PCAOB report analyzes reporting of critical audit matters

By Bryan Strickland

The PCAOB released a report Wednesday analyzing the impact of a 2017 standard requiring the identification and reporting of critical audit matters (CAMs) in audit reports.

The interim analysis report, focused on auditors of non-large accelerated fliers (non-LAFs) and their implementation of PCAOB Auditing Standard 3101, found that:

  • The average number of CAMs per audit report has declined over time.
  • Investor awareness and the use of CAMs continues to develop (the PCAOB views CAMs as a user-friendly tool for investors).
  • Upfront preparation by auditors contributed to a "generally smooth" experience for issuers.
  • No significant unintended consequences have developed.

Audit engagement partners reported that teams spend an average of 1% to 2% of total audit hours on CAM-related activities. The average audit report in the analysis (non-LAFs and LAFs) featured 1.42 CAMs.

The PCAOB report reminds auditors, while quoting from the definition of a CAM, that, "it is expected that, in most audits, the auditor would determine that at least one matter involved especially challenging, subjective, or complex auditor judgment.

"Today's challenging and rapidly changing macroeconomic environment (e.g., the COVID pandemic, inflation, geopolitical instability) might cause some audit areas to become increasingly challenging, subjective, or complex, which in turn may result in the communication of additional CAMs."

In addition to the report, the PCAOB released two related staff white papers: Second Stakeholder Outreach on the Initial Implementation of CAM Requirements and Second Econometric Analysis on the Initial Implementation of CAM Requirements.

The PCAOB released its first interim analysis two years ago, with a focus on LAFs, and plans to provide another analysis sometime after 2023.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.

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