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27 November 2017
Earlier this month, the Center for Audit Quality together with Audit Analytics posted their annual Audit Committee Transparency Barometer, which measured the quality of proxy disclosures regarding audit committees among companies in the S&P Composite 1500. The report shows continued voluntary enhancements to transparency and broadly increased disclosure around audit committee oversight of the external auditor. The report includes several useful examples of the types of disclosure discussed.
Among the key findings:
Interestingly, the one area that either decreased or remained flat across the S&P 1500 indices was the inclusion of an explanation for a change in fees paid to the audit firm. The report indicates that this number has fluctuated from year to year since 2014, with the extent of the disclosure turning primarily on the materiality of the change. The explanations often relate to activity such as business combinations or other nonrecurring business activity.
As discussed in this PubCo post, at the PLI Securities Regulation Institute earlier this month, Karen Garnett, Corp Fin Associate Director, Disclosure Operations, indicated that the SEC may again take up this 2015 concept release regarding possible revisions to audit committee disclosures. In the concept release, the SEC sought comment on the adequacy of existing disclosure requirements as well as on potential changes to required disclosures that would "address the audit committee's responsibilities with respect to the appointment, compensation, retention, and oversight of the work of the registered public accounting firm and better inform investors about how the audit committee executes those responsibilities." (See this PubCo post.)
And, as discussed in this PubCo post, disclosure of auditor tenure in the audit report will be mandatory for audits of fiscal years ending on or after December 15, 2017. In addition, at later phase-in dates, most audit reports will need to include disclosure of "critical audit matters," that is, "matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment." The new CAM disclosure requirement will apply (with some exceptions) to audits conducted under PCAOB standards, including audits of smaller reporting companies and non-accelerated filers (although not to emerging growth companies).
For further information on this topic please contact Cydney Posner at Cooley LLP by telephone (+1 415 693 2000) or email (firstname.lastname@example.org). The Cooley LLP website can be accessed at www.cooley.com.
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