July 15, 2015
Dear Sir or Madam:
I am the President and a director of the Association of Audit Committee Members, Inc. (“AACMI”), a not-for-profit organization devoted to developing best practices for audit committees. The AACMI is a member of the Collaboration with the Center For Audit Quality. I am also the lead author of a portfolio entitled “Audit Committees” published by The Bureau of National Affairs, Inc., (Bloomberg/BNA 2013). I have been a securities lawyer for more than 50 years and have taught securities law at the University of Pennsylvania Law School. This email is sent on my personal behalf, is not sent on behalf of the AACMI and does not necessarily represent the views of its board of directors and members. However, certain of my personal views have been explained to our board and other members and those who have responded generally agree with my views.
The AACMI is very supportive of encouraging voluntary disclosures by audit committees. However, in my opinion, the referenced Concept Release, which contemplates mandatory prescriptive disclosures, will only result in additional legal boilerplate in SEC filed documents. Equally importantly, the additional mandatory prescriptive disclosures may have the perverse effect of discouraging voluntary disclosures by audit committees.
I am also concerned that the mandatory prescriptive disclosures will encourage invidious comparisons between different audit committees. For example, the Concept Release asks, on page 35, paragraph 19, for comments as to whether audit committees should “disclose the frequency with which it met privately with the auditor.” If some audit committees disclose that they meet privately with the auditors five times a year and the average audit committee meets privately with the auditor eight times a year, will the five times a year audit committees be viewed as “below average” by the corporate governance constituency?
It is also not clear to me what problem is intended to be solved by additional mandatory prescriptive disclosures by audit committees. Corporate governance disclosures in SEC filed documents are already very ample and are mostly unread by the general investing public. The wishes of advocates for greater corporate governance disclosures must be balanced against the additional cost to the issuers and the additional time that must be spent by audit committees with their attorneys in attempting to comply with these mandatory prescriptive disclosures, instead of performing their normal function.
Very truly yours,
Frederick D. Lipman, President | Association of Audit Committee Members, Inc.