A Corporate Governance Anomaly: Requiring Outside Auditors to Disclose CAMs May Have Unintended Consequences

Generally accepted audit standards (GAAS) require an auditor to communicate significant findings from the audit to those charged with governance in the entity being audited, which includes the audit committee of the company's board of directors (AU section 380). [...]although it is a material b...

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Bibliographic Details
Published in:The CPA journal (1975) 2021-02, Vol.91 (2-3), p.11-14
Main Authors: Love, Vincent J, Manisero, Thomas R
Format: Article
Language:English
Subjects:
Access control
Accounting
Audit committees
Auditing procedures
Auditing standards
Auditors
Boards of directors
Corporate governance
Disclosure
Ethical aspects
Financial disclosure
Financial reporting
Financial statements
Outsourcing
Public Company Accounting Reform & Investor Protection Act 2002-US
Public interest
Responsibilities
Stockholders
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Summary:Generally accepted audit standards (GAAS) require an auditor to communicate significant findings from the audit to those charged with governance in the entity being audited, which includes the audit committee of the company's board of directors (AU section 380). [...]although it is a material breach of the standards and not recommended for any reason, legally not documenting the work done in a significant audit area does not mean the work was not done and the proper judgment was not applied. The PCAOB avers that the public disclosure of CAMs is in accordance with the Sarbanes-Oxley Act (SOX) mandate to "protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports." The PCAOB states that the communication of each CAM should include the following: * Identifying the critical audit matter; * Describing the principal considerations that led the auditor to determine that the matter is a CAM; * Describing how the CAM was addressed in the audit; and * Referring to the relevant financial statement accounts or disclosures. Because the board of directors is legally charged as the shareholders' fiduciary representative, one must question why the PCAOB has now chosen to shift responsibility for disclosure of these critical matters relating to an enterprise's financial reporting from the board to the independent auditor.
ISSN:0732-8435