At the recent 2019 AICPA Conference on Current SEC and PCAOB Developments, representatives of the SEC provided updates on a number of emerging issues, including implementation of the critical audit matters (“CAMs”) requirement. A representative of the Office of Chief Accountant noted that CAMs are intended to “provide audit-specific insights not previously communicated regarding matters that required especially challenging, subjective or complex auditor judgment related to accounts or disclosures that are material to the financial statements.”

The initial observations and reminders from early implementation of CAMs include the following:

• a correlation between CAMs identified by the auditor and critical accounting estimates disclosed in MD&A, but not a one-to-one relationship;
• instances where a CAM was not concluded by management to represent a critical accounting estimate;
• instances where an identified CAM was a component of the related critical accounting estimate;
• within an industry, among peer companies, or even year-over-year for an individual company there may or may not be similar CAMs;
• CAMs are not intended to be inherently positive or negative, so quantitative comparisons involving the number of CAMs across companies may not be meaningful; and
• the number of CAMs communicated does not have a bearing on the nature of the opinion included in the audit report.

The Staff observed that the utility of the CAM disclosure to investors depends on the degree to which the discussion of the CAMs is tailored. Generally, the Staff has observed that auditors have provided a brief overview of the audit procedures performed. The Staff reminded auditors that the information is more meaningful if they avoid general language regarding audit procedures performed, including the related control testing, and instead describe the specific procedures performed that were responsive to the principal considerations that led the matter to be identified as a CAM. See the full text of the remarks here.

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