Audit Committee Disclosure Evolution: Evidence from the Field

Abstract

Audit committee (AC) disclosures are important for stakeholders seeking to evaluate and hold ACs accountable. We use semi-structured interviews with 30 AC members, 5 disclosure preparers, and 14 members of the investment community to learn how companies decide what information to disclose about AC oversight and whether these disclosures meet stakeholder needs. Using theories related to signaling and isomorphism, we find that the current disclosure process has created a focus on standardized language following existing norms rather than signaling the quality of the AC. The key breakdown in the current disclosure cycle is that companies do not receive feedback about the usefulness of AC disclosures from investors. This environment leads companies to believe that investors are satisfied with current disclosures while investors are left feeling frustrated that companies provide so little information about the AC. We conclude with suggestions for moving forward along with examples of potential disclosure enhancements.

Keywords: audit committee, disclosure, proxy statement, signaling, isomorphism

JEL Classification: G14, G34, K22, M41, M42