PCAOB Debuts 'Audit Focus' Series for Auditors of Small Public Companies

The Public Company Accounting Oversight Board (PCAOB) introduced on Wednesday a new series of staff guidance, “Audit Focus,” that is intended to provide easy-to-digest information to auditors, especially those who audit smaller public companies, with critical audit matters (CAMs) as the first topic.

With an eye toward protecting investors and improving audit quality, the regulator said each edition of “Audit Focus” reiterates applicable auditing standards and staff guidance and offers reminders and good practices tailored to PCAOB-registered audit firms of smaller public companies.

The PCAOB said its staff continues to identify a large number of deficiencies related to the auditor’s determination, communication, and documentation of CAMs.

AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, defines a CAM as “any matter arising from the audit of the financial statements 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.”

In this edition of “Audit Focus,” the PCAOB says it has a research project specifically focused on the communication of CAMs.

“That project seeks to understand why there continues to be a decrease in the average number of CAMs reported by audit firms of all sizes in their auditor’s reports over time and whether there is a need for additional guidance, changes to PCAOB standards, or other regulatory action to improve such reporting, including the information that is provided as part of the CAM reporting,” the PCAOB says. “Observations described within this ‘Audit Focus’ are being considered by the CAMs research project team as they advance their analysis.”

The “Audit Focus” on CAMs highlights:

Key reminders on determination, communication, and documentation of CAMs.
PCAOB staff’s perspectives on some of the common deficiencies, such as not accurately describing how a CAM was addressed in the audit.
Good practices that PCAOB staff has observed related to CAMs, such as use of practice aids.

“Audit firms use practice aids to capture (1) all matters communicated, or required to be communicated, to the audit committee (including during planning and throughout the audit), and (2) the CAM determination factors outlined in AS 3101.12, to guide the CAM determination process,” the PCAOB says in the “Audit Focus.” “These practice aids are only helpful if designed and used appropriately.”