A new disclosure requirement described as the most significant change to the auditor’s report in 70 years is making a difference in the internal controls at large companies, although those looking for scandal so far have been disappointed.
The reporting requirement, known as “critical audit matters” or CAMs, sounds ominous, but it’s intended to enhance communications with investors about the issues that arise in an audit. The rule from the Public Company Accounting Oversight Board, or PCAOB, went into effect last summer. It applies first to large accelerated filers, generally those with a public float above $700 million, who saw the rule go into effect for fiscal years ending June 30, 2019, or later. Most other public filers see the rule going into effect for fiscal years ending Dec. 15, 2020, or later.
Of those companies who have conducted a “dry run” of CAMs, 43% of audit committees identified additional internal controls to implement and 19% are considering changes, according to an Intelligize report in conjunction with Accounting Today. The August 2019 online survey elicited 171 responses.
However, the initial batch of CAM public reporting hasn’t elicited many findings. The research firm Audit Analytics collected 333 CAMs from the audit opinions of 193 large accelerated filers, for an average of 1.7 CAMs per opinion as of Dec. 17, 2019. The firm cautioned that the number of CAMs is not necessarily indicative of problems or a lack of problems at the company.
Audit Analytics said the top five topics most commonly identified as critical audit matters so far are business combinations, goodwill, revenue recognition, taxes and contingencies.
“The first round of companies that have issued their financial statements with the auditors’ reports that have the critical audit matters show that, even for very large companies, there weren’t a lot of critical audit matters identified,” said Andrew Burczyk, president and chairman of the board at Mayer Hoffman McCann, in a report from Accounting Today.
Those searching for juicy information in the batch of CAMs may be disappointed. For example, in Microsoft Corp.’s CAM disclosure, Burczyk told Accounting Today that the language seemed more boilerplate than providing any real insight. “I think people are going to be underwhelmed with the critical audit matters,” he said.