Coming This Summer: A Dramatic Change in Auditor Reporting
Later this summer, audit reports for large accelerated filers will include a new section addressing “critical audit matters” (CAMs), which, according to a recent publication by Deloitte, “will be a dramatic change in auditor reporting and is expected to generate significant media attention, particularly in the first year of adoption.”
A CAM is any matter 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, and (2) involved especially challenging, subjective or complex auditor judgment. Approved by the SEC in October 2017, the new standard takes effect for audits of large accelerated filers for fiscal years ending on or after June 30, 2019, and for other public companies in 2020.
To ensure a smooth transition to the new standard, Deloitte encourages boards to consider the following questions:
1. Have we discussed potential CAMs with the external auditors?
2. Have we conducted any “dry-runs” of CAMs?
A. If so, what was learned and what should we expect? What matters do we think are likely to be the subject of our CAMs?
B. If not, why not?
3. Is management considering whether company disclosures related to those areas that may be CAMs need to be enhanced?
4. Do we have a communications and investor relations strategy to discuss CAMs with our investors?
5. Is investor relations prepared for questions they may receive about CAMs?
6. Is the company engaged in dialogue with investor analysts about the upcoming reporting of CAMs?
7. Is it possible that we will have no CAMs to disclose?