The Public Company Accounting Oversight Board (PCAOB) has published an additional staff guidance document, Implementation of Critical Audit Matters: A Deeper Dive on the Communication of CAMs (Communicating CAMs) to supplement its previously released guidance documents.
Auditor’s Report and CAMs
In 2017, the PCAOB adopted the new auditing standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. Among other requirements, AS 3101 and related amendments require auditors to include in the auditor’s report a discussion of the critical audit matters, or CAMs. “Critical audit matters” are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment. The SEC approved AS 3101 on October 23, 2017.
PCAOB Staff Guidance
In addition to Communicating CAMs, to assist users in reporting CAMs, the PCAOB previously published the following Staff guidance documents headed “Implementation of Critical Audit Matters,” including:
- “The Basics,” which provides a high level overview of the CAM requirements;
- “Staff Observations from Review of Audit Methodologies,” which includes thematic observations that arose from the PCAOB’s Chief Auditor’s review of audit firm methodologies; and
- “A Deeper Dive on the Determination of CAMs,” which includes PCAOB Staff answers to frequently asked questions for determining CAMs.
- Communicating CAMs
Communication of CAMs
The new guidance document, “Communicating CAMs,” includes an overview of the CAMs, discusses how auditor is to communicate CAMs, and, using a Staff Frequently Asked Questions (FAQ) format, provides answers to questions that may arise when the auditor is communicating CAMs under AS 3101. The Staff FAQs provide guidance on:
- How auditors should describe the principal considerations that led them to determine if a matter is a CAM;
- The considerations that apply in describing audit procedures as part of communicating how a CAM was addressed in the audit;
- The considerations that apply in describing the outcome of audit procedures or key observations with respect to a matter;
- How CAM communications relate to company disclosures and other information the company has made publicly available;
- For recurring CAMs, how the auditors should apply the CAM communication requirements;
- Whether there is a specific order in which CAMs should appear in the CAM section of the auditor’s report; and
- How the CAM requirements apply to a dual-dated auditor’s report;
The PCAOB staff developed Communicating CAMs through discussions with auditors regarding their experiences conducting dry runs of CAMs with their audit clients, the staff’s review of methodologies submitted by 10 U.S. audit firms that collectively audit approximately 85% of large accelerated filers, and other outreach efforts.
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