PCAOB offers guidance on critical audit matter requirements

The Public Company Accounting Oversight Board (PCAOB) has released three staff guidance documents developed to support implementation of the new critical audit matter (CAM) requirements, which are set to be introduced later this year

Auditors will be required to communicate CAMs in the auditor’s report under the standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.

A CAM is defined as any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that relates to accounts or disclosures that are material to the financial statements; and involved especially challenging, subjective, or complex auditor judgment.

The first phase of CAM implementation is effective for audits of large accelerated filers for fiscal years ending on or after 30 June 30.  The second phase, which impacts audits of all other companies to which the requirements apply, is effective for fiscal years ending on or after 15 December 2020.

William Duhnke, PCAOB chairman, said: ‘The board is committed to supporting effective implementation of CAMs, which are intended to make the auditor's report more relevant to investors and other financial statement users.

‘The staff’s guidance is just one way in which the board is providing proactive, timely, and useful information on CAMs to auditors and other interested parties.’

The guidance has been 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 ten US audit firms that collectively audit approximately 85% of large accelerated filers, and other outreach efforts.

It includes a high-level overview of CAM requirements; thematic observations arising from a review of audit firms’ CAM methodologies; and a deeper analysis on the determination of CAMs. The guidance is primarily intended for auditors, but the PCAOB says the overview may also be of interest to preparers, audit committees, and investors.

Overview of CAM requirements

Thematic observations from review of use of CAMs

Determination of CAMs

Report by Pat Sweet

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