Strong Five-Year Trends in Enhancements to Audit Committee Transparency

The amount of information available to investors and other stakeholders on audit committee oversight of the external auditor continues to increase, according to the fifth edition of the Audit Committee Transparency Barometer, an annual report issued jointly by the Center for Audit Quality (CAQ) and Audit Analytics.

“The trends revealed in our report tell a clear success story—over the past five years, audit committees have provided increasingly robust disclosures about their important investor-protection role in overseeing the external audit,” said CAQ Executive Director Cindy Fornelli. “Taking steps to enhance transparency into our extraordinary system of financial reporting, as many audit committees are doing, strengthens both the confidence of investors and their ability to make sound decisions in the capital markets. To build on this progress, the CAQ encourages audit committees to explore additional opportunities for transparency improvements.”

Each year since 2014, the Barometer has measured the robustness of proxy disclosures among companies in the S&P Composite 1500. This index is comprised of the S&P 500 (large-cap companies), the S&P MidCap 400, and the S&P SmallCap 600.

The Barometer provides year-over-year comparisons of key audit committee disclosures. Notable findings in this year’s report include the following:

40 percent of S&P 500 companies disclose considerations in appointing the audit firm (up from 13 percent in 2014), compared to 27 percent of mid-cap companies (up from 10 percent in 2014) and 19 percent of small-cap companies (up from 8 percent in 2014).
46 percent of S&P 500 companies disclose criteria considered when evaluating the audit firm (up from 8 percent in 2014), compared to 36 percent of mid-cap companies (up from 7 percent in 2014) and 32 percent of small-cap companies (up from 15 percent in 2014).
26 percent of S&P 500 companies disclose that the evaluation of the external auditor is at least an annual event (up from 4 percent in 2014), compared to 17 percent of mid-cap companies (up from 3 percent in 2014) and 12 percent of small-cap companies (up from 4 percent in 2014).

“With five years of data on the S&P Composite 1500 companies, the Audit Committee Transparency Barometer truly gives a read on the improving quality of what audit committees are disclosing to investors,” said Michael Nohrden, CEO of Audit Analytics. “We hope that having this measurable insight continues to aid in the improvement of audit committee transparency.”

In addition to presenting statistics on disclosure trends, the Barometer offers disclosure examples to illustrate how audit committees are enhancing information for investors and others.