The Center for Audit Quality has published a guide to the Public Company Accounting Oversight Board’s new audit reporting model and the critical audit matters that auditors will be required to start including in their audit reports next year.
The new publication released by the CAQ on Tuesday, Critical Audit Matters: Key Concepts and FAQs for Audit Committees, Investors, and Other Users of Financial Statements, is aimed at investors and audit committee members. The PCAOB adopted the new auditing standard in 2017, although the provisions related to critical audit matters, also known as CAMs, don’t take effect until the middle of next year for the largest public companies. The standard requires auditors to include in the auditor's report a discussion of CAMs that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective or complex auditor judgments.
Some parts of the standard took effect already, such as the new auditor’s report format, along with disclosures on audit firm tenure and other information. That became effective with audits for fiscal years ending on or after Dec. 15, 2017. However, the communication of CAMs for audits of large accelerated filers starts with fiscal years ending on or after June 30, 2019, and the communication of CAMs for audits of all other companies begins with fiscal years ending on or after Dec. 15, 2020. With its new publication, the CAQ hopes to familiarize investors and audit committee members with the new information that will start showing up in audit reports.
The new standard is supposed to move the traditional audit report beyond the traditional pass/fail format, giving investors more information about the types of judgments the audit firm had to make, what was said to the audit committee, and any accounts or disclosures that were especially important.
“The communication of critical audit matters represents a significant change in the information required to be communicated in the auditor’s report,” said CAQ Executive Director Cindy Fornelli in a statement. “The CAQ is committed to promoting an ongoing dialogue among auditors, management, audit committees and others to support implementation of this new requirement.”
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