Inform - US

The client version of this publication is attached here: US2020-09: PCAOB issues interim analysis on impact of CAM requirement (PDF 1.4mb)

What happened?

On October 29, the 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 on key stakeholders in the audit process.

Key findings from the staff analyses include the following:

●   Audit firms made significant investments to support initial implementation of the CAM requirements.

●   Investor awareness of CAMs communicated in the auditor’s report is still developing, but some investors find the information beneficial.

●   The staff has not found evidence of significant unintended consequences from auditors’ implementation of the CAM requirements for audits of large accelerated filers in the initial year.

In the analysis report, the staff commented that extensive upfront preparations, including pilot programs and dry run programs undertaken by the audit firms, contributed to a generally smooth experience for issuers.

Of the engagement partners responding to the PCAOB staff’s survey, more than one-third of engagement partners reported that the issuer made changes to financial statement disclosures or other corporate reporting because of CAMs. The staff commented that it will further explore the impact of CAMs on company disclosures as part of a later post-implementation review.

Some investors responding to the PCAOB staff’s survey noted that they use CAMs to better understand the work of the auditor and company disclosures. Responding investors noted that they value CAMs that are specific and tailored to the audit. The PCAOB staff observed that the full benefits of CAM communications to investors may take more time to materialize (e.g., as investor awareness of CAMs becomes more widespread and as comparative data on CAMs becomes available among issuers and across time).

Why is this important?

The implementation of AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, including the requirement for auditors to report CAMs, represents the most significant change to the auditor’s report in over 70 years. The interim analysis report and white papers are part of the PCAOB’s ongoing evaluation of the overall effect of the CAM requirements on key stakeholders in the audit process.

What’s next?

The PCAOB expects to issue a further report in 2022 to provide perspectives 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. Because some of the effects of the CAM requirements may take several years to fully manifest, the PCAOB expects to publish a more comprehensive post-implementation review in 2024.