The SEC has approved the PCAOB’s standard regarding the communication of critical audit matters for public companies, referred to as CAMs, which will provide information in the audit report about matters arising from the audit that required especially challenging, subjective, or complex auditor judgment, and how the auditor responded to those matters. CAMs will be required to be included in audit reports for large accelerated files for fiscal years ending on or after June 30, 2019. CAMs will be required to be included in audit reports for most other issuers for fiscal years ending on or after December 15, 2020. Auditors may elect to comply with the new standard before the effective date.
Debate has ensued on what public companies can or should do to prepare for the new PCAOB standard and whether CAMs will be common place, how many CAMs a company expect and like topics.
In addition to preparing the audit committee regarding potential CAMs, public companies should consider the effect of potential CAMs on M&A activity. For companies looking to be acquired, potential CAMs will likely become a subject of due diligence inquiries prior to the target date. CAMs may also be a topic for companies subject to activist investor campaigns. Likewise, public companies looking to issue stock in acquisition transactions may receive due diligence inquiries about their potential CAMs as well.