CAQ Report Says Audit Committee Transparency Continues to Increase in 2017

NOVEMBER 2, 2017  RECENT DEVELOPMENTS

The Center for Audit Quality (CAQ), with Audit Analytics (AA), published the 2017 Audit Committee Transparency Barometer indicating that audit committees are, in many ways, becoming more transparent in disclosing how they oversee and evaluate their companies' external auditors. The CAQ/AA initiative, performed annually since 2014, measures the robustness of proxy disclosures of companies in the S&P 500, S&P MidCap (top 400) and S&P SmallCap (top 600) groupings ("S&P 1500," collectively).   The 2017 report is based on proxy statements filed between July 1, 2016 and June 30, 2017. 

According to the CAQ/AA, notable findings include: 

Enhanced disclosures re: recommending the appointment of the auditor: 

  • Thirty-seven (37) percent of S&P 500 companies (vs. 13 percent in 2014).  
  • Twenty-four (24) percent of mid-cap companies (vs. 10 percent in 2014)
  • Seventeen (17) percent of small-cap companies (vs. 8 percent in 2014)

Disclosures of the committee's criteria when evaluating the auditor: 

  • Thirty-eight (38) percent of S&P 500 companies (vs. 8 percent in 2014).
  • Twenty-eight (28) percent of mid-cap companies (vs. 7 percent in 2014)
  • Twenty-seven (27) percent of small-cap companies (vs. 15 percent in 2014).

Other proxy disclosure increases related to: 

  • auditor tenure, especially in the S&P 500
  • involvement in auditor fee negotiations, especially in the S&P 500
  • audit firm evaluation and supervision, most notably among the S&P 500
  • audit engagement partner selection (more so in the larger companies)

The report also noted that many of its findings were consistent with two other reports; Trends in Audit Committee Reporting (Jan 17) - Deloitte's Center for Board Effectiveness, and Audit Committee Reporting to Shareholders in 2017 - EY Center for Board Matters.