The PCAOB posted to its website a staff guidance document, A Deeper Dive on the Communication of CAMs, developed to support implementation of the new critical audit matter requirements. This document was informed by 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.
The guidance addresses the following topics, with key portions of the related response noted:
- How should auditors describe the principal considerations that led them to determine a matter is a CAM?
The description of the principal considerations is meant to provide a clear, concise, and understandable discussion of why the matter is a CAM, including the especially challenging, subjective, or complex auditor judgments made in the context of the particular audit. The “why” is intended to provide information appropriately tailored to the audit and the matter that helps financial statement users understand the aspects of the audit that stood out from the auditor’s perspective.
If the auditor chooses to describe audit procedures as part of communicating how a CAM was addressed in the audit, it is expected that the procedures described would be specific to the CAM and to the audit. General statements about procedures that would likely be performed in most audits or in relation to most significant areas of the audit, such as “testing the operating effectiveness of the company’s controls” in the case of an integrated audit, typically do not, by themselves, provide useful information to a reader about how the auditor addressed the particular CAM.
In describing how the CAM was addressed in the audit, the auditor may choose to include findings as an indication of the outcome of audit procedures or as key observations about a matter. However, the language used to describe how the CAM was addressed in the audit should not imply that the auditor is providing a separate opinion on the CAM or on the accounts or disclosures to which it relates. For example, a CAM should not indicate that the auditor concluded that the financial statement accounts and/or disclosures related to the CAM are fairly presented in accordance with the applicable financial reporting framework.
While CAMs, by definition, relate to the company’s financial statement accounts and disclosures, a CAM communication also includes the principal considerations that led the auditor to determine a matter was a CAM and how the CAM was addressed in the audit (i.e., the “why” and “how” of the CAM). Accordingly, CAM communications will not simply duplicate disclosures made by the company. When communicating CAMs, the auditor is not expected to provide information about the company that has not been made publicly available by the company, unless such information is necessary to describe the “why” and “how” of the CAM. In that context, information a company has made publicly available includes all means of public communication, whether within or outside the financial statements, including SEC filings, press releases, and other public statements.
The auditor determines and communicates CAMs every year in connection with the current period audit. It is possible that a CAM identified in one or more prior periods may also continue to be a CAM in the current period. A CAM may be determined based on the same or different considerations, and the way a CAM is addressed in the audit may be similar or may vary. Regardless of whether a matter was previously determined to be a CAM, the auditor would consider the specific facts and circumstances that existed during the audit of the current period’s financial statements, and tailor the communication of the CAM as necessary.
AS 3101 does not specify any particular order of presentation for matters included within the CAM section of the auditor’s report. The auditor may consider ordering the presentation of CAMs based on the auditor’s judgment of relative importance, an order that corresponds to the presentation of the company’s financial statements, or any other order.
If the auditor’s report is dual-dated, the new information for which the auditor’s report is dual-dated may give rise to one or more additional CAMs or may necessitate modifications to previously communicated CAMs. For example, if an auditor’s report is dual-dated because of a subsequent event, the report would include, as applicable, any new CAMs or any modifications to previously issued CAMs arising from the impact of the subsequent event on the audit.
