Critical audit matters (CAMs)

Definition

Critical audit matters, or CAMs, are required in auditor's reports for issuer audits under PCAOB AS 3101. A CAM is a matter communicated or required to be communicated to the audit committee that relates to accounts or disclosures that are material to the financial statements and involved especially challenging, subjective, or complex auditor judgment. The report describes the matter, why it is a CAM, and how the audit addressed it. The requirement does not apply to audits of emerging growth companies, brokers and dealers, registered investment companies other than business development companies, and employee stock purchase, savings, and similar plans.

Why it matters in an audit or review

CAMs give investors company-specific audit information. Key audit matters (KAMs) are the international equivalent under ISA 701 and differ in definition. Under AICPA standards, AU-C 701 applies only when the auditor is engaged to communicate key audit matters. Candidates for CAMs often involve goodwill impairment, revenue recognition, or valuation of hard-to-measure assets.

Example

Illustrative: an issuer's auditor spent extensive time challenging management's cash flow forecasts used to test goodwill for impairment. The report names goodwill impairment as a CAM and summarizes the procedures.

Common mistakes

Describing the CAM in boilerplate. The PCAOB expects specific, entity-level description.

FAQ

Do private company audits include CAMs?

Not as a requirement. CAMs apply to PCAOB audits of issuers, with listed exceptions.

Sources

• PCAOB, AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion (critical audit matters)
• IAASB, ISA 701, Communicating Key Audit Matters in the Independent Auditor's Report
• AICPA, AU-C Section 701, Communicating Key Audit Matters in the Independent Auditor's Report
• Official page: https://pcaobus.org/Standards/Auditing/AS3101