Disclosure of audit committee’s oversight increases

Focus on evaluation of external auditors has intensified.

Public company audit committees are increasing disclosures related to their oversight of external auditors, a Center for Audit Quality (CAQ) study shows.

Compared with 2014, more companies in the Standard & Poor's (S&P) 1500 included information in their proxy disclosures about the factors they considered in appointing an audit firm, their responsibility for audit firm compensation, and the criteria they discuss when evaluating their audit firm.

The study of proxy disclosures was conducted by the CAQ, which is affiliated with the AICPA, and independent research provider Audit Analytics. It appears to show the results of heightened focus on the audit committee's role in choosing and evaluating the external auditor.

Areas showing a rise in disclosures compared with 2014 included:

  • Factors considered in selecting the audit firm: Disclosures increased for companies in the S&P 500 (25% in 2015, up from 13% in 2014), the S&P MidCap 400 (16%, up from 10%), and the S&P SmallCap 600 (11%, up from 8%).
  • Audit firm compensation: Audit committees disclosing their responsibility for determining compensation for the audit firm rose for companies in the S&P 500 (16%, up from 8%), the S&P MidCap 400 (3%, up from 1%), and the S&P SmallCap 600 (5%, up from 1%).
  • Audit firm evaluation and supervision: More audit committees disclosed their criteria considered when evaluating the audit firm at companies in the S&P 500 (24%, up from 8%), the S&P MidCap 400 (25%, up from 7%), and the S&P SmallCap 600 (22%, up from 15%).

For each of the three index sizes, more companies also included a statement that the audit committee is involved in partner selection and a statement that the audit partner rotates every five years.

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