PCAOB Issues Interim Report on Critical Audit Matters
The PCAOB recently released an interim report evaluating the effect of a 2017 standard requiring the identification and reporting of critical audit matters (CAMs) in audit reports.
Centered on auditors of non-large accelerated fliers (non-LAFs) and their implementation of PCAOB Auditing Standard 3101, the report found that the average number of CAMs per audit report has declined over time and that no significant unintended consequences have arisen. As the PCAOB considers CAMs useful to investors, it noted in the report that investor awareness and use of CAMs continue to develop. Additionally, the report said that upfront preparation by auditors promoted a "generally smooth" experience for issuers.
In its analysis, the PCAOB reminded auditors it is expected that, in most audits, the auditor would conclude that at least one matter involved especially challenging, subjective, or complex auditor judgment, and that issues like the COVID pandemic, inflation and geopolitical instability may cause additional CAMs. The average audit report in the analysis (non-LAFs and LAFs) included 1.42 CAMs. Audit engagement partners reported teams spend an average of 1%-2% of total audit hours on CAM-related activities.
Focused on LAFs, the PCAOB’s first interim analysis report was published two years ago. It plans to release another analysis after 2023.