Enhancing the Audit Committee Report

Accounting and financial reporting

A Call to Action

This "Call to Action" is based upon the simple premise that, given the importance of the audit committee’s responsibilities for broadly overseeing the financial statement process, including the work of the external and internal auditors, it is important for investors and others with a stake in our financial markets to understand and have confidence in the audit committee’s work.The annual audit committee report included in the proxy statement is the principal source of public audit committee-related information other than its committee charter. Public disclosures are the primary channel through which audit committees can educate investors and other stakeholders about their critical responsibilities, and demonstrate their effectiveness in executing those responsibilities.Thus, we encourage all public company audit committees to thoughtfully reassess their reporting and communication with stakeholders and, if need be, to strengthen them in the future.

We also recognize that additional forces are at work: there are certain external drivers of change, grounded in legislative and regulatory actions that have expanded the responsibilities of the audit committee in recent years. As the scope of audit committees’ responsibilities has grown, so too have regulators’ and investors’ interest in the way in which they are carried out. Importantly, we note a growing trend among a number of leading audit committees that are voluntarily addressing the need for enhanced audit committee reporting in order to strengthen confidence and communication. We give examples of their disclosure language, pulled directly from 2013 proxy statements, which demonstrate emerging practices in key areas. While not intending to be prescriptive or suggest a mandate, these leading disclosure examples provide benchmarks that other audit committees can use to evaluate how effectively their own disclosures:

  • Clarify the scope of the audit committee’s duties

  • Clearly define the audit committee’s composition

  • Provide relevant information about:

    • Factors considered when selecting or reappointing an audit firm

    • Selection of the lead audit engagement partner

    • Factors considered when determining auditor compensation

    • How the committee oversees the external auditor

    • The evaluation of the external auditor