The Public Company Accounting Oversight Board has posted three pieces of guidance from its staff on the PCAOB’s new requirements that companies disclose critical audit matters, or CAMs, in their audit reports.
The PCAOB’s recent standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, requires auditors to communicate CAMs in the auditor’s report. The standard was approved in 2017, and some of the requirements have already taken effect. The CAMs requirement takes effect this year. It requires disclosure in the auditor’s report of matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment.
The staff guidance released Monday includes a high-level overview of CAM requirements, observations based on the PCAOB Office of the Chief Auditor’s review of audit firms’ CAM methodologies, and a deeper examination of the determination of CAMs. All three of the documents offer insights for auditors, and the high-level overview can also be helpful to preparers, audit committees and investors.
“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,” said PCAOB Chairman William D. Duhnke in a statement. “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 PCAOB and its staff plan to continue to monitor the implementation of CAMs and released further guidance is needed. The first phase of CAM implementation takes effect for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. The second phase, which affects audits of all other companies to which the requirements apply, is effective for fiscal years ending on or after December 15, 2020.
The PCAOB has also created a new auditor’s report implementation page on which it plans to provide useful information, resources and training to auditors and others about the new standard, with extra emphasis on how to identify and communicate CAMs. In addition to staff guidance, the PCAOB intends to offer webinars and other forms of engagement on the page.
