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Starting in 2019, auditors\u2019 reports for certain public companies must contain a new element: critical audit matters (CAMs). The requirement was in effect for audits of large accelerated filers (with market values of $700\u00a0million or more) in fiscal years ending on or after June\u00a030, 2019. It goes into effect for smaller public companies in fiscal years ending on or after December\u00a015, 2020.<\/p>\n
Regardless of where you are in the implementation process, anticipating the CAMs that will appear in your auditor\u2019s report may be especially challenging given the uncertainty caused by the COVID-19 crisis.<\/p>\n
The basics<\/strong><\/p>\n The auditor\u2019s report offers an opinion as to whether the financial statements fairly present the company\u2019s financial position, results of operations and cash flows in conformity with U.S. Generally Accepted Accounting Principles or another applicable financial reporting framework. In 2017, the Public Company Accounting Oversight Board (PCAOB) expanded the pass-fail format of the auditor\u2019s report.<\/p>\n The PCAOB rule requires auditors to describe CAMs, which are matters that, from the auditor\u2019s point of view, require especially challenging, subjective or complex judgment. CAMs aren\u2019t necessarily meant to reflect negatively on the company or indicate that the auditor found a misstatement or internal control deficiencies. But they can raise a red flag to stakeholders.<\/p>\n Close-up on CAMs<\/strong><\/p>\n When identifying CAMs, the auditor must:<\/p>\n In May, research firm Audit Analytics reported that the four most common CAMs in auditors\u2019 reports issued for large accelerated filers through April\u00a030, 2020, were: 1)\u00a0goodwill and intangible assets, 2)\u00a0revenue recognition, 3)\u00a0structure events (valuation of acquiring assets), and 4)\u00a0income taxes. Together, these topics accounted for more than half of all CAMs. These matters are expected to continue to present auditing challenges during the COVID-19 crisis.<\/p>\n Moving target<\/strong><\/p>\n CAMs may change from year to year, based on audit complexity, changing risk environments and new accounting standards. Each year, auditors determine and communicate CAMs in connection with the audit of the company\u2019s financial statements for the current<\/em> period.<\/p>\n A significant event \u2014 such as a cybersecurity breach, a hurricane or the COVID-19 pandemic \u2014 may cause the auditor to report new CAMs. Though such an event itself may not be a CAM, it may be a principal consideration in the auditor\u2019s determination of whether a CAM exists. And such events may affect how CAMs were addressed in the audit.<\/p>\n No surprises<\/strong><\/p>\n Management and the audit committee should know what to expect when the financial statements are delivered. A dry run before year end can help you anticipate the CAMs that will appear on your auditor\u2019s report for fiscal year 2020, so you can provide clear, consistent messaging to stakeholders. Contact us for more information.<\/p>\n \u00a9 2020<\/em><\/p>\n <\/body> Starting in 2019, auditors\u2019 reports for certain public companies must contain a new element: critical audit matters (CAMs). The requirement was in effect for audits of large accelerated filers (with market values of $700\u00a0million or more) in fiscal years ending on or after June\u00a030, 2019. It goes into effect for smaller public companies in fiscal […]<\/p>\n","protected":false},"author":3,"featured_media":14944,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[27],"class_list":["post-14945","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-aa","tag-aa"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14945","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=14945"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/14945\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=14945"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=14945"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=14945"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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