OVERVIEW -

On July 1, 2015, the US Securities and Exchange Commission (SEC) issued a concept release relating to its audit committee reporting requirements. This release references two Public Company Accounting Oversight Board (PCAOB) releases, one dated June 30 and the other dated July 1. These three releases evidence a coordinated approach to addressing investor requests for additional information about how audit committees oversee independent auditors and evaluate their performance and about the quality of audits. Taken together, the releases suggest an SEC and PCAOB effort to enhance audit committee performance and investor understanding of the performance of both audit committees and independent auditors. This may impact investor decision-making with respect to how to vote on directors who are audit committee members, whether to ratify the selection of the independent auditors, and whether to invest in a company.

The SEC concept release seeks comment on whether revisions to the SEC’s audit committee reporting requirements, and particularly the committee’s disclosure about how it oversees the independent auditors, would be useful to investors. Through 74 numbered sets of questions, the SEC seeks comments on, among other things, the following: (1) the adequacy of the existing audit committee reporting requirements; (2) additional possible disclosures related to the way audit committees oversee independent auditors, the process audit committees follow when they determine to appoint or retain auditors, and the qualifications of the independent auditors and certain members of the engagement team, including the consideration of audit quality indicators, such as those discussed in the PCAOB concept release on audit quality indicators; (3) the location of any additional disclosures, such as in one place in the proxy statement, in the Form 10-K, or in a prospectus; and (4) the applicability of any additional disclosures to smaller reporting companies and emerging growth companies. Several of the questions ask specifically whether the additional disclosure should be in the following: the audit committee’s report; the independent auditors’ report, as the PCAOB has considered with respect to the possible additional disclosures related to the identity of the engagement partner and certain participants in the audit; or somewhere else.