SEC Urged to Reject Changes to Audit Standards; EY Report Finds Voluntary Disclosures Increased

The SEC is considering a proposal by the PCAOB to adopt new auditing standards and improve disclosures in order to make auditors’ reports more informative and relevant to investors and other financial statement users. The U.S. Chamber of Commerce and a group of major corporations in a comment letter urged the SEC not to approve the PCAOB’s proposal, contending that the new requirements “will result in the disclosure of immaterial information, replace management as the source of original information, create a chilling effect on the audit committee-auditor relationship, create liability for businesses and auditors, and impose additional expenses on firms.” Under the new standards, the auditor’s report would include items such as the length of the auditor’s tenure and a statement that auditors are required to be independent. If approved by the SEC, the new information will be required for auditors’ reports relating to financial reporting periods ending on or after December 15, 2017.  Meanwhile, an annual EY report reviewed audit committee-related proxy disclosures by Fortune 100 companies and found a continued increase in voluntary audit committee disclosures to shareholders.  The report found, for example, an increase from 59% in 2016 to 64% in 2017 in the percentage of audit committees that explicitly stated in the audit committee report that they are independent from management. The report also noted that disclosures relating to audit fees changed substantially since 2012, when none of the Fortune 100 companies disclosed that the audit committee is responsible for fee negotiations with the auditor. In 2017, 32% of the companies did so, compared to 27% in 2016.