Highlights of the 2020 Barometer
S&P 1500 Long-term Trends
Since the inception of the annual Audit Committee Transparency Barometer in 2014, the CAQ and Audit Analytics have tracked 12 key disclosure areas. It is encouraging to see the progress that has been made in transparency of audit committee oversight over the past seven years.
Across the S&P 1500, many disclosures have increased significantly over time; however, one area that is stagnant relates to auditor compensation (Questions 3-7). For example, disclosure of explanations for changes in fees paid to the external auditor (Question 7) have dipped in recent years. Unlike many of the disclosures tracked within the annual Audit Committee Transparency Barometer, changes in audit fees may be dependent on the occurrence of specific events or transactions.
View a summary of results organized by large, mid, and small cap companies by year in each category.
The COVID-19 pandemic and the related market conditions created many new uncertainties for public companies, auditors, investors and audit committees. As SEC Chair Jay Clayton recognized, the continuing operation of the US capital markets is an essential component of our national response to, and recovery from, COVID-19.
With the global pandemic reaching the US in earnest in March 2020, some companies provided transparency into the Board’s approach to navigating the virus and its impact.
Read Covid-19 examples
Critical Audit Matters
In 2019, a major change occurred in certain auditor’s reports. As a result, auditors of public companies are now required to communicate CAMs in their auditor’s reports. The Public Company Accounting Oversight Board (PCAOB) defines a CAM as: any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee, and that (1) relates to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex auditor judgment. With these new PCAOB requirements, auditors communicate directly to users of the auditor’s report information about those areas of the audit that involved especially challenging, subjective, or complex auditor judgment.
The implementation of the requirements to determine and communicate CAMs has resulted in auditor’s reports that provide more information about the audit. In parallel with increased auditor transparency, the CAQ and Audit Analytics have observed CAM-specific proxy disclosures in the S&P 1500 population tracked for the annual Audit Committee Transparency Barometer.
Over 6% of companies mention CAMs within their audit committee disclosures, stating that the audit committee has discussed CAMs with the auditor. As more auditor reports include CAMs, more audit committee disclosures related to CAMs may begin to appear in proxy statements.
Cybersecurity disclosures have increased dramatically over the last five years. Companies are facing not only increasing cyber threats but also new laws and regulations for managing and reporting on data security and cybersecurity risks. Boards of directors face an enormous challenge: to oversee how their companies manage cybersecurity risk. Depending on the discretion of the board and company, this responsibility may be delegated to the Audit Committee.
View cybersecurity charts and read examples
K E E P R E A D I N G