Abstract
The Public Accounting Oversight Board’s Audit Standard 3101 (AS 3101), which requires auditors to disclose critical audit matters (CAMs), became effective for audits of large accelerated filers with fiscal years ending on or after June 30, 2019, and for all other US public companies on December 15, 2020. This initiative is a response to the gap between the users’ demand and the information provided in auditors’ reports. It is also intended to improve the relevancy of auditors’ reports. Focusing on studies of the determinants and consequence of CAMs disclosure in the US setting, this review complements and extends previous syntheses of research on expanded audit disclosures in non-US settings. More importantly, it provides preliminary insights into whether AS 3101 achieves its stated objective: making auditors’ reports more informative and more relevant to investors. This review also highlights areas where there is limited research or inconsistent results, which may help academic researchers to identify opportunities for future research.
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Notes
Some researchers attribute this difference to the fact that AS 3101 indicates that risks of material misstatement are only one of the factors that should be considered when determining whether something is a CAM. Not all risks of material misstatement will be CAMs (PCAOB 2017; Burke et al. 2020). Therefore, it is likely that there are fewer CAMs (under US AS 3101) than risks of material misstatement under UK ISA 700.
Before the implementation of AS 3101, auditors in the USA were already required by PCAOB Standard No. 16 to discuss with audit committees any significant risks identified by the auditor, certain matters regarding the company’s accounting policies, practices, and estimates, significant unusual transactions, certain matters related to the auditor’s evaluation of the company’s relationships and transactions with related parties, etc. (PCAOB 2012, 2017).
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Luo, Y. Determinants and consequence of critical audit matter disclosure: early evidence. Int J Discl Gov 18, 336–345 (2021). https://doi.org/10.1057/s41310-021-00112-6
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DOI: https://doi.org/10.1057/s41310-021-00112-6