The Center for Audit Quality, working with Audit Analytics, has just released a new edition of its annual Audit Committee Transparency Barometer, which, over the past five years, has measured the robustness of audit committee disclosures in proxy statements among companies in the S&P Composite 1500. The bottom line, according to the CAQ, is that the level of voluntary transparency has continued to steadily increase in most areas. The report includes several useful examples of the types of disclosure discussed.

Among the key findings:

  • An increase in the percentage of S&P 500 companies that disclosed in their proxy statements enhanced discussions of their audit committees' considerations in recommending the appointment of their audit firms from 13% in 2014 to 40% in 2018; among mid-cap companies, 27% included enhanced discussion of these considerations in 2018 (an increase from 10% in 2014), compared to 19% of small-cap companies in 2018 (an increase from 8% in 2014).
  • An increase in the percentage of S&P 500 companies that disclosed audit firm tenure from 47% in 2014 to 70% in 2018; among mid-cap companies, 52% disclosed auditor tenure in 2018 (an increase from 42% in 2014), compared to 51% of small-cap companies in 2018 (an increase from 50% in 2014).
  • An increase from 8% in 2014 to 20% in 2018 among S&P 500 companies that stated in their proxy statements audit committee responsibility for fee negotiations; among mid-cap companies, 5% included these statements in 2018, an increase from 1% in 2014, and 4% of small-cap companies included statements to that effect in 2018, also an increase from 1% in 2014.
  • The percentage of S&P 500 companies that included in their proxy statements explanations for changes in fees paid to audit firms was flat at 28% relative to 2014 (although a decrease from 31% in 2017); among mid-cap companies, 26% included explanations of the changes in 2018 (declines from 30% in 2014 and 32% in 2017), compared to 30% of small-cap companies in 2018 (an increase from 24% in 2014, but a decline from 35% in 2017).
  • An increase from 8% in 2014 to 46% in 2018 in the percentage of proxy statements for S&P 500 companies that discussed the criteria the audit committee considered when evaluating the audit firm; in 2018, 36% of mid-cap companies disclosed these criteria (an increase from 7% in 2014), compared to 32% of small-cap companies in 2018 (an increase from 15% in 2014).
  • An increase from 4% in 2014 to 26% in 2018 in the percentage of proxy statements for S&P 500 companies that disclosed that audit firm evaluations were conducted at least annually; among mid-cap companies, 17% included that disclosure in 2018 (an increase from 3% in 2014), compared to 12% of small-cap companies in 2018 (an increase from 4% in 2014).
  • An increase from 13% in 2014 to 52% in 2018 in the percentage of proxy statements for S&P 500 companies that explicitly disclosed audit committee involvement in the selection of the audit engagement partner; in 2018, 20% of mid-cap companies disclosed that involvement (an increase from 1% in 2014), compared to 10% of small-cap companies in 2018 (an increase from 1% in 2014).
  • An increase from 16% in 2014 to 49% in 2018 in the percentage of proxy statements for S&P 500 companies that disclosed that the audit engagement partner rotated every five years; among mid-cap companies, 20% disclosed the rotation in 2018 (an increase from 3% in 2014), compared to 12% of small-cap companies (an increase from 4% in 2014).

Interestingly, the incidence of one disclosure topic has declined from the prior year across the S&P 1500 indices: 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 explanations often related to activity such as business combinations or other nonrecurring business activity. In addition, citing Deloitte, the report observes that the "greatest year-over-year percentage increase occurred in disclosures regarding the audit committee's role in the oversight of cybersecurity, which has increased by 13% since 2017."