The Center for Audit Quality has released findings from a collaborative effort by members of the public company auditing profession to field test certain aspects of the Public Company Accounting Oversight Board’s auditor’s reporting model proposal.

Public company accounting firms of various sizes participated in the field-testing initiative. The report includes first-hand observations about the effects of the proposal for changing the format of audit reports, along with perspectives on the time and effort that may be involved in implementation.

The field testing of proposals related to reporing on Critical Audit Matters, or CAMs, included 51 companies representing different industries and market capitalizations. Testing of the proposed Other Information standard included 15 companies, and additional input from five audit partners.

The CAQ found that explicitly including materiality relative to the financial statements as a factor to be considered in the determination of critical audit matters, or CAMs, may help to narrow the population of potential CAMs. Field testing revealed that the number of CAMs identified varied significantly from engagement to engagement, with the number of potential CAMs per issuer ranging from one to 45, while the number of actual CAMs per issuer ranged from zero to eight.

Focusing the source for CAMs on only those matters communicated to the audit committee may be more effective and efficient. Audit engagement teams considered the population of matters included from all sources identified in the proposal and indicated that 98 percent of the CAMs identified during the course of field testing were previously communicated to the audit committee.

Additional clarification regarding how an auditor would effectively communicate those factors that were most important to the determination that a matter was a CAM in the auditor’s report may be helpful to promote consistent application of the final standard.

Further consideration by the PCAOB of the requirement for documentation of matters considered to be a potential CAM that were determined not to be a CAM would help to promote consistent application.

With respect to the Other Information part of the PCAOB proposal, the scope of responsibility (that is, the procedures to be performed) of the auditor was not clear to the audit engagement teams. Several of the accounting firms participating in the field testing expressed concern about the ambiguity of the information that may be included in the scope of OI.

“The CAQ continues to support the PCAOB’s efforts to update the auditor's reporting model,” said CAQ executive director Cindy Fornelli in a statement. “We hope observations from the profession’s field-testing initiative can provide valuable insights to the PCAOB as it contemplates next steps in this important effort.”

The testing was conducted in a retrospective environment, as opposed to a “live” audit environment, which made it difficult to assess the audit effort that would be required under the proposal.

“Changes to the auditor’s reporting model will have significant impacts on issuers, investors, auditors, and the markets,” Fornelli added. “The CAQ believes that certain enhancements would make the PCAOB proposal more practical and better aligned with the Board’s stated objectives. We thank the board for its consideration and encourage the PCAOB and others to conduct additional testing and examination of the proposals. Additionally, we applaud the PCAOB for its deliberative and thoughtful approach to such an important project.”