By Jason Bramwell, Staff Writer
In a recently released report, a collective of corporate governance and policy leaders is advocating that audit committees of public companies strengthen their public disclosures to more effectively convey key elements of their critical work to investors and stakeholders.
The nineteen-page report, Enhancing the Audit Committee Report: A Call to Action, was issued by the Audit Committee Collaboration, which is comprised of the following organizations:
- Center for Audit Quality
- National Association of Corporate Directors
- Association of Audit Committee Members, Inc.
- The Directors' Council
- Corporate Board Member/NYSE Euronext
- Tapestry Networks
The group's premise is that those with a stake in financial markets should understand and have confidence in the audit committee's work. Through enhanced public disclosures, the audit committee has the opportunity to educate others about its responsibilities.
"We believe that greater transparency about the audit committee's roles and responsibilities is one way of increasing investor confidence, and an opportunity to communicate more clearly to shareholders about audit committee-related activities", the group stated in the report. "To this end, we believe that public company audit committee reporting can and should be strengthened, and we encourage all public company audit committees to renew their focus on this important issue."
The report includes examples of emerging, voluntary practices of strengthened audit committee disclosures, and it cites studies that have examined recent trends in these practices.
"We note a growing trend among a number of leading audit committees that are voluntarily addressing the need for enhanced audit committee reporting in order to strengthen confidence and communication", the report stated. "While not intending to be prescriptive or suggesting a mandate, these leading disclosure examples provide benchmarks that other audit committees can use to evaluate effectively their own disclosures."
Some of the recommendations include:
- Clarify the scope of the audit committee's duties.
- Clearly define the audit committee's composition.
- Disclose relevant factors considered when selecting an audit firm.
- Provide relevant information about the audit committee's involvement in the selection of the lead audit engagement partner.
- Disclose key factors considered when compensating the external auditor.
- Provide relevant information about how the audit committee oversees the external auditor.
- Provide relevant information about the evaluation of the external auditor.
"The 'Call to Action' shows how some entities have successfully enhanced their audit committee disclosures without the need for new regulation or an expansion of the committee's scope of work", Holly Gregory, partner in the Corporate Governance and Financial Regulatory practice at the law firm Weil, Gotshal & Manges LLP, said in a written statement.
In 2012, these organizations collaborated on projects intended to leverage their individual efforts to expand audit committee member access to useful tools and materials throughout public companies in order to enhance audit committee performance and transparency.
"The effective communication of high-quality information among the key players in our financial markets promotes investor confidence – the engine that drives capital information and the efficiency of markets", the group concluded in the report. "Therefore, we strongly encourage audit committees to respond to this 'Call to Action' by exploring ways to continually improve the information they provide to the marketplace."