
In a new survey on Critical Audit Matters (CAMs), the Center for Audit Quality (CAQ) found that 92% of investors use CAMs when making investment decisions.
As further evidence of the importance of CAMs to investors, 93% of investors said that CAMs play a crucial role in their analysis when deciding on possible investments.
The third-quarter research online survey, conducted from July 9 to 22, had 100 U.S. institutional investor participating. It was mainly designed to assess four factors: the use of CAMs in the investor investment decision-making process, the training level or information investors received on CAMs, the respondents' satisfaction level with CAMs, and how CAMs can be improved.
In a March 2019 staff guidance called Implementation of Critical Audit
Matters: A Deeper Dive on the
Determination of CAMs, the PCAOB defined a CAM as any matter arising from the audit of the financial statements that
was communicated or required to be communicated to the audit committee and that relates to accounts or disclosures that are material to the financial statements and
involved especially challenging, subjective, or complex auditor judgment.
The 92% of investors who said they depend on CAMs when making investment decisions were asked about specific examples of CAMs that influenced their investment decisions. They listed the following examples:
Valuation of Assets / Goodwill Appraisal / Intangible Assets Eval. (22%)
Financial Statement / Occurrence of Financial Misstatements (21%)
Revenue Recognition (18%)
Compliance Issues / Fraud 14%)
Management Estimates / Management Judgment (12%)
Additionally, the dependence on CAMs becomes more apparent with 93% of the respondents saying that CAMs play a key role in their decision-making analysis of a possible investment.
The survey also found that 88% of investors have received either training and/or a written explanation of the value and utilization of CAMs, with 68% saying they received significant training and 20% saying they received some training.
Meanwhile, investors are actively looking for CAMs information, as the survey said that nearly all investors read the CAMs section in 10-Ks, and 78% do so often. Additionally, half of investors say that either increasing the number of CAMs or increasing the detail provided in CAMs would benefit their investment decisions.
In terms of what information investors are most interested in, the survey revealed that they are most focused on the issue of the risk associated with the CAM and the topic of the CAM. When asked if there is any other information related to CAMs that they would find necessary to their investment decisions, the investors named these four areas: financial impact/ effect on future earnings/reliability of reports ; risk profile/understanding and pinpointing risks; origins of CAMs/ what qualifies as a CAM/ how auditor Identified CAMs; and management response and reactions.
Investor enthusiasm for CAMS is also high, with 58% of investors saying that they prefer to see more CAMs in an auditor’s report to inform their decisions, although the industry or market conditions also play a role.
Additionally, 90% of investors said they are satisfied with the quality and clarity of CAMs in audit reports, 8% said they were neither satisfied nor dissatisfied, and only 2% expressed dissatisfaction.