With audit firms providing new information about who performs public company audits, gender diversity is emerging as the first major concern regarding public company audit leadership.
In a first-of-its-kind analysis of new information audit firms are providing as a result of new auditing standards, the CFA Institute found only 15 percent of public companies’ audit engagements among the S&P 500 are led by women. The analysis identified 70 women who are named by audit firms as engagement partners for S&P 500 companies, and only five of those women are named as engagement partner on more than one audit.
Among S&P 100 companies, the concentration of men serving as engagement partners is even greater, where 89 percent of engagements are led by men and 11 percent are led by women. None of the S&P 100 engagements are led by women who lead more than one engagement, the CFA Institute says.
Comparing the data to other information about female leadership among the S&P 500, the CFA Institute says 5 percent of CEOs at the S&P 500 are women, while 11 percent of the top earners are women, and 21 percent of board seats are held by women.
As an organization of analysts advocating for users of financial statements, the CFA Institute studied the first year of disclosures audit firms are making via Form AP to see what insights are emerging under the new reporting requirement. The Public Company Accounting Oversight Board began requiring auditors to file Form AP to disclose the name of the engagement partner and others from outside the principal audit firm that lend significant support to the audit. The disclosure is meant to give investors a better understanding of who they are relying on to perform the audit work that forms at least part of the basis for their investment decisions.
The group zeroed in on gender diversity because investors value diversity among management based on research that suggest better outcomes from diverse leadership.
Because audit firms are a common pipeline for corporate controllerships and finance positions, as well as board and audit committee appointments, the imbalance between men and women in audit engagement leadership should concern audit committees and investors, the CFA Institute says.
“There are no definitive answers whether auditor gender matters,” the CFA Institute report notes. “The PCAOB data on lead engagement partners presents an opportunity for discussion and further research on the importance of diversity on these key engagements. This first full year of data is but one data point for investors.”
The group also is tracking information provided by audit firms under a new auditor’s reporting model, which took effect beginning with reports on 2017 financial statements issued in 2018. The new audit report most notably provides a disclosure about the audit firm’s tenure on the engagement along with some other modifications to the standard audit report, although the “critical audit matters” disclosures required under the new standard will not begin appearing in audit reports until 2020.
The analysis finds that more S&P 500 companies changed auditors between 11 and 20 years ago than any other interval, coinciding with the 2002 fall of Arthur Andersen, which reduced the Big 5 to the Big 4. Nearly 34 percent of companies changed auditors during that time frame, the report says, while about 54 percent of companies have worked with the same audit firm for more than 20 years, and 18 percent for more than 50 years. Only about 10 percent of companies change auditors every 10 years, the CFA Institute reports.