Many Fortune 100 companies continue to enhance their transparency about how their audit committees are executing their core responsibilities, according to the EY Center for Board Matters’ 10th annual review of voluntary proxy statement disclosures.
“Our examination of proxy disclosure data for 2021 demonstrates that companies continue to provide voluntary disclosures in audit-related areas of interest to investors and other stakeholders, typically going beyond the specific areas of required disclosures,” EY stated. In addition to providing required disclosures about the functions, policies, and procedures of audit committees, many companies are also shedding new light on “the type and degree of oversight exercised by audit committees.”
For example, 71 percent of companies reviewed by EY in 2021 disclosed factors used in the audit committee’s assessment of external auditor qualifications and work quality, up from 64 percent last year. Only 15 percent made such disclosures in 2012, the first year EY began its analysis.
EY also found 92 percent of companies disclosed the audit committee considers non-audit fees and services when assessing auditor independence (compared to 16 percent in 2012). Significant growth over the past 10 years can also be seen in companies stating they consider the impact of changing auditors when assessing whether to retain their current external auditor (70 percent in 2021) and disclosing the tenure of their current auditor (79 percent).
EY also found 76 percent of companies submitted additional disclosures relevant to today’s investors, including environmental, social, and governance (ESG) matters; cybersecurity; data privacy; and enterprise risk management.
“Leading companies are also adding additional specificity by highlighting changes to oversight activities and key focus areas for the audit committee for the year,” EY stated.
Seventy percent disclosed the audit committee oversees cybersecurity matters. Another notable finding, according to EY, was that 10 percent of companies discussed the audit committee’s role in ESG matters, up from 6 percent in 2020.
Critical audit matters
EY noted 16 examples of disclosures from its total pool of 72 companies that referenced critical audit matters (CAMs), which recently began being required in audit reports by the Public Company Accounting Oversight Board.
“These disclosures noted that the audit committee reviewed and discussed with the external auditor CAMs that arose during the current period audit,” EY stated. “Only one company noted the number of CAMs identified.”