies. It also includes stats about auditor ratification support and audit committee composition at a bigger group of companies. The areas with the most year-over-year change relate to audit quality & the committee’s oversight role for non-financial risks. Here are some of the key takeaways:

– This year, 71% of reviewed companies disclosed factors used in the audit committee’s assessment of the external auditor qualifications and work quality, up from 64% last year. Only 15% of these companies made that disclosure in 2012.

– Nearly 92% of reviewed companies disclosed that the audit committee considers non-audit fees and services when assessing auditor independence vs. just 16% in 2012.

– Nearly 70% of reviewed companies stated that they consider the impact of changing auditors when assessing whether to retain the current external auditor, and 79% disclose the tenure of the current auditor. That’s up from just 3% and 23%, respectively, in 2012.

EY also found that 76% of the reviewed companies included additional disclosures around risks beyond financial reporting that were being overseen by the audit committee. Some of these top risks being overseen by audit committees include cybersecurity, data privacy, enterprise risk management and ESG. Here’s more detail on that piece:

– Nearly 70% of reviewed companies disclosed that the audit committee oversees cybersecurity matters.

– Notably, 10% of reviewed companies discussed the audit committee’s role in ESG matters, up from 6% last year. These matters include oversight of climate change risks as they relate to financial and operational risk exposures and other environmental, health and safety-related matters.

On “Critical Audit Matters,” EY found that 16 out of 72 companies discussed the audit committee’s review and discussion of CAMs with the external auditors. Only one company noted the number of CAMs identified.

As you prepare your disclosures for 2022, remember that our 49-page “Audit Committee Disclosure” Handbook can help you efficiently resolve questions that arise. It covers the regulatory requirements for audit committees as well as real-world disclosure trends.

Liz Dunshee