Carpentersâ€™ Fund Continues to Make Progress on Auditor Disclosure
Thursday, July 16, 2015
by: Rosemary Lally
Section: CII Governance Alert
For the third year in a row, the United Brotherhood of Carpenters Pension Fund sent letters to companies urging them to step up the auditor independence disclosures in their proxy statements. This year the pension fund asked 91 Fortune 500 firms to verify the following items:
1. That the audit committee is directly responsible for the appointment compensation, retention and oversight of the independent external audit firm (The audit committee is also asked to disclose the firm it hired and year it did so.)
2. The tenure of the current audit firm
3. That the audit committee is responsible for the audit fee negotiations associated with the retention of this firm
4. That the audit committee periodically considers whether there should be a regular rotation of the independent external audit firm
5. That the audit committee and its chair are directly involved in the selection of the audit firm’s new lead engagement partner
6. That the members of the audit committee and the board believe that the continued retention of the audit firm as the company’s independent external auditor is in the best interests of the company and its investors
For five of these firms, this was the second year in a row that they received the letters. Of the 91 firms that received letters in 2015 from the Carpenters’ fund, 17 disclosed all six requested verifications, three disclosed five requested verifications, six reported on four items in various combinations, seven reported on three of the requested items, seven disclosed two items and 18 reported on just one (generally the first or second verification). Thirty-two companies did not include any of the verifications requested by the Carpenters in their proxy statements.
Last year, the Carpenters sent letters to 95 Fortune 500 companies and 21 agreed to all six of the disclosures.
The disclosure that companies consistently have been most reluctant to provide is a verification that the board periodically considers whether to rotate the auditor. Ed Durkin, director of corporate affairs for the United Brotherhood of Carpenters, explains that all six of the disclosure items are important for shareholders to have when they are determining if any conflicts of interest exist. “The fees paid to the auditor for other services are not the only threat to their independence,” he warned. Durkin advised that if companies continue to resist providing this information, shareholders should begin to vote against auditor ratification, and if that does not produce results, vote against the audit committee chair.