Critical Audit Matters (CAM)


In 2017 the SEC approved a new audit standard, AS 3101 The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses and Unqualified Opinion,  which has been adopted by the Public Company Accounting Oversight Board.  The new standard dramatically affects the form and content of  the audit report issued under PCAOB standards.  Correspondingly, auditors will most likely extend their procedures accordingly.  The purpose of this article, however, is not to discuss audit procedures, but rather to suggest some opportunities to mitigate potential negative impacts to your company.

What is a CAM?  Under the new standard, a CAM is anything that was or is required to be reported to the audit committee by the auditor.  These items normally include:  balances or disclosures that are material to the financial statements; or matters that involved challenging, subjective or complex judgement on the part of the auditor.

When is my company affected?  For audits of large accelerated filers the new standard is effective for fiscal years ending on or after June 30, 2019.  For all other companies, including SRCs the new requirements are effective for fiscal years ending on or after December 15, 2020.

The audit report will: (1) identify the CAM; (2) describe the considerations that caused the auditor to identify it; (3) describe how it has been addressed and refer the user to the appropriate accounts and footnote disclosures; and finally (4) describe how the CAM was addressed in the audit.

For all including accelerated filers there is still a bit of time to be proactive.  Identifying potential CAMs and documenting them thoroughly will save audit time and money.  In addition t reviewing past auditor communications to your audit committee,  it would be worthwhile to sit down during your current year audit with your auditors and ask them to share any matters they have identified and how you might mitigate them before the new reporting requirements go into effect.

While the purpose of the new standard is to make the auditor’s report more informative and useful to the users of the financials, more likely than not, if not done properly it will only add another layer of confusion.