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Concept Release on Expanded Audit Committee Reports Planned for Early 2015 Release

The SEC plans to issue a preliminary rulemaking document called a concept release in early 2015 to solicit comments on amending the requirements for the audit committee reports companies include in their yearly proxy statements to shareholders. The market regulator wants to make the reports more useful to investors. In recent years, audit committees have taken on more risk management responsibilities, but the audit committee’s role isn’t always clear to shareholders.

The SEC plans to issue a preliminary rulemaking document called a concept release in early 2015 to solicit comments on amending the requirements for the audit committee reports companies include in their yearly proxy statements to shareholders, said SEC Chair Mary Jo White on October 20, 2014.

“You can’t overstate the importance of an audit committee functioning at the highest possible level,” White said during the PCAOB’s meeting of its Investor Advisory Group (IAG) in Washington. The SEC wants to make the reports more useful to investors.

“The audit committee plays a critical role in financial reporting oversight, and investors have expressed interest in increased transparency into the audit committee’s activities,” White said in May during a speech to the Financial Accounting Foundation, the FASB’s parent organization. “The audit committee reporting requirements have not changed significantly in a number of years, and I think it is time to take a look at whether improvements can be made.”

The last significant changes to audit committee requirements came in December 1999 when the SEC published Release No. 34-42266, Audit Committee Disclosure.The rule called upon auditors to review a company’s quarterly financial statements prior to the preparation of a 10-Q. Audit committees were instructed to submit a report in the proxy statement.

Audit committees have fiduciary obligations to shareholders and legal requirements that are overseen by the SEC, but in recent years their roles have expanded to cover more risk management functions since the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act. For shareholders, the audit committee’s role isn’t always clear.

Some investor advocates think audit committees could report on the processes they oversee, and the audit committee report could be required to address specific interests of investors and regulators.

White said the project is separate from the agency’s Disclosure Effectiveness Project. The Division of Corporation Finance has been getting information about how the disclosure rules can be improved. Companies for years have complained that disclosure requirements have become longer and more burdensome while providing little value to shareholders, and they are eager for the SEC to cut back some rules that contribute to what they classify as disclosure overload.

However, investors have said that they want information that’s useful for investment decisions, and they don’t want less information in company filings than they receive today.