On April 22, 2014, the John L. Weinberg Center for Corporate Governance and the Center for Audit Quality, hosted a panel discussion of a recent report, Enhancing the Audit Committee Report: A Call to Action (Call to Action). The report was issued last November by the Audit Committee Collaboration, a group of organizations, including, among others, National Association of Corporate Directors, Association of Audit Committee Members, Inc., The Directors’ Council, and Center for Audit Quality. The Call to Action encourages all public company audit committees to “voluntarily and proactively improve their public disclosures to more effectively convey … the critical aspects of the important work that they currently perform.”
Generally, the only public company disclosures that an audit committee is required to make consist of (i) an audit committee report under Item 407(d)(3) of Regulation S-K, which is included in the proxy statement, and (ii) a copy of the audit committee’s charter mandated by the stock exchange on which the company’s stock is listed. The committee’s charter is usually posted on the company’s website (or it may be included as an appendix to the company’s proxy statement). Item 407 requires that only information about the audit committee’s discussions with management and independent auditors, the committee’s recommendation to the board that the audited financial statements be included in the company’s annual report on Form 10-K, and the name of each member of the audit committee.
Based on its review of 2013 proxy statements, the Call to Action provides examples of audit committee reports that expanded the limited required disclosure by clarifying the scope of the audit committee’s duties, clearly defining the audit committee’s composition and providing 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
Panelists’ views ranged from encouraging audit committees to take a fresh look at their audit committee reports and add some of the foregoing suggested disclosures to make the reports more transparent to concerns about disclosure overload and potential lawsuits.