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USA audit committees increasingly transparent on oversight of external audit

An increasing number of USA company audit committees are voluntarily providing wider disclosures about their oversight of external auditors to investors and other stakeholders but disclosures providing explanation of a change in fees paid to the audit firm has dropped, according to the latest Audit Committee Transparency Barometer report from the Center for Audit Quality (CAQ) and Audit Analytics.

Since 2014, the annual Barometer has measured the robustness of disclosures of large, medium and small companies in the S&P Composite 1500 index to encourage better communication with investors, regulators and the public.

This fourth edition of the Barometer found that 37% of the S&P 500 large cap companies, presented enhanced discussion of the audit committee when it comes to the appointment of the audit firm, an increase from 13% in 2014. The mid cap 400 companies also increased to 24% (up from 10% in 2014) and for the small cap 600 companies increased to 17% from 8% in 2014.

Also, 38% of the largest companies, 28% of mid-cap companies, and 27% of small-cap companies disclose criteria considered when evaluating the audit firm, up from 8%, 7% and 15% in 2014 respectively.

Additionally, there were minor increases compared to last year in the disclosure for; length of the audit firm engagement, the evaluation of the external auditor being at least annual, the audit committee being involved in the selection of the audit engagement partner, the engagement partner rotating every five years, and stating that the audit committee is responsible for fee negotiations.

However, when it comes to disclosures providing explanation of a change in fees paid to the audit firm both the largest and the small companies decreased compared to 2016, from 34% to 31% and 36% to 35% respectively.

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