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New report shows a decrease in CAMs in 2022


The Public Company Accounting Oversight Board (PCAOB) recently published its second post-implementation review on critical audit matters (CAMs). The report found that, while the proportion of auditor’s reports that have a single CAM has increased, the average number of CAMs has declined over time. Here’s what you should know.

Defining CAMs

Auditors of public companies started reporting CAMs in their audit opinions in 2019. The requirement represents a major change to the pass-fail auditors’ reports that had been in place for decades. Specifically, Auditing Standard (AS) 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, defines CAMs as matters that:

Under the guidance, auditors must identify each CAM, detail the reasons why it was selected and back up their assertions using relevant financial information. The PCAOB doesn’t provide a list of possible CAMs or prescribe a specific number of CAMs that must be stated in an auditor’s report.

Auditors of large accelerated filers — public companies with market values of $700 million or more — are required to report CAMs for fiscal years ending on or after June 30, 2019. Auditors of smaller public companies are required to report CAMs for fiscal years ending on or after December 15, 2020.

Assessing the use of CAMs

Now that auditors have been reporting CAMs for several years, the PCAOB is reviewing how this project has fared — and whether changes are needed to provide financial statement users with more useful, cost-effective information.

In December 2022, the PCAOB published its Interim Analysis Report: Further Evidence on the Initial Impact of Critical Audit Matter Requirements. This is the second post-implementation review of CAMs. The PCAOB issued its first report in October 2020. At that time, the PCAOB reported that some investors found CAMs to be beneficial, and there was no evidence of significant unintended consequences.

The 2022 post-implementation review found that the average number of CAMs per audit report for large accelerated filers has fallen from 1.69 from June 2019 to June 2020 to:

Nonaccelerated filers, which were given a delayed effective date, reported even fewer CAMs on average. From December 2020 to December 2021, smaller companies’ auditor reports included an average of 1.23 CAMs. From December 2021 to May 2022, the average dropped to 1.12.

The 2022 report confirmed the benefits of reporting CAMs. It found that 80% of investors who read CAMs do indeed use them to identify key financial reporting risks. However, the report also noted that several investors wanted auditors to use more specific, not boilerplate generic, language for CAMs.

Managing risk

The PCAOB plans to conduct a more comprehensive review of CAMs in the future. In the meantime, public companies and their stakeholders are becoming increasingly aware of the benefits of reviewing CAMs. Whether you manage a public company or simply invest in the stock market — or your company is planning to go public or merge with a public company — CAMs can be a helpful resource to identify risk factors in today’s uncertain marketplace.

Contact us for more information.

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