By Cindy Wiseman

On October 29, 2020, the Public Company Accounting Oversight Board (PCAOB) released an interim analysis report and two accompanying white papers providing the PCAOB’s perspective on the initial impact of critical audit matter (CAM) requirements and insights learned from stakeholders. The CAM requirements took effect in June 2019 for audits of large accelerated filers and will become effective for audits of fiscal years ending on or after December 15, 2020 for all other companies to which the requirements apply.

The PCAOB staff conducted extensive stakeholder outreach and performed large-sample statistical analysis to support its evaluation. This included surveys of audit firms, engagement partners and investors, structured interviews of audit committee chairs and financial statement preparers, and a public request for comments.

Key findings from the analysis include the following:

  • Audit firms made significant investments to support initial implementation of CAM requirements. This included developing tools and guidance, training personnel, consultation and review protocols as well as conducting pilot and dry run programs.
  • Investor awareness of CAMs communicated in the auditor’s report is still developing, but some investors are reading CAMs and find the information beneficial. They have found that it enhances their understanding of the auditor’s role, the financial statement disclosures and also helps them in developing questions for company management.
  • The staff has not found evidence of significant unintended consequences from the auditors’ implementation of CAM requirements for audits of large accelerated filers during the initial year.

Of the reports containing CAM communications, the average number of CAMs communicated per report was 1.7, ranging from zero to seven per report. The most frequently communicated CAMs were as follows:

  • Revenue recognition
  • Goodwill
  • Other intangible assets
  • Business combinations

The PCAOB expects to issue a further report in 2022 to provide perspective on any changes the staff observes in the communication of CAMs and to provide insights on the initial impact of CAMs communicated in the audit reports of smaller issuers, followed by a more comprehensive post-implementation review in 2024.

Refer to the interim analysis report and accompanying white papers below:

For further questions regarding the above summary, please contact Elberta Nizzoli at [email protected]