The Future of Auditor Reporting is Here

July 2019


Explore the Future of Auditor Reporting:


BDO Insight

As a link in the financial reporting chain, whether you are a public company audit committee member, member of management, a regulator, an investor or an auditor, Critical Audit Matters (‘CAMs’) will be an area of focus this year and in the following years to come.  As part of the PCAOB’s focus on enhancing audit quality and auditor's reporting, CAMs are being introduced as the first significant change to the US auditor's report in over 70 years.  It's here ... are you ready?

We invite audit committees and those who want to learn more to review and stay connected with evolving CAM resources.


To the Point

PCAOB Auditing Standard (AS 3101) approved by the SEC in October 2017, introduced new required disclosures relative to Critical Audit Matters, auditor tenure, and a statement on independence, among other changes to the auditor’s report. AS 3101 applies to audits of public companies both large and small with limited exceptions as noted below.


Phasing In Requirements / For fiscal years ending on or after:
  • 6/30/2019: Communication of CAMs for audits of large accelerated filers
  • 12/15/2020: Communication of CAMs for audits of all other filers

Which Audits Do and Do Not Require CAM?

CAMs are required to be reported for audits of public companies. However, CAMs are not required for audits of:

  • Brokers and dealers;
  • Registered investment companies other than business development companies;
  • Employee stock purchase, savings, and similar plans; and
  • Emerging growth companies.

The Auditor’s Report: Similar But Different?

The PCAOB spent seven years and addressed close to 500 comment letters from companies, audit firms, and investors in developing the new standard that provides additional information investors have been requesting without otherwise modifying the auditor’s opinion on the financial statements as a whole. The pass/ fail opinion, which investors value, is retained.  The intended purpose of CAMs is to allow the auditor's report to be more relevant to investors and other financial statement users.

BDO Insight

Through comment letters and other forums - users of financial statements have emphasized the importance of retaining the pass/fail opinion as essential to their decision making about a company. The result is now an auditor’s report that requires the opinion to be the first paragraph followed directly by the basis for opinion. The communication of CAMs, when applicable, would follow those sections in the auditor’s report and will provide auditor insight into areas of the audit that involved especially challenging, subjective or complex auditor judgments.

What is a CAM?

A CAM is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that:
  1. Relates to accounts or disclosures that are material to the financial statements
  2. Involves especially challenging, subjective, or complex auditor judgment (Non-exclusive list of factors to consider when assessing this criterion can be found within AS 3101.12a-f).


The PCAOB recently established an online implementation resource page that includes all guidance relating to the new PCAOB auditor reporting standard.  We highly recommend the following publications in particular:

How are CAMs Assessed?

CAMs involve “especially challenging, subjective, or complex auditor judgment.” In determining whether those criteria apply, the auditor should take into account, alone or in combination, the following nonexclusive list of factors:


How Many CAMs and Where Do They Occur?

While the number of CAMs will vary for each audit engagement, it is expected that most auditor reports will have at least one CAM. A lengthy list of matters, however, could detract from the intent of communicating CAMs.

Many Large Accelerated Filers (‘LAF’) have just completed CAM reporting “dry runs” with their auditors and are now in the year of implementation. On average, engagement teams participating in the dry run process identified between one and three CAMs per audit. Information from the LAF dry runs, performed through 2019, have informed our approach to implementing the AS 3101 CAM provisions for the current year. Updates to our tools and templates and enhancements to our guidance have been made as a result of lessons learned. Additional updating will continue, as necessary, through the implementation process. The table below illustrates our dry run observations of those topics most often identified as CAMs during 2019:
Category​  % of CAM Identified
Revenue 22%
Business Combinations 18%
Impairment Analysis 16%
Financial Instruments or Allowance for Loan Losses 13%
Taxes 13%
Other 18%

BDO Insight

Audit reports have long contained wording that did not vary much or at all across audit firms, industries, or companies. CAMs are expected to be unique to each audit’s circumstances and, as such, should not reflect a boiler plate approach. Significant auditor judgment will be required from company to company and year to year to identify and critically evaluate CAMs and discuss in the auditor’s report the principle considerations that led to the matter being identified as a CAM and the audit procedures performed to address those considerations. 

CAMs for Audit Committees

While CAMs will result from the nature of communications that are already occurring with the audit committee, the auditor is now required to provide and discuss with the audit committee a draft of the auditor’s report prior to release.

What to Expect in 2019 and 2020?

As an audit committee of a LAF, you should expect to engage in timely discussions with your auditors about what matters they expect to be CAMs for the current audit cycle as soon as audit planning and throughout interim review and audit fieldwork. Prior to the audit report release, the audit committee and management should expect the opportunity to review the draft of the auditor’s report.

