As you know, critical audit matters are defined for purposes of the auditor’s report as “matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment.” The standard for CAMs became effective for audits of large accelerated filers (LAFs) for fiscal years ended on or after June 30, 2019, and will be required for companies other than LAFs (excluding emerging growth companies) for fiscal years ending on or after December 15, 2020. CAM disclosure is strictly the province of the auditors and included in the auditor’s report. But what has been the role of audit committees? Audit Analytics has performed an analysis of companies in the S&P 1500 to see what, if anything, they have disclosed in their proxy statements about the part that audit committees have played in connection with CAM identification and disclosure.
In this report, Critical Audit Matters: Public company adaptation to enhanced auditor reporting, Intelligize examines data from a survey, conducted by SourceMediaResearch/Accounting Today, of 171 compliance specialists at public companies to examine “how public company compliance officials are adapting their own corporate disclosure and processes to comply with this new regime.” Among the issues considered were the impact of “dry runs,” changes to company disclosures and changes in internal controls. The report includes a 25-page appendix with examples of CAMs, organized by subject matter, which should prove to be valuable reading for those about to embark on the project. Interestingly, the report stressed the importance of lining up the investor relations team to consider how best to communicate the company’s message about CAMs.
The PCAOB has just released a new resource for audit committees about critical audit matters, designed to “inform audit committees as they engage with their auditors on the new CAM requirements.” The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. For audits of all other companies to which they apply (e.g., not EGCs), CAM requirements will be effective for fiscal years ending on or after December 15, 2020. The resource document provides information about CAM basics, as well as PCAOB staff guidance through responses to FAQs and, importantly, questions audit committees could consider asking their auditors. At the same time, the PCAOB also issued a new resource about CAMs for investors.
An article in the Federal Securities Law Reporter reports on some tips gleaned from a discussion of, what else, “critical audit matters” on a PCAOB panel at PLI’s 34th Midyear SEC Reporting and FASB Forum. The new auditing standard for the auditor’s report (AS 3101), which requires CAM disclosure, will be effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019.