PCAOB Issues CAM Resources for Non-Auditors

July 2019

PCAOB-CAM_Investor_Resource.JPGPCAOB-CAM_AC_Resource.JPGThe PCAOB released two new resources in its efforts to provide timely, clear and useful information to non-auditors: CAM Resources for Investors and CAM Resources for Audit Committees. These resources are introduced in a YouTube video featuring Erin Dwyer, who joined the PCAOB in May to fill the newly created position of stakeholder liaison outlined in the 2018-2022 strategic plan. These resources were drafted with the PCAOB’s goal to improve communications and considered feedback received on the PCAOB’s draft strategic plan revealing that investors and other stakeholders felt that current resources are too long and too technical for the non-auditor audience. Both resources aim to provide answers to questions the PCAOB thinks stakeholders may have in order to facilitate a smooth implementation of the new auditing standard.
 
Critical Audit Matters (CAMs) are a new addition to the auditor’s report and are intended to communicate information about the audit, from the auditor’s perspective, that is intended to make the auditor’s report more informative and relevant to investors and other financial statement users. Specifically, CAMs provide information specific to the audit, on matters that are material to the financial statements and that involved especially challenging, subjective or complex auditor judgment.
 

Summary 

DeterminingCAM_1.pngBoth resources provide a brief refresher and key matters to consider related to CAMs. The PCAOB Auditing Standard 3101 (AS 3101) made significant changes to the auditor’s report, with the intent of making it more useful and relevant to users. The first phase, which is now complete, intended to enhance the format of the auditor’s report including the disclosure of the auditor’s tenure. The second and more significant phase is the implementation of CAMs to provide users with additional information about the audit of the financial statements and audit areas that involved especially challenging, subjective, or complex auditor judgment and the auditor’s response to those matters. The PCAOB defined the criteria for determining CAMs (refer to the image to the left). The auditor further has specific communication requirements when a CAM has been identified to be documented in the auditor’s report including:
 
  • Identify the CAM
  • Describe the principle considerations that led the auditor to determine that the matter is a CAM
  • Describe how the CAM was addressed in the audit
  • Refer to the relevant financial statement accounts or disclosures that relate to the CAM


CAM Resources for Audit Committees

In addition to the overview of the standard, the PCAOB includes responses to the following questions of interest to audit committees:
  • Will the new requirement of the auditor to communicate CAMs change required audit committee communications?
  • Does the audit committee have a role in determining and approving CAM communications?
  • Does the communication of a CAM indicate a misstatement in the financial statements or deficiency in management’s process?
  • How many CAMs should be communicated?
  • Are auditors required by the PCAOB to change audit procedures due to new CAM requirements?
  • Will CAMs be the same within an industry or could they vary among companies?
  • Are CAMs expected to be the same each year?
  • If a public company experiences a significant event, such as a cybersecurity breach, will that be a CAM?
  • What is the relationship between CAMs and a company’s disclosures regarding critical accounting estimates?
  • What is the interaction between CAMs and company’s disclosures outside of the financial statements?
  • Are CAMs the same as Key Audit Matters (KAMs) [required under International Auditing Standards]?
  • What are the PCAOB’s next steps on CAMs?
The PCAOB CAM materials also include questions audit committees may consider asking their auditors, particularly related to the firm’s preparation for the implementation of AS 3101. These questions include:
  • What has the audit firm done to prepare for the identification and communication of CAMs in the auditor’s report?
  • Does the audit firm have a methodology, practice aids, or other training available to its auditors?
  • Has the audit firm done any dry runs? If so:
    • What did the audit firm learn as a result of the dry runs?
    • Were there any matters considered to be “close calls,” but ultimately not identified as a CAM during the firm’s dry run? What was the thought process behind the final determination?
  • Were company’s CAMs similar or different from company’s industry peers?
    • What is the nature of the differences (or similarities)?
  • Has the audit team discussed with management how and by whom investor or stakeholder questions regarding CAMs will be addressed?


CAM Resources for Investors

Similar to the audit committee resource, the PCAOB investor resource includes an overview of the CAM auditing standard and responds to the following meaningful questions that investors may be asking including:
  • Does the communication of CAMs indicate a misstatement in the financial statements or deficiency in management’s process?
  • How many CAMs should be communicated?
  • Will CAMs be the same within an industry or could they vary among companies?
  • Are CAMs expected to be the same each year?
  • If a public company experiences a significant event, such as a cybersecurity breach, will that be a CAM?
  • What is the relationship between CAMs and a company’s disclosures regarding critical accounting estimates?
  • Do management and the audit committee review and approve CAMs?
  • What is the interaction between CAMs and company disclosures outside the financial statements?
  • Are CAMs the same as Key Audit Matters (KAMs) [required under International Auditing Standards]?
  • What are the PCAOB’s next steps on CAMs?


Resources

Audit Committees are encouraged to review and utilize the following thought pieces to assist in executing their oversight responsibilities:
 
Recommended Resources  
PCAOB New Auditor’s Report Resource Site Continually Updated
PCAOB Audit Committee Resource: Critical Audit Matters July 2019
PCAOB Investor Resource: Critical Audit Matters July 2019
PCAOB Implementation of CAM: A Deeper Dive on the Communication of CAMs  May 2019
PCAOB Webinars on Critical Audit Matters Spring 2019
CAQ Webinar: The Enhanced Auditor’s Report is Here: Get the Facts on CAMs and More April 2019
PCAOB Additional CAM Resources for Audit Committees March 2019
CAQ Critical Audits Matters: Lessons Learned, Questions to Consider, and an Illustrative Example December 2018
PCAOB Staff Guidance Updated August 2018
CAQ Issues “Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Stakeholders” July 2018
CAQ Tool: The Auditor’s Report: Considerations for Audit Committees December 2017
SEC Approves the New PCAOB Auditor Reporting Model  November 2017
PCAOB Adopts New Standard to Enhance the Auditor’s Report June 2017
 

Next Steps

We encourage audit committees, management, and our audit professionals to remain abreast of guidance and resources being issued relative to corporate governance and dialogue regularly about such matters throughout the audit process. Please stay tuned for additional thought leadership and educational opportunities from BDO’s Center for Corporate Governance and Financial Reporting via a dedicated Auditor’s Reporting resources webpage.
 
 
CONTACTS
 
Phillip Austin
National Assurance Managing Partner, Auditing
  Sergey Starysh
National Assurance Partner