Time to shed more light on audit committee work?

This blog post considers whether Canadian audit committees should be more transparent about their activities. If so, what are the challenges to greater disclosure and what’s needed to overcome them? If not, why not?

The idea that Canadian audit committees might shed more light on what they do, particularly with respect to overseeing the auditor, seems to be gaining traction.

Audit committees of reporting issuers, unless exempt, are required to make certain public disclosures about themselves and their work. Required disclosures often lead, however, to fairly high-level overviews of the committee’s activities and do not delve into specifics of how it fulfilled its responsibilities.

MOVES TOWARD GREATER DISCLOSURE

In contrast, in the U.K., audit committees of companies complying with the corporate governance code are required to include in the annual report and accounts a description of:

  • significant issues they considered and how those issues were addressed
  • how they assessed the effectiveness of the external audit process and the appointment of the external auditor
  • information about the tenure of the auditor and tendering history

In the U.S., the Center for Audit Quality (CAQ) is encouraging audit committees to voluntarily, and more effectively, disclose critical aspects of their work. Indeed, a growing number of committees are disclosing information such as the length of audit tenure and the process followed for the appointment and evaluation of the auditor.

Here in Canada, guidance on performing periodic comprehensive reviews from Chartered Professional Accountants of Canada (CPA Canada), the Canadian Public Accountability Board (CPAB) and the Institute of Corporate Directors suggests audit committees voluntarily disclose the review process and conclusions. And at a 2014 CPAB symposium, nearly 90 per cent of those surveyed strongly or moderately agreed that audit committees should be more transparent about their activities and key judgments.

BENEFITS AND CHALLENGES

An audit committee might provide more disclosure because doing so would:

  • educate stakeholders about its work and its responsibilities
  • demonstrate its diligence
  • build confidence in both its oversight and the financial reporting process

Further, enhanced disclosures may drive behavioural change that makes corporate governance reporting more robust and consistent.

Of course, there may be challenges, among them:

  • Do stakeholders really want more to read?
  • Do audit committees have the resources to provide more disclosure?
  • Are audit committees willing to make disclosures that are truly useful?

Audit committees are grappling with increased expectations as they perform their activities. Some may see providing transparency as just another burden diverting their attention away from more productive tasks. However, the bottom line for me… audit committee disclosure would enhance audit quality — and users’ perception of it — so I hope that audit committees in Canada begin to bring more of their activities into the open.

KEEP THE CONVERSATION GOING

Is audit committee disclosure a good thing? What are the challenges and what is needed to overcome them?

Post a comment below; or email me directly.

CPA Canada’s Audit Quality Blog is designed to create  an exchange of ideas on developments and issues in global audit quality, as well as their impact in Canada.

Releases, proposals and responses

CAQ Enhancing the Audit Committee Report: A Call to Action

CAQ Audit Committee Transparency Barometer 2014

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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