FOCUS on self-study CPE
Josef Rashty, CPA, is a graduate of Oklahoma State University and is a member of the Texas be reached at
Auditors’ CAM disclosures, a By Josef Rashty, CPA
Self-Study CPE Details
Interest Area:
CPAs industry
Address from the management (PBEs) and discuss some of the concerns on CAM disclosures from the management
Basic Prerequisite: None
MUST BE COMPLETED AND SUBMITTED BY JULY 31, 2020 TO QUALIFY.
(SEC) approved—a new auditing standard: AS 3101, Te Auditor’s Report on an Audit of Financial Statements when the Auditor Expresses an Unqualified Opinion. Tis standard requires the auditors of public business entities (PBEs) to identify and disclose their clients’ Critical Audit Matters (CAMs). Te presumption is CAMs will improve the relevance of an audit by providing more insight about the most significant matters auditors have encountered during their audit. Te objective of CAM is to make the
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auditor’s report more informative and relevant to investors and third-party users. PCAOB defines CAMs as matters arising from the current period audit of financial statements that: (1) the auditor communicates or is required to communicate to the audit committee, and (2) relates to accounts or disclosures that are material to the financial statements and involves especially challenging, subjective or complex auditor judgment. Tis article addresses the implications
of CAM reporting from the management perspective of PBEs. Tere is a purported argument that CAM reporting reduces the information asymmetry among investors; however, some have expressed a lukewarm view of CAM disclosures. Tis article discusses some of the concerns and cautionary views on CAM disclosures from the management perspective of PBEs, but its goal nevertheless remains to not take naysayers’ positions.
Te PCAOB, in its principles-based
standard, touted CAM as an investor protection tool and argued, “[t]he communication of critical audit matters would inform investors and other financial statement users of matters
12 CPAFOCUS July/August 2020
n 2017, the Public Company Accounting Oversight Board (PCAOB) adopted—and the Securities and Exchange Commission
arising from the audit that required especially challenging, subjective or complex auditor judgment, and how the auditor addressed these matters (Release No. 2017-001).” Furthermore, it argued there is a certain level of “information asymmetry” in financial reporting of PBEs, where some insiders and certain parties have more and better information than others – CAM’s credo is to eliminate, or at least reduce, such information asymmetry. Te PCAOB states the determination of CAMs is based on the facts and circumstances of each audit. AS 3101 is a principles-based standard and does not specify any matters that always constitute CAMs. Te PCAOB expects in most CAM-applicable audits, auditors identify at least one CAM; however, it would be plausible to envision that there would be audits in which the auditor determines there are no CAMs. In July 2018, the Center for Audit Quality
in “Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors and Other Users of Financial Statements,” recommended the following introductory language in an audit report:
Te critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. Te communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters
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