CAQ calls for audit committees to improve disclosure on audit fees

December 22nd, 2023

The Center for Audit Quality (CAQ) has urged companies to disclose more information around audit fees, particularly the connection between them and audit quality.

The Audit Committee Transparency Barometer analyses audit committee disclosures of companies in the S&P 1500, reviewing disclosure rates and providing guidance on effective disclosures.

It found there are lower rates of disclosure on how audit committees consider the appropriateness of audit fees. Just 6% of S&P 500 companies, 3% of S7P MidCap companies and 1% of S&P SmallCap companies disclosed a discussion of audit fees and its connection to audit quality.

However, the review noted that disclosure rates have increased in recent years and called for companies to “tell their story through tailored disclosures in the proxy statement” against a backdrop of economic uncertainty.

It outlined that investors and other stakeholders use these disclosures to understand how the audit committee exercises its oversight within the company.

The CAQ highlighted that numerous studies have identified a positive correlation between increased communication of audit committee oversight through disclosures in the proxy statement and increased audit quality.

It said its own research has found institutional investors expressed interest in learning more about the audit committee’s oversight of the external auditor, such as audit strategy and discussions between the auditor and audit committee on the risks identified in risk assessment procedures.

The review said audit committees should enhance their disclosures by providing discussions “not just of what they do in their oversight of the external auditor but also how they do it”.

Overall, the review found the level of voluntary transparency has continued to increase steadily across the questions and topics it assesses, and found audit committees are responding to evolving areas such as cybersecurity risk and ESG.

The review stated: “We applaud audit committees for their efforts to increase disclosures over the past 10 years and continue to encourage audit committees to consider how their disclosures can be enhanced to provide further transparency for investors regarding the critical oversight work that audit committees perform.”