All other filers (‘Non-LAF’) subject to CAMs currently have the opportunity to conduct dry runs. As an audit committee of a Non-LAF, you should expect to discuss with your auditors the matters they believe would be potential CAMs as if AS 3101 had been applicable for the current year. Also, request drafts of potential CAMs to properly prepare yourselves, management, and investors for the following year of implementation and carefully evaluate specifics of CAM reporting and a need for enhancement and clarification of financial statements disclosures, as applicable.


BDO Insight

Whether via dry run or implementation, audit committees and management may view the opportunity to discuss CAMs with the auditors as a time to further review the Company’s own related disclosures for clarity and transparency.

What Questions Should Audit Committees Be Asking?

  1. What is the role of management and the audit committee?
  2. How is the audit firm thinking about what matters might be considered a potential CAM?
  3. What impact does the timing of the identification of a CAM have on the communication among the auditor, management, and the audit committee?
  4. What areas during the current audit does the auditor expect to be especially challenging, subjective, or complex and why?
  5. What items, if any, were considered “close calls” but ultimately not identified as a CAM by the auditor? Why were these items not determined to be CAMs?
  6. Will increased focus on CAMs affect the scope of the audit plan and the amount of audit work that needs to be performed?
  7. What are the most substantive issues identified or lessons learned as a result of the firm’s dry runs related to communicating CAMs in the auditor’s report?
  8. Does the communication of a CAM indicate a misstatement in the financial statements or deficiency in management’s process?
  9. Will CAMs be the same within an industry or could they vary among companies?
  10. What has the audit firm done to prepare for the identification and communication of CAMs in the auditor’s report?
  11. Does the audit firm have a methodology, practice aids, or other training available to its auditors?
  12. Has the audit team discussed with management how and by whom investor or stakeholder questions regarding CAMs will be addressed?
  13. How many CAMs should be communicated?
  14. Are CAMs expected to be the same each year?
  15. If a public company experiences a significant event, such as a cybersecurity breach, will that be a CAM?
  16. What is the relationship between CAMs and a company’s disclosures regarding critical accounting estimates?
  17. What is the interaction between CAMs and company disclosures outside the financial statements?
  18. Are CAMs the same as Key Audit Matters (KAMs) [required under International Auditing Standards]?
Additional questions can be found here: CAQ Publication: The Auditor’s Report: Considerations for Audit Committees

BDO Insight

With the introduction of CAMs, the audit report will provide information that had not previously been provided to investors and its form and content remains the responsibility of the auditor. While the new standard requires the auditor to discuss the report, which would include the treatment of any sensitive information, with the audit committee prior to release, it is anticipated that communication with the audit committee regarding potential CAMs will occur throughout the audit.

Further Insights

Original Information – To Disclose or Not Disclose?
When describing CAMs in the auditor’s report, the auditor is not expected to provide original information unless it is necessary to describe the principal considerations that led the auditor to determine that a matter is a CAM or how the matter was addressed in the audit.


BDO Insight

The expectation is that auditors will generally be able to adequately convey the nature of the principal considerations and how the auditor addressed them in describing a CAM without including information that has not already been disclosed by management. However, in rare circumstances such information may be necessary to appropriately describe the facts and circumstances that led the auditor to determine that a matter is a CAM or how the matter was addressed in the audit.

KAMs vs. CAMs?
Companies following the International Standards on Auditing (‘ISAs’) implemented changes similar to CAMs for years ended after December 15, 2016. Key Audit Matters (‘KAM’) are based on ISAs set by the International Auditing and Assurance Standards Board (IAASB) and, while the concepts are similar in many ways, there are differences which may result in different communications. This is discussed further in the CAQ’s publication.

Evolving Resources

PCAOB Critical Audit Matters Spotlight December 2019

Critical audit matters: What firms are reporting

October 2019
PCAOB New Auditor’s Report Resource Site Continually Updated
Critical Audit Matters: Public Company Adaptation to Enhanced Auditor Reporting - Intelligize Report - "Analyzes data from a survey of corporate compliance officials" September 2019
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
UK-FRC-Report-(1).jpg    IAASB-PCAOB-Compare.jpg    PCAOB-Ex.jpg

Next Steps

Carefully review available resources related to PCAOB AS 3101 and CAMs as you prepare and hold current audit planning, interim review and wrap up discussions with your auditors and management teams to raise awareness and assess potential impact.

If you haven’t already had discussions with your external auditor, reach out today and ask that CAMs be included as a topic of discussion at your next regularly scheduled audit committee meeting.

Finally, remain educated. BDO’s Center for Corporate Governance and Financial Reporting can help you remain up to date on evolving resources and developments related to auditor reporting and CAMs. Subscribe today!

Phillip Austin
National Assurance Managing Partner, Auditing
  Sergey Starysh
National Assurance Partner