Serving Their Purpose? Insights on Critical + Key Audit Matters

Audit Analytics’ recently released report – Serving Their Purpose? Insights on Critical and Key Audit Matters – provides a comprehensive look at the U.S. and international audit matter standards and the disclosure diversity among audit matters based on the different regulations, company size, and industry. The analyses presented in this report help to better understand the viability and effectiveness of these disclosures.

The objective of including audit matters, both key and critical, is to increase transparency and usefulness of the auditor’s report; it requires the auditor to provide more information about complex audit procedures relating to material or high-risk accounts, on an entity-specific basis.

However, questions about the practical utility of audit matter disclosures, including concerns about a lack of new information and diluted entity-specific informativeness, have been raised.

KAMs and CAMs were introduced to make the audit report more informative for investors and other financial statement users. Standards requiring the disclosure of key audit matters – ISA 701 – were issued by the International Audit and Assurance Standards Board (IAASB) in January 2015 and became effective for periods ending on or after December 15, 2016. The Public Company Accounting Oversight Board (PCAOB) followed with the adoption of critical audit matters – AS 3101.11 – in June 2017, which became effective for large accelerated filers for fiscal years ending on or after June 30, 2019, and became effective for all other public companies for periods ending on or after December 15, 2020.

CAMs and KAMs have similar definitions because they have shared objectives – to provide more useful information in the audit report. However, small disparities between the two result in practical variations because of fundamental differences in their approach.

Frequency of Audit Matters per Report

This seemingly innocuous distinction has had a tangible effect. During the first year of the CAM requirement, there have been just 1.7 CAMs per audit report on average in the US compared to 2.8 and 2.4 KAMs per audit report in the UK and EU, respectively.

Top 5 Audit Matter Topics

The UK and the EU each have a topic disclosed in nearly half of all audit reports; revenue recognition in the UK and intangibles (which includes goodwill) in the EU.

The US saw more relative diversity in the topics being disclosed but intangible assets, revenue recognition, and structure events (which include mergers, acquisitions, and divestitures) each appear in roughly one-quarter of US audit reports.

The report goes on to provide various comparative analyses of CAMs and KAMs by company size, industry, and dual-listed entities.

To access the full report, click here. Audit Analytics’ Subscribers can download the report from their dashboard.

The analyses presented in this report use data from the Critical Audit Matters and Key Audit Matters databases, powered by Audit Analytics.


For more information about Audit Analytics or this analysis, please contact us.

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