Second-Year Evidence on the as 3101 Critical Audit Matters Disclosure

Abstract

In 2019, the Public Company Accounting Oversight Board (PCAOB) expanded audit reports by requiring auditors to provide a critical audit matters (CAM) disclosure in the independent audit report, based on Auditing Standards (AS) 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. We provide some insights on how CAM disclosures has evolved from year 1 to year 2. Overall, on average, June 30th year-end filers’ auditors reported the same top 3 CAM categories in 2019 and 20202. Firms reported less CAMs in the second year of the CAM disclosure requirement, with the audit firm average number of CAMs reported moving closer to the mean for all firms reporting. In 2019, the range between firms was more significant than in 2020. The findings reported in this study are useful in informing internal auditors, regulators and standard setters, as well as providing a CAM expectation benchmark for internal auditors and audit committees. The insights are also relevant for external auditors who are required to consider various aspects of the objectivity and the quality of the internal auditor.