March 18, 2019
The Public Company Accounting Oversight Board today released three staff guidance documents developed to support implementation of the new critical audit matter (CAM) requirements. Auditors will soon be required to communicate CAMs in the auditor’s report under the standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
The staff guidance consists of the following: (1) a high-level overview of CAM requirements, (2) thematic observations that arose from the Office of the Chief Auditor’s review of audit firms’ CAM methodologies, and (3) a deeper dive on the determination of CAMs. While these documents primarily offer insights for auditors, the high-level overview—“The Basics”—may also be of interest to preparers, audit committees, and investors.
“The Board is committed to supporting effective implementation of CAMs, which are intended to make the auditor’s report more relevant to investors and other financial statement users,” said Chairman William D. Duhnke. “The staff’s guidance is just one way in which the Board is providing proactive, timely, and useful information on CAMs to auditors and other interested parties.”
These documents were informed by discussions with auditors regarding their experiences conducting dry runs of CAMs with their audit clients, the staff’s review of methodologies submitted by 10 U.S. audit firms that collectively audit approximately 85% of large accelerated filers, and other outreach efforts. The Board and staff will continue to monitor CAM implementation and determine if further guidance is needed.
The first phase of CAM implementation is effective for audits of large accelerated filers for fiscal years ending on or after June 30, 2019. The second phase, which impacts audits of all other companies to which the requirements apply, is effective for fiscal years ending on or after December 15, 2020.
As outlined on the new auditor’s report implementation page, the PCAOB is utilizing a variety of avenues to provide useful information, resources, and training to auditors and other stakeholders on the new standard, placing a particular emphasis on how auditors are preparing to identify and communicate CAMs. These efforts include, but are not limited to: promoting awareness and providing direction through staff guidance, webinars, and external engagement.