BoardMatters Quarterly, June 2013

Enhanced audit committee reports

Requests for more transparency are leading to additional disclosures

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Investors, policymakers and regulators are currently engaged in debates and discussions in response to growing interest in more detailed disclosure about corporate audit committees, their activities, and their oversight of the relationship with independent auditors

Many institutional investors have been advocating for increased transparency and requesting that some audit committees provide specific information in the proxy statement related to various audit firm matters and the committee’s oversight responsibilities.

Some identify audit committee members by name and reveal their attendance record at meetings.

The Council of Institutional Investors (CII) also has been an active investor advocate for additional audit committee transparency. In April, the CII adopted changes to its policy on auditor independence and audit committee reporting1. The changes favor enhanced reporting about how audit committees carry out their responsibilities.

As investors request additional clarification about their roles and responsibilities, audit committees should consider whether it makes sense to enhance disclosures and if so, whether the enhancements should be made in the audit committee report or elsewhere in the proxy statement.

Some companies have chosen to provide additional disclosures while others are waiting for specific guidance from regulators.

What and where to disclose

The US Securities and Exchange Commission (SEC) requires that every US company listed on an exchange have an audit committee or its equivalent as part of its board of directors. Various SEC rules require certain audit- and audit committee-related information to be disclosed in the proxy statement, the audit committee report and on company websites.

Our review of audit committee-related disclosures from Fortune 100 US companies shows that many audit committee reports include information that exceeds the minimum disclosure requirements. For example, some shed light on the audit committee’s process for evaluating the external auditor, the length of the audit relationship and the level of any non-audit services that the audit firm is providing. Enhanced audit committee reports may also incorporate elements such as a personal statement from the audit committee chair or information on committee members’ qualifications and independence.

However, these disclosures are made in different formats and through different channels, and the information may sometimes be difficult to locate.

Challenges of greater disclosure

In March, the Tapestry Audit Committee Leadership Networks of North America and Europe discussed enhanced audit committee reporting at a meeting in Washington, DC. The group agreed that improving audit committee reporting could help investors and policymakers. However, some members of the network are concerned about the risks of greater disclosure, including worries about the risk of litigation2.

An evolving discussion

Enhancing transparency about audit committees’ activities requires additional effort from committees and shareholders. Despite this and some of the other potential challenges outlined above, there is a clear motivation and a growing number of calls for enhanced disclosure so investors and policymakers can better understand the audit committee’s role and how it operates.

 Questions for the audit committee to consider

Questions for the audit committee to consider:

  • Has the committee reviewed its current audit- and audit committee-related disclosures and considered making changes? Is the company receptive to making additional disclosures?
  • Are there audit committee-related disclosures from other companies in the same sector or business that could serve as an example? If so, what are the disclosures being made by others that might be considered for the company?

1 "CII Elects New Board, Strengthens Policy on Auditor Independence,” The Council of Institutional Investors,, 23 April 2013.
2 Enhancing audit committee reporting, Viewpoints, Tapestry Networks, April 2013.