In 2002, the Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting industry. The Act targeted corporate fraud, protected whistleblowers, and strengthened the independence and financial literacy of boards and audit committees. The audit profession and public companies adjusted quite well to these changes, which, in the last decade, resulted in regulators and shareholders devoting more attention to issues like compensation and board composition. Yet, the new PCAOB auditing standard (i.e., AS 3101), which was adopted and approved by the SEC in 2017, marks the first significant change to the auditor’s reporting model in years.
In this episode, Catherine Ide, Managing Director of Professional Practice and Member Services at the Center For Audit Quality (CAQ), joins host TK Kerstetter to discuss the second phase of implementation for the PCAOB’s new standard, which centers on the identification and communication of critical audit matters (CAMs). Not only does Ide define what “CAMs” are, but she outlines the various implications that today’s audit committees should consider.
“…we’re expecting a lot of discussion about these CAMs because they’re new,” said Ide. “We would expect a lot of dialogue between the auditor and the audit committee [regarding] what to expect as this change comes down the road.”
Beyond auditors and financial executives, Ide outlines (a) other internal stakeholders that audit committees should engage with and (b) the types of questions they should ask surrounding the new reporting model.
…CAMs will be putting new and different information about the audit out into the marketplace. Investors may have questions about that information, and investors typically go to investor relations or corporate governance people…when they have questions about [information] that [is] presented. Audit committees should be working to either ensure that those people are prepared to field those questions or put a process in place to make sure those questions get answered.
— Catherine Ide, Managing Director of Professional Practice and Member Services at the Center For Audit Quality (CAQ)
The CAQ has various resources available for audit committees related to CAMs and the new auditor’s reporting model. Don’t miss their publication: Critical Audit Matters: Lessons Learned, Questions to Consider, and an Illustrative Example or their recent Webcast on Critical Audit Matters, which brings together the perspectives of regulators, auditors, investors and audit committees to discuss CAM implementation.