Abstract
Auditors of US issuers classified as large accelerated filers with yearends on or after June 30, 2019 are required to consider inclusion of critical audit matters (CAMs) in their audit reports. We survey the audit engagement partners, audit committee chairs, and chief financial officers of certain US issuers to gain insight into the process of identifying and reporting CAMs. We also gather perceptions about the impact of disclosing CAMs on audit effectiveness and efficiency. Our results provide initial evidence that the CAM reporting process is largely controlled by the independent auditor. They also provide mixed evidence about concerns expressed during the comment phase of the proposed auditing standard: The CAM process increases audit fees, but it does not adversely impact audit quality. Stakeholders participating in the CAM process question whether reporting CAMs adds enough, if any, value to justify its costs.
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Notes
A US large accelerated filer is an issuer with a public float of $700 million or more, as of the last business day of the issuer’s most recently completed second fiscal quarter.
For a summary of additional studies and their results, see Velte and Issa (2019).
Comment letters are available at: https://pcaobus.org/Rulemaking/Pages/Docket034Comments.aspx.
The survey was approved by the Institutional Research Boards of the researchers distributing the survey and interacting with participants.
Second requests were sent in January 2020.
We surmise this is primarily due to the surveys being sent to issuer addresses and not being passed along to ACCs.
A number of colleagues from academia and practice reviewed the statements for clarity and completeness prior to our mailing of the final research instrument. Due to the limited number of firms having an inspection report posted on the PCAOB’s Web site, the instrument was not pretested on smaller registered firms in an effort to maximize the number of usable responses from the final version of the instrument.
Our small sample size (n = 20) and response rate (12 percent of AEPs and CFOs, collectively) are not unusual for research of this type (i.e., the response rate for external surveys typically ranges from 10 to 15 percent; see https://www.surveygizmo.com/resources/blog/survey-response-rates/), particularly when dependent upon the responses of high-level non-auditor executives. For example, Beasley, Carcello, Hermanson, and Neal (2009) were able to garner an impressive convenience sample of 42 audit committee chairs. But, the revenues of the companies represented by their participants ranged from only $15 thousand to $130 million and averaged $6.7 million. Nkansa and Bailey (2018, p. 1) report that it “appears that 15 percent is an acceptable rate [from accounting professionals] today.” Testing for generalizability and a discussion of possible limitations of the study’s results is discussed in “Conclusions and opportunities for future research” section.
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Daugherty, B.E., Dickins, D., Pitman, M.K. et al. The process of identifying and reporting CAMs: early evidence. Int J Discl Gov 18, 16–23 (2021). https://doi.org/10.1057/s41310-020-00101-1
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DOI: https://doi.org/10.1057/s41310-020-00101-1