The average number of critical audit matters (CAMs) per audit report has declined over time, and the proportion of audit reports that communicate a single CAM has increased, a new report by the Public Company Accounting Oversight Board (PCAOB) has revealed.

The report was a follow-up to an October 2020 interim analysis of on the initial impacts of CAM requirements by auditors of large accelerated filers (LAFs).

The average number of CAMs reported by LAFs went from 1.69 in the fiscal year ending June 30, 2020, to 1.43 in the fiscal year ending May 31, 2022. For non-accelerated filers, the number of CAMs declined from 1.23 for the fiscal year ending Dec. 14, 2021 to 1.12 for the fiscal year ending May 31, 2022. The proportion of audit reports that communicate a single CAM has increased from 49 percent to 65 percent over a similar time period.

This latest report is part of ongoing reviews of an auditing standard adopted by the PCAOB in June, 2017. It retained the pass/fail opinion of the existing auditor's report, but made significant changes to the auditor's report, including communication of critical audit matters, disclosure of auditor tenure and other improvements. The CAMs requirements were phased in gradually.

(On Sept. 25, 2017, the Society hosts a panel discussion, “The Expanded Auditor’s Report: A Dialogue,” with PCAOB member Jeanette M. Franzel, former PCAOB Chief Auditor Thomas J. Ray, Council of Institutional Investors General Counsel Jeffrey P. Mahoney, former NYSSCPA SEC Committee Chair and Mazars Financial Services Practice Leader Charles V. Abraham, and NYSSCPA President-elect and BDO National Assurance Partner Jan C. Herringer.  The event was be moderated by Chris Gaetano, former staff writer at The Trusted Professional.)

The PCAOB's recent analysis also found that investor awareness and use of CAMs continues to develop; all participating firms developed infrastructure and conducted training to support implementation of the CAM requirements by their audit engagement teams; audit engagement partners reported that, on average, audit engagement teams spend 1 percent to 2 percent of total audit hours on CAM-related activities; and that no evidence of significant unintended consequences from auditors’ implementation of the CAM requirements was found.

The PCAOB also conducted an investor survey in April and May of this year. It found that 76 percent of the 53 complete responses from investors who conduct fundamental or governance analysis reported they had heard of CAMs, compared to 63 percent in 2020. In the 2020 survey, 31 percent of respondents reported that they had seen CAMs. Forty-four percent thought that CAMs were easy to understand and 40 percent thought they were tailored to the audit.

Eighty percent of investors who had read CAMs reported using them to, among other things, identify risks associated with a given company. Fifty-six percent of them used CAMs to focus on key reporting issues or areas and 60 percent did so to understand better the disclosures made by management.

The report mentioned that 24 investors responded to an open-ended prompt asking them to share two reasons why they would, or would not, use CAMs in the future. Seventeen of the 24 investors said they would use CAMs in the future. “These investors generally found CAMs helpful to identify critical reporting risks and to provide a basis for questions to ask management,” the report read. “Investors also mentioned that CAMs provide insights and clarity on the audit process.”