14 Things You Should Know About CAM Audit

Overview

CAMs, which stands for Critical Audit Matters, came into existence after new auditing standards were implemented in 2017. CAMs are the first significant change to audit reporting in decades, and with those changes come several questions from people who have been auditing for years.

These changes were made to fill a perceived need for more relevant information to investors about corporate audits. The changes now require auditors, new and old, to provide more information in their reports than was ever required before.

Audit committees are now mandated by corporate policy to report CAMs, which in essence are especially subjective, complex, or challenging judgment calls by the auditor. Oftentimes, this info will be about disclosures and material accounts that are reported to the audit committee.

AS 3101 Law

The PCAOB, or otherwise known as the Public Company Accounting Oversight Board, took on a set of new auditing standards called “AS 3101” on June 1, 2017. In response, many companies put this into effect for their 2017 batch of yearly audits. Larger filers in need of acceleration are required to comply with new CAM standards by June 30, 2019. Other companies, in the meantime, are given until the end of December 15, 2020, to conform to the new CAM standards.

As for changes to the auditor’s report itself, those changes must be made on or before the fiscal date of December 15, 2017. It won’t be required of auditors to abide by the rules for communicating CAM if they are already reporting under the SEC Act of 1934 Rule 17a-5.

Details of a CAM report

New auditing standards are given by the PCAOB now require the auditor to disclose their tenure with their respective companies. In addition to that, here are a few other things that a CAM report must have to provide more detail to the committee.

  • Companies are required to address an auditor’s report to the shareholders and the board, not just the committee.
  • Standardizes the form used by all auditors that fall under the criteria for new PCAOB standards
  • Discloses whether the company’s auditor is in-house or independent.
  • The phrase “whether due to error or fraud” is added to all descriptions of an auditor’s new responsibilities under PCAOB standards.
  • Auditors are required to disclose CAMS and how they were dealt with in the audit
  • Auditors must refer to their management’s relevant disclosures

Factors when creating a CAM report

A detailed assessment of the risks of material misstatements by the auditor themselves estimates that dictated the auditor’s final financial statements, alongside statistics from the management team and any uncertainties. The timing of unusually important transactions as well as how their nature relates to the effort and evaluation given to them the subjectivity of the auditor in applying the auditing procedures to important matters, as well as in their evaluation. The extent of necessity on the auditor’s part about to detail the matter. This takes into account any specialized skills or knowledge that were not in the engagement teams’ sphere of responsibility.

Examples of CAMs

  • There are a lot of complicated laws and technical terms associated with CAMs, so it’s about time we use some examples.
  • Companies with material goodwill in their financial statements are an example of a possible CAM assessment. Goodwill impairment in particular is what can bring about the need for a CAM. Goodwill impairment is essentially a charge applied when a company’s goodwill is outvalued by a company’s financial statements (assets and liabilities).  Goodwill is recorded after the assets and liabilities are recorded, which is why it is considered a complex judgment.
  • Another example is potential loss contingency, wherein a company’s loss is discovered to not be in the financial documents and a remote incident. This is not considered a matter for CAM. However, it is a situation that occurs when there are expenses charged for a probable future event, such as loss of resources from an accident or a lost lawsuit.

Conclusion on CAMs

Not everything will fall under the definition of a CAM, and that is one of the most difficult things about including them in reports. Even things that would be considered significant risks can sometimes not be qualified for a CAM. Not all matters, regardless of risk, are particularly challenging, subjective, or complex. For example, as seen above with loss contingency, that does not fall under CAM since it’s just a straightforward loss of money with no subjectivity.

On the other hand, goodwill is such an intangible value that it requires judgment from the committee, the auditor, shareholders, and the board of directors. A report’s complexity will determine how many CAMs it actually has, and once people are used to its standards, it is not expected to make the auditing process all that different. Regardless, most audits are expected to have at least one CAM attached to them. Make sure that as an auditor or a company, you work together to spot any and all complex matters and regard them as such.

With remote work slowly becoming a new alternative, ask yourself “can my audits be done remotely?” because this can help you work with your auditor or company on filing your reports from wherever you may be.

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