Watch our video for key considerations on the new CAM reporting requirements
As the implementation of CAM Reporting Requirement is around the corner, we provide an update on our adoption approach and also share some learnings from our dry run program. One of the key learnings is that we found most CAMs related to our audit procedures over critical accounting estimates, and nonrecurring or significant transactions.
Duration: 4:50
Hi, I’m Heidi Schuetze, PwC’s US Chief Auditor. As you are aware, the PCAOB issued a new auditor reporting standard in 2017.
Phase 1 of the standard, implemented in 2018, covered the structure, form, and standardized content of the auditor’s report, as well as disclosure of auditor tenure.
Adoption of Phase 2, which covers the implementation of critical audit matter reporting, is right around the corner - beginning with large accelerated filers with fiscal years ending on or after June 30, 2019. In this video I will be sharing with you the process PwC has taken towards implementing the CAM reporting requirements.
Since April 2018, we have been conducting “dry runs” of CAM reporting concurrent with many of our large accelerated filer audits. In these “dry runs” we have applied our approach to determining and communicating CAMs, and shared draft CAMs with management and audit committees. The program has been very successful - management and audit committees have benefitted from not only having early insight into our process but also having an understanding of what CAMs might look like for their specific audits. In addition, during the course of our dry run program, we observed that in some cases management considered the level of specificity in their own financial reporting disclosures related to matters we determine to be CAMs.
So, what else have we learned so far? First, we have found the CAMs we identified tend to relate to our auditing of a subset of critical accounting estimates. This is not surprising based on the fact that CAMs by definition are matters that involve challenging, subjective or complex auditor judgment. We also identified a number of CAMs related to other areas such as our audit procedures over nonrecurring or significant transactions.
Second, this slide shows common CAMs that we have identified across all industries. In addition, we have seen some common industry-specific CAMs. For example, in the financial services industry, our audit procedures over matters such as the allowance for loan loss, insurance loss reserves, and level 3 investments are often identified as CAMs. And, in the energy and utilities industries, we often see audit procedures over accounting for the effects of regulatory matters and the impact of reserves on oil and gas properties also identified as CAMs.
Third, we also found the number of CAMs identified for each audit varies depending on the nature of the engagement. On average, in our experience, it is common to identify two CAMs per engagement, with some engagements having only one CAM and others having three or more, especially if there are non-recurring matters determined to be CAMs (such as acquisitions).
Fourth, regarding the content of a CAM, we received positive feedback about both the manner in which we tailored the description of the matter to the facts and circumstances of each audit and the specificity we provided about why the matter was determined to be a CAM. We consider information disclosed or publicly communicated by management in communicating the CAM. When a CAM relates to a component of an account or disclosure, we sometimes found it necessary to provide more granular information in our description to focus on why the particular matter was a CAM.
Throughout our dry run program, we have been pleased to participate in an ongoing dialogue with the PCAOB and others in the profession through the Center for Audit Quality. This dialogue allowed us to share important observations and raise questions arising from the firms’ implementation efforts.
As you may have seen, the PCAOB recently released staff guidance relating to the implementation of CAMs which address the basics, staff observations and a deep dive on the determination of CAMs. I’d encourage you to take a look at these documents. We plan to continue our dry run program with those companies who will be subject to CAM reporting requirements in 2020.
So the message for everyone is this:
  • Engage in a dialogue with your auditors about what matters could potentially be CAMs in this year’s audit, and
  • Seek to understand their plans to share draft CAMs with you, so that this can be integrated into the financial reporting process, including the finalization of disclosures related to CAMs.
We will continue to have an open and transparent communication to promote successful implementation. But in the meantime please do not hesitate to engage your PwC professionals for a../points_of_view discussion on CAM reporting.
Thank you.

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