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Financial Reporting and the Law

Recommendations that audit committees provide more robust discussions in their reports that are included by public companies in their proxy statements are getting more attention. The Audit Committee Collaboration’s report, Enhancing the Audit Committee Report: A Call to Action, has been featured on the agendas of recent corporate governance events hosted by the John L. Weinberg Center for Corporate Governance and the Association of Corporate Counsel. The report, among other things, calls on audit committees of public companies of all sizes to proactively consider expanding their public disclosures. The report was issued in November 2013 by the Audit Committee Collaboration, a group of nationally recognized U.S. corporate governance and policy organizations.

The focus on audit committee reports suggests that audit committees should consider whether to expand their reports. Enhanced audit committee reports could provide additional information that shareholders would consider useful in assessing the performance of the audit committee and the auditors. The added information also could help shareholders determine whether to ratify the appointment of the auditors and approve the reelection of the audit committee members themselves.

The Audit Committee Collaboration’s report provides examples of disclosures that other audit committees could consider when evaluating whether to expand their reports to do any of the following:

  • Clarify the scope of the audit committee’s duties
  • Clearly define the audit committee’s composition
  • Disclose relevant factors the audit committee considers when selecting or reappointing an audit firm
  • Provide relevant information about the audit committee’s involvement in selecting the lead audit engagement partner
  • Provide relevant factors the audit committee considers when determining auditor compensation
  • Provide relevant information about how the audit committee oversees the external auditor
  • Provide relevant information about how the audit committee evaluates the external auditor