PCAOB Releases Additional Resources on CAMs

The Public Company Accounting Oversight Board (PCAOB) has released two resource documents informing audit committees and investors about the requirement for auditors to communicate critical audit matters (CAMs) in the auditors’ reports. These resources are (a) Audit Committee Resource: Critical Audit Matters; and (b) Investor Resource: Critical Audit Matters.

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.

In addition to the new resources for investors and audit committees, the PCAOB previously published Staff Guidance for reporting CAMs, including “Communicating CAMs” and three documents headed “Implementation of Critical Audit Matters.”

Auditor Committee Resource

The Audit Committee Resource on CAMs is designed inform audit committees in engaging with their auditors on the new CAM requirements. It discusses the following matters:

  • The CAM requirement basics, including (a) the definition of CAM; (b) audits that do not require CAMs; (c) audit periods covered by CAMs; (d) a flowchart of steps to determine whether a matter is a CAM; (e) the effective dates of the CAM requirements;
  • PCAOB Staff answers to frequently asked questions (FAQs), including, among others, relating to (a) the role of audit committees in determining and approving CAM communications; (b) whether there is a specific number of CAMs that should be communicated; (c) whether auditors need to change their audit procedures due to the CAM requirements; (d) whether CAMs should be the same within an industry or could vary among companies; (e) whether CAMs should be the same in each year; (f) whether a significant event such as a cybersecurity breach, constitutes a CAM; (g) how the CAM requirements compare to the Key Audit Matters (KAMs) requirement of the International Auditing and Assurance Standards Board (IAASB); and (h) the PCAOB’s next steps on CAMs; and
  • Sample questions for audit committees to ask their auditors.

Investor Resource

The Investor Resource provides investors with useful information regarding changes to the auditor’s report, frequently asked questions about CAMs, and information about the implementation of the standard. Much of the information is the same as that included in the Auditor Committee Resource, with additional information on:

  • Understanding the auditor’s report, including a description of the auditor’s report and what is required of auditors in developing and creating the report;
  • Recent changes in the PCAOB auditing standards related to the form and the content of the auditor’s report;
  • The basics of the CAM requirements, as discussed in the Auditor Committee Resource; and
  • PCAOB Staff responses to FAQs.

Effective Dates

For audits of large accelerated filers, the CAM requirements are effective for fiscal years ending on or after June 30, 2019. For audits of all other companies to which they apply, the CAM requirements are effective for fiscal years ending on or after December 15, 2020.

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