Critical Audit Matters (CAMs)

A critical audit matter (CAM) is an issue from the audit of a company's financial statements that the auditor communicated, or was required to communicate, to the audit committee, that relates to accounts or disclosures material to the financial statements, and that involved especially challenging, subjective, or complex auditor judgment. CAMs are described in the auditor's report under a section titled "Critical Audit Matters," as required by PCAOB auditing standard AS 3101.

CAMs are the part of the audit report that tells investors where the auditor found the accounts hardest to get comfortable with.

Full guide: Which SEC Filings Are Audited, and Which Aren't

Under paragraphs .11 through .17 of AS 3101, the auditor must decide whether any CAMs exist for the current period. In judging whether a matter involved especially challenging judgment, the auditor weighs factors such as the assessed risk of material misstatement, the degree of management estimation involved, significant unusual transactions, how subjective the audit procedures were, and whether specialized skill or outside consultation was needed. The standard notes the expectation that most audits will have at least one such matter.

For each CAM, the report must identify it, explain the principal considerations that made it a CAM, describe how the audit addressed it, and point to the related accounts or disclosures. If the auditor concludes there are none, the report must say so. CAMs are not a separate opinion on those accounts, and they are not a substitute for a qualified or adverse opinion. The standard does not require CAM communication in audits of emerging growth companies, brokers and dealers reporting under Rule 17a-5, registered investment companies other than business development companies, and employee stock purchase, savings, and similar plans.

Because CAMs center on areas of difficult judgment, they can overlap with the critical accounting estimates management discusses in MD&A. Reading the two side by side shows how management and the auditor each describe the same judgment.