CAQ Provides Auditor Reporting Field-Testing Findings to PCAOB

Washington, DC The Center for Audit Quality (CAQ) has released key findings from a collaborative
effort by members of the public company auditing profession to field test certain aspects of the Public
Company Accounting Oversight Boards (PCAOB) auditors reporting model proposal.
The CAQ continues to support the PCAOBs efforts to update the auditor's reporting model, said CAQ
Executive Director Cindy Fornelli. We hope observations from the professions field-testing initiative can
provide valuable insights to the PCAOB as it contemplates next steps in this important effort.
Public company accounting firms of various sizes participated in the field-testing initiative, which has
gathered first-hand observations about the effects of the proposal and perspectives on the time and effort
that may be involved in implementation. Field testing of the proposal as it relates to Critical Audit Matters
(CAMs) included 51 companies representing diverse industries and market capitalizations. Testing of the
proposed Other Information (OI) standard included 15 companies, and additional input from five audit
partners.
Key Observations From the CAQs Field-Testing Initiative
Critical Audit Matters

Determination: Explicitly including materiality relative to the financial statements as a factor to be

considered in the determination of CAMs may help to narrow the population of potential CAMs. Field
testing revealed that the number of CAMs identified varied significantly from engagement to engagement,
with the number of potential CAMs per issuer ranging from one to 45, while the number of actual CAMs
per issuer ranged from zero to eight. (See Appendix C for more information.)

Communication: Focusing the source for CAMs to only those matters communicated to the audit
committee may be more effective and efficient. Audit engagement teams considered the population of
matters included from all sources identified in the proposal and indicated that 98 percent of the CAMs
identified during the course of field testing were previously communicated to the audit committee.

Description: Additional clarification regarding how an auditor would effectively communicate those factors
that were most important to the determination that a matter was a CAM in the auditors report may be
helpful to promote consistent application of the final standard.

Documentation: Further consideration by the Board of the requirement for documentation of matters
considered to be a potential CAM that were determined not to be a CAM would help to promote
consistent application.
Other Information

The scope of responsibility (i.e. procedures to be performed) of the auditor was not clear to the audit
engagement teams.

Several of the accounting firms participating in the OI field testing expressed concern about the ambiguity
of the information that may be included in the scope of OI.

The testing was conducted in a retrospective environment, as opposed to a live audit environment,
which made it difficult to assess the audit effort that would be required under the proposal.
Changes to the auditors reporting model will have significant impacts on issuers, investors, auditors,
and the markets, added Fornelli. The CAQ believes that certain enhancements would make the PCAOB
proposal more practical and better aligned with the Boards stated objectives. We thank the Board for its
consideration and encourage the PCAOB and others to conduct additional testing and examination of the
proposals. Additionally, we applaud the PCAOB for its deliberative and thoughtful approach to such an
important project.
To access the comment letter, please click here.
Additional Information
Working with the CAQ, the profession has put forth several thoughtful concepts over the last few years to
improve the auditors reporting model. Selected examples include:
1. The CAM and Other Information approaches (or frameworks) included in the CAQs December
11, 2013 letter to the PCAOB.
2. A mandatory emphasis of matter framework published in late 2012.
3. Potential auditor assurance on information outside the financial statements, such as critical
accounting estimates, as illustrated in mock reports provided to the PCAOB in 2011.
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About the CAQ:
The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing
investor confidence and public trust in the global capital markets. The CAQ fosters high quality
performance by public company auditors, convenes and collaborates with other stakeholders to advance
the discussion of critical issues requiring action and intervention, and advocates policies and standards
that promote public company auditors objectivity, effectiveness and responsiveness to dynamic market
conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of Certified Public
Accountants. For more information, visitwww.TheCAQ.org and follow the CAQ on Twitter: @TheCAQ.

http://www.thecaq.org/newsroom/2014/06/20/caq-provides-auditor-reporting-field-testing-findingsto-pcaob