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CAQ Provides Auditor Reporting Field-Testing Findings to PCAOB

Friday, June 20, 2014

Washington, DC – The Center for Audit Quality (CAQ) has released key findings from a collaborative effort by members of the public company auditing profession to field test certain aspects of the Public Company Accounting Oversight Board’s (PCAOB) auditor’s reporting model proposal

“The CAQ continues to support the PCAOB’s efforts to update the auditor’s reporting model,” said CAQ Executive Director Cindy Fornelli. “We hope observations from the profession’s field-testing initiative can provide valuable insights to the PCAOB as it contemplates next steps in this important effort.”

Public company accounting firms of various sizes participated in the field-testing initiative, which has gathered first-hand observations about the effects of the proposal and perspectives on the time and effort that may be involved in implementation. Field testing of the proposal as it relates to Critical Audit Matters (CAMs) included 51 companies representing diverse industries and market capitalizations. Testing of the proposed Other Information (OI) standard included 15 companies, and additional input from five audit partners.

Key Observations From the CAQ’s Field-Testing Initiative

Critical Audit Matters

  • Determination: Explicitly including materiality relative to the financial statements as a factor to be considered in the determination of CAMs may help to narrow the population of potential CAMs. Field testing revealed that the number of CAMs identified varied significantly from engagement to engagement, with the number of potential CAMs per issuer ranging from one to 45, while the number of actual CAMs per issuer ranged from zero to eight. (See Appendix C for more information.)
  • Communication: Focusing the source for CAMs to only those matters communicated to the audit committee may be more effective and efficient. Audit engagement teams considered the population of matters included from all sources identified in the proposal and indicated that 98 percent of the CAMs identified during the course of field testing were previously communicated to the audit committee.
  • Description: Additional clarification regarding how an auditor would effectively communicate those factors that were most important to the determination that a matter was a CAM in the auditor’s report may be helpful to promote consistent application of the final standard. 
  • Documentation: Further consideration by the Board of the requirement for documentation of matters considered to be a potential CAM that were determined not to be a CAM would help to promote consistent application.

Other Information

  • The scope of responsibility (i.e. procedures to be performed) of the auditor was not clear to the audit engagement teams. 
  • Several of the accounting firms participating in the OI field testing expressed concern about the ambiguity of the information that may be included in the scope of OI. 

 The testing was conducted in a retrospective environment, as opposed to a “live” audit environment, which made it difficult to assess the audit effort that would be required under the proposal.

 “Changes to the auditor’s reporting model will have significant impacts on issuers, investors, auditors, and the markets,” added Fornelli. “The CAQ believes that certain enhancements would make the PCAOB proposal more practical and better aligned with the Board’s stated objectives. We thank the Board for its consideration and encourage the PCAOB and others to conduct additional testing and examination of the proposals. Additionally, we applaud the PCAOB for its deliberative and thoughtful approach to such an important project.”

To access the comment letter, please click here

Additional Information

Working with the CAQ, the profession has put forth several thoughtful concepts over the last few years to improve the auditor’s reporting model. Selected examples include: 

  1. The CAM and Other Information approaches (or ‘frameworks’) included in the CAQ’s December 11, 2013 letter to the PCAOB.
  2. A mandatory emphasis of matter framework published in late 2012.
  3. Potential auditor assurance on information outside the financial statements, such as critical accounting estimates, as illustrated in mock reports provided to the PCAOB in 2011.


About the CAQ:

The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high quality performance by public company auditors, convenes and collaborates with other stakeholders to advance the discussion of critical issues requiring action and intervention, and advocates policies and standards that promote public company auditors’ objectivity, effectiveness and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of Certified Public Accountants. For more information, visit and follow the CAQ on Twitter: @TheCAQ