September 7, 2015
I am responding to the request for comments on the subject concept release as one who has served as chairperson of three NYSE listed company audit committees over periods of time approximating ten years in each instance. In each case the "Audit Committee Report" and other disclosures in the annual Proxy Statement have included, in general, the following information:
- a statement that the members of the Audit Committee are independent,
- the responsibility of management and the auditors for internal controls and financial reporting,
- the oversight responsibility of the Audit Committee,
- discussions with management and the auditors regarding the financial statements and internal controls,
- reports that the Committee has received appropriate disclosures from the auditors as required by PCAOB rules,
- a statement that the performance, independence, fees and other services of the auditor were reviewed and approved,
- a recommendation for appointment of the auditor for the coming year and the process used to make the selection,
- a recommendation to include the financial statements in the annual Form 10-K,
- a listing of the Audit Committee members and the chairperson,
- the number of Committee meetings held during the year,
- the actual fees paid to the independent accounting firm for services rendered and the nature of the fees,
- a statement that a representative of the firm will attend the annual meeting and be available to answer questions and
- other comments as may be considered appropriate.
It should be noted that role of an audit committee can vary significantly depending of the organization structure of the Board of Directors and is set forth in the committee's charter, which is available to interested parties. In addition to oversight of the audit process a committee might be assigned oversight of enterprise risk management, legal and regulatory compliance, oversight of the whistleblower process, oversight of internal audit, review of financing and capital requirements, etc. It would therefore be difficult to construct a set of fixed criteria for reporting that would capture all possibilities. A more constructive approach might be to offer general suggestions for disclosure rather than fixed requirements. Further, Boards do review the performance of the committees and the committee members in order to help assure that they are functioning effectively.
I am particularly concerned about suggestions that disclosure be made about private discussions among the audit committee and the independent accountants or internal auditors. Such a requirement would necessarily stifle open and frank discussions that now occur in the private sessions, such as an evaluation of finance, accounting or management personnel. Audit committee members often inquire about the impact of future events or transactions being discussed in order that they may be better informed as board members.
It is clear that today investors, mainly activists and institutions, are taking a greater interest in the effectiveness of corporate governance. Inquiries of management and board leadership are more frequent. In spite of this increased interest I have never heard of one instance of an inquiry of an audit committee regarding any matter. The lack of inquiries made to audit committees could be viewed as an indicator that the current disclosure requirements are providing sufficient information for investors. I also believe that if an appropriate inquiry was made an appropriate response would certainly be provided.
I am also in agreement with the last paragraph of Section IV, A. on page 9 of the concept release regarding "disclosure overload". Financial statements and the notes thereto have become extremely complicated for even the most sophisticated investor and must be almost incomprehensible to an individual investor. More disclosure about audits, auditors and audit committees may do nothing but add to the confusion. It should be kept in mind that most investors are more interested in the future prospects for an enterprise than they are about the historical results that only confirm or disavow previously held views.
I realize that I have failed to answer each and every one of the 74 questions in the concept release but I do hope I have conveyed a sense that, in my opinion, current disclosures are generally adequate even though some best practices information (not requirement) might be helpful to committees in structuring their reports.
Respectfully submitted,
John R. Roberts