Question

Why do you think that one of the biggest changes in financial reporting occurred during this past year with the voluntary disclosures of critical audit matters, or CAMS, in accordance with a recent standard from the Public Company Accounting Oversight Board? (In your answer, provide a definition of what are included in CAMS.)

Answer 1

The biggest change in financial reporting occurred in starting in 2019 which defines the requirements for auditors to communicate critical audit matters (CAMs) in the auditor’s report , based on the PCAOB’s new standard, AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. The determination of CAMs is principles-based and depends on the facts and circumstances of each audit. The Board adopted these changes to inform investors and other financial statement users about significant matters in the audit and how they were addressed

First of all we have to understand what is Cam?

A CAM is defined as any matter or observation arising from the audit of the financial statements of the company that was communicated or required to be communicated to the audit committee and that:

1. Relates to accounts or disclosures that are material to the financial statements:

· CAM relate to component of material account or disclosure and need not to impact entire account or disclosure of financial statements.

· CAM may not relate to single account or disclosure, but could have pervasive impact on financial statements if it is relates to many accounts and disclosures. A matter that does not relate to a material account or disclosure cannot be a CAM

2. Involved especially challenging, subjective, or complex auditor judgment ;

The standard provides a list of factors for the auditor to take into account when determining whether a matter involved especially challenging, subjective, or complex auditor judgment:

· The auditor’s assessment of the risks of material misstatement, including significant risks

· The degree of auditor judgment related to areas in the financial statements that involved the application of significant judgment or estimation by management, including estimates with significant measurement uncertainty

· The nature and timing of significant unusual transactions and the extent of audit effort and judgment related to these transactions

· The degree of auditor subjectivity in applying audit procedures to address the matter or in evaluating the results of those procedures

· The nature and extent of audit effort required to address the matter, including the extent of specialized skill or knowledge needed or the nature of consultations outside the engagement team regarding the matter

The nature of audit evidence obtained regarding the matter The auditor should also take into account other factors specific to the audit.

Note : The standard does not exclude any required audit committee communications from the source of CAMs