CAMs disclosures decrease since 2020

Auditors are including critical audit matters in more of their opinions, but they are including fewer CAMs per opinion on average. 

In 2022, roughly two-thirds (65%) of auditor opinions contained CAMs, according to a recent report by Ideagen analyzing over 30,000 CAMs from more than 22,000 audit reports. That's a slight increase from 62% of opinions in 2020. However, the total number of CAMs is decreasing, with the average number of CAMs per opinion shrinking from 1.51 in 2020 to 1.34 in 2022. Experts say it's difficult to draw high-level conclusions on the success of the reporting standard from the data.

"Each audit is unique, even from year to year at the same company," Dennis McGowan, vice president of professional practice at the Center for Audit Quality, told Accounting Today. "It's hard to come up with conclusions to what those things mean, since they are supposed to be unique to each audit."

CAMs were implemented by the Public Company Accounting Oversight Board in 2019. The standard requires auditors to disclose areas of the audit that involve especially challenging, subjective or complex judgements. Previously, the reports did not convey this information, resulting in a disconnect between auditors and investors. 

Courtesy of PCAOB

It remains to be seen how much CAMs influence investor decision-making. Some investor groups, including the PCAOB's Investor Advisory Group, say CAMs have not been valuable and are advocating for improved reporting standards. The accounting regulator is expected to perform another review on the overall impact of CAMs in 2024.

"Whenever there's a new standard or regulation, there's a lot of back and forth and trying to understand what it means," Marie Pupecki, senior accounting research analyst at Ideagen and author of the report, told Accounting Today. "I would suspect that the regulators are going to be the ones that determine if this current disclosure of CAMs is adequate and meets what they expected to have happen as a result of this standard."

CAMs have been required in the international arena longer than in the domestic arena. That fact, in addition to differing reporting requirements, may explain why foreign filers have a higher average number of CAMs per opinion (1.67) than U.S. filers (1.29), according to Ideagen's report. 

Ideagen's report also showed that only 3% of SPAC opinions included CAMs in 2022, with "going concern" being the most commonly cited topic. However, only 35% of all going concern opinions contained at least one CAM the same year. The disconnect could be that the subjects of the going concerns fall outside the standards of auditor decision-making, Pupecki said.