Tag: critical audit matters

Deloitte looks at first round of CAMs

AS 3101, the new auditing standard for the auditor’s report that requires disclosure of critical audit matters, is effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. And that means that audit reports communicating the first round of CAMs have now been filed for the pioneers—large accelerated filers with fiscal years ended June 30, 2019. In this Deloitte Heads Up, the audit firm takes a look at all 52 of them.  Deloitte reports that an average of 1.8 CAMs were disclosed per audit report, and the most commonly disclosed CAMs related to goodwill and intangible assets. Other companies may want to listen up because CAM requirements will be upon them soon—for companies other than large accelerated filers (excluding EGCs), CAMs will be required for fiscal years ending on or after December 15, 2020.

Tips on CAMs at PLI panel

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.

New PCAOB guidance on auditor communications regarding CAMs

The PCAOB has just published new guidance on auditors’ communication of critical audit matters in the auditor’s report.  The guidance includes some new FAQs related to how auditors should describe their principal considerations in determining CAMs, how they should describe audit procedures and the outcome of audit procedures, as well as the relationship between CAMs and company disclosures and the treatment of recurring CAMs.  While the FAQs are intended for auditors, they can provide some insight for company management into the process and the resulting auditor communications.

CAMs may be coming, but in the EU, KAMs have already arrived

As you may recall, auditors of large accelerated filers will be required to report on CAMs—critical audit matters—in their auditor’s reports for fiscal years ending on or after June 30, 2019 and in auditor’s reports for all other companies (except EGCs) to which the requirements apply for fiscal years ending on or after December 15, 2020. (See this PubCo post.) As SEC Commissioner Kara Stein observed in her statement on approval of the new rule, the new “standard marks the first significant change to the auditor’s report in more than 70 years.”  In Europe, a similar concept has been in operation since 2016: “key audit matters.” What has been the experience so far?

PCAOB provides guidance on CAMs

Coming soon to a financial statement near you: CAMs!  Late this summer, in audit reports for large accelerated filers with June 30 fiscal year ends, auditors will begin to disclose “critical audit matters.”  Under the new auditing standard for the auditor’s report (AS 3101), CAMs are defined 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.” Essentially, the concept is intended to capture the matters that kept the auditor up at night, so long as they meet the standard’s criteria.  Compliance will be required for audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for audits of all other companies to which the requirement apply (not EGCs) for fiscal years ending on or after December 15, 2020.  With that in mind,  the PCAOB has released three new documents offering guidance on CAM implementation: The Basics; A Deeper Dive on the Determination of CAMs; and Staff Observations from Review of Audit Methodologies.  (See also thecorporatecounsel.net blog and this article in ComplianceWeek.)

CAQ discusses lessons learned from “dry runs” on critical audit matters and related questions for audit committees

As you may recall, auditors of large accelerated filers will be required to report on CAMs—critical audit matters—in their auditor’s reports for fiscal years ending on or after June 30, 2019 and in auditor’s reports for all other companies (except EGCs) to which the requirements apply for fiscal years ending on or after December 15, 2020. (See this PubCo post.) As SEC Commissioner Kara Stein observed in her statement on approval of the new rule, the new “standard marks the first significant change to the auditor’s report in more than 70 years.” Because the selection of and disclosure regarding CAMs will certainly present a challenge for both auditors and audit committees, auditors have been taking steps to prepare for the coming change, including conducting “dry runs” to get a better handle on how the new CAM disclosures will look and how the process will affect financial reporting. To provide some lessons learned from these early dry runs and enhance the understanding of audit committees, auditors and other participants in the process, the Center for Audit Quality has published Critical Audit Matters: Lessons Learned, Questions to Consider, and an Illustrative Example.

Should the prospect of CAM disclosures cause audit committees to rethink company disclosures?

What are auditors and audit committees doing to get ready for the impending disclosure of CAMs in audit reports ? You remember that, under AS 3101, the new auditing standard for the auditor’s report, auditors will be required (in 2019 for large accelerated filers and phased in for others) to include a discussion of “critical audit matters,” that is, “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.”  (See this PubCo post.) Essentially, the concept is intended to capture the matters that kept the auditor up at night, so long as they meet the standard’s criteria. The selection of and disclosure regarding CAMs will certainly present a challenge for both audit committees and auditors.  This article from Compliance Week reports that, beyond that challenge, the prospect of CAM disclosure should precipitate a reassessment by audit committees and companies of related corporate disclosure to ensure that companies stay ahead of the curve.