Audit committees boost cyber, ESG expertise

Audit committees are bringing on more directors with experience in cybersecurity and sustainability, according to a new survey.

The annual survey, released Friday by the Center for Audit Quality and ideagen Analytics, found a year-over-year increase in audit committee disclosure of cybersecurity oversight responsibility (64% of S&P 500, compared 59% in 2023) and expertise (60% of S&P 500 boards in 2024, compared with 51% in 2023). According to the CAQ’s most recent Audit Partner survey, this could be because of the changing regulatory landscape.

The survey also found an increase in environmental, social and governance, or sustainability, expertise on the boards of S&P 500 companies (59% in 2024, compared to 54% in 2023). 

For the first time, the CAQ tracked disclosures of boards’ skills matrix. The majority of S&P 500 companies (85%) and S&P midcap companies (75%) disclosed the board of directors’ skills matrix.

However, the CAQ also saw disclosures level off in some areas instead of increasing. These included considerations in appointing or reappointing the external auditor, considerations of the length of tenure, and considerations around how the audit committee evaluates audit fees in relation to audit quality, which are all areas where investors are asking for more information.

“We continue to hear from investors that they want more transparency,” said CAQ CEO Julie Bell Lindsay in a statement. “They don’t just want boilerplate disclosures but detailed information that will help them understand the audit committees’ responsibilities and processes. While we are pleased to see that boards are increasingly disclosing information about new oversight areas and their expertise, we hope they will consider enhancing disclosures in some of the areas that have plateaued.” 

This year the CAQ observed that 50% of the S&P 500 included discussion of the audit committee considerations in appointing or reappointing the external auditor, which was up slightly from last year (49% of the S&P 500 in 2023). “While progress has been made in the last 11 years, this is an area where disclosures can continue to be enhanced,” said the report.

Audit firm tenure continues to be frequently disclosed by audit committees (73% of the S&P 500 in 2024), but fewer audit committees disclose how the length of tenure has been considered when reappointing the external auditor (13% of the S&P 500 in 2024). 

“Solely stating the tenure of the audit firm is not enough; detailed disclosures demonstrate how the audit committee has carefully evaluated the positive and negative impacts of audit firm tenure on audit quality,” said the report.

In 2024, only 6% of the S&P 500 included disclosure related to a discussion of audit fees and its connection to audit quality. 

“Audit fees that are too low may be indicative of poor audit quality, but audit fees that are too high could be the result of inefficiencies,” said the report. “Clear disclosures about how the audit committee evaluates audit fees in relation to audit quality highlight the audit committee’s commitment to promoting audit quality. This is also an opportunity for the audit committee to discuss how it drives efficiencies in the audit and is focused on not only the cost of the audit, but also the quality.”

“The Transparency Barometer continues to provide insights into the deliberations of audit committees and how they exercise their expanding responsibilities,” said Michael Nohrden vice president of strategy for Ideagen, in a statement. “It serves as an important tool for boards and the public to track and compare audit committee disclosures in the S&P 1500.”