SEC Mulls Audit Committee Mandates as Voluntary Disclosures Grow

As the Securities and Exchange Commission considers a wide range of feedback on the potential for new disclosure requirements for audit committees, the latest data suggests audit committees are increasing their voluntary push to provide more information to investors.

Feedback to the SEC’s concept release has produced “mixed views,” said SEC Chief Accountant Jim Schnurr, on whether and to what extent the SEC should mandate new disclosures from audit committees on their oversight of the independent auditor. The SEC received nearly 100 comment letters on its broad concept release exploring the many ways audit committees might have more to say to investors, about 40 percent of them from audit committee members or management, he said during a recent speech. “Some commenters supported additional disclosure in certain areas, while others thought enhanced disclosure should be encouraged solely on a voluntary basis,” he said.

Voluntarily, audit committees are saying more, according to the latest analysis by the Center for Audit Quality and Audit Analytics. The analysis revealed one-fourth of companies in the S&P 500 enhanced their discussion around the audit committee’s appointment of the audit firm in 2015, roughly double the number the year before, and 16 percent said the audit committee played a role in determining the audit firm’s compensation, also double the prior year.

S&P 500 companies also increased their disclosure around selection and rotation of lead engagement partners, the CAQ analysis shows. In 2014, 14 percent of companies said the audit committee is involved in selecting the engagement partner, and the following year that jumped to 31 percent. 

Schnurr noted that many of the commenters to the SEC’s concept release who supported voluntary disclosures represented issuers where audit committees already go beyond the minimum disclosure requirements. The practice of voluntary disclosure, however, is not common across all listed companies, he said.

“Some commenters questioned the extent to which the voluntary reporting by certain audit committees today is in response to the commission’s current interest in considering the adequacy of the existing disclosure requirements,” Schnurr said. “These commenters questioned whether a potential lack of Commission action to improve disclosures would result in a shift back to the previous practice of generally only disclosing the minimum information required.”