An SEC proposal on revisions to the rules on audit committee disclosures RE: External auditors seems to answer the wrong questions (e.g., how do investors evaluate audit committee performance?) Potential changes (beginning on p. 29) include additional information on committee and auditor communication, frequency of meeting between these two types of parties, auditor internal quality /  peer review reports, how the committee enhances auditor skepticism and objectivity, etc. Undoubtedly, corporate governance, including inspection and oversight practices of the audit committee can be improved, though the concept release does not identify recent specific governance failures that would have been prevented or mitigated through application of the revised rules. The issue is – opportunity cost.

Scarcity of resources, including those at the SEC, those at issuers, and those at external auditors, demands careful analysis of the present situation vs. the expected / pro forma situation. Perhaps, instead of vertically imposing more work on the process commonly known as the financial audit, work may be expanded horizontally (e.g., carefully tailored operational / performance audits). Putting aside the interests of short-term investors (e.g., high frequency traders) whose time horizon, strategy, and goals do not depend so much on the eagerly anticipated annual publication of the results of the external audit, and focusing on longer term investors and other such stakeholders (e.g., employees, customers / clients) whose interests depend more on the integrity not only of the financial reporting but the quality of goods / services provided, the SEC should consider questions such as (by way of illustration and not exhaustion):

• We recognize that the issuer intends to conduct a significant layoff of employees. How will this affect the performance of existing employees and the quantity and quality of services and products used by customers? For example, is the risk of product safety failure increased? What were the criteria for the layoffs? Were an overabundance of experienced (aka higher paid) employees laid off; does the issuer have the human resources to support its operations in light of this loss? Explain.
• We recognize that the issuer has experienced numerous adverse actions initiated by regulators (whether domestic or foreign). How have issuer practices causing such enforcement actions been addressed; how has the likelihood of repetition of such failure been reduced, if at all? How would the issuer address the charges that its practices have not materially changed, and it merely incorporates adverse regulatory action as the cost of doing business passed on to other stakeholders (e.g., reduced compensation to employees, higher prices to customers)? Explain.
• We recognize that the issuer is in a highly regulated industry. To what extent does the issuer use lobbyists and other methods of persuasion in the effort to head off any increase in potential legal and regulatory oversight? How have externalities been considered, if at all (e.g., water and air pollution caused by issuers in venues lightly or entirely unregulated)? Explain.

Global and regional auditing firms have remarkable resources. An independent operational / performance audit opinion on issues other than debits and credits could reasonably provide social benefits in excess of the costs, perhaps. Anyhow, the type of meta-auditing and reporting imposed on audit committees of issuers per this proposal seems to solve a problem few have ranked among the greater ills threatening society and commerce.