Characteristics of Firms that Include an Audit Committee Report in Their Annual Report

Abstract

This study examines the characteristics of a sample of US firms that voluntarily include a separate audit committee report (ACR) in their annual report to shareholders. We investigated whether inside ownership, leverage, proportion of outside directors, size, and stock exchange affect the decision to provide an ACR. In addition, we conducted a survey of the companies that prepare ACRs and examined the content of these ACRs to determine the information they contained. Our results confirm that very few firms include an ACR in their annual report to shareholders and suggest firms that prepare an ACR are larger than firms that do not. In addition, our results suggest management is generally responsible for the decision to include a separate ACR in the annual report. Finally, most ACRs appear to be written in a format that mirrors or closely resembles the Treadway Commission (1987) model ACR. Implications for future research in the area are also discussed.