Most Audit Reports Contain a CAM, But Only One

Ideagen Audit Analytics (IAA) has released Critical Audit Matters: A five-Year Review 2020-2024, a study of critical audit matters (CAMs) that appeared in audit reports filed by SEC-registered companies between 2020 and 2024. IAA finds that in both FY 2023 and FY 2024, 68 percent of auditor reports contained at least one CAM, up from 62 percent in 2020, the first year of CAM reporting. However, for audit opinions that contained a CAM, the average number of CAMs per opinion has fallen from 1.51 in 2020 to 1.27 in 2024. Revenue recognition was the most frequent CAM topic, appearing in 17 percent of FY 2024 CAMs, up from 12 percent in 2020.  For a discussion of IAA’s 2023 report (covering FY2020-2022), see More Audit Reports Contain CAMs, But There are Fewer CAMs Overall, February 2024 Update.

Background

As described in earlier Updates (see, e.g., The CAQ Summarizes CAM Reporting, January-February 2021 Update and More PCAOB Advice for Audit Committees on CAMs, July, 2019 Update), a CAM is defined as any matter arising from the audit of the financial statements that was (1) communicated or required to be communicated to the audit committee, (2) relates to accounts or disclosures that are material to the financial statements, and (3) involved especially challenging, subjective, or complex auditor judgment. The auditor’s report must identify each CAM, describe the main considerations that led the auditor to determine that the matter was a CAM, describe how the auditor addressed the CAM in the audit, and refer to the financial statement accounts or disclosures related to the CAM. The requirement that public company auditors’ reports include a discussion of CAMs began with large accelerated filers (companies with public float of $700 million or more) for fiscal years ending on or after June 30, 2019.

IAA 2025 Review Findings

Highlights of the IAA review include the following:

• The number of audit reports containing one or more CAMs continues to fall, along with the number of reporting company audit opinions, but the share of opinions containing a CAM is steady. In FY 2024, 4,637 audit opinions included at least one CAM, out of 6,834 opinions filed with the SEC. In 2023, there were more opinions with CAMs (4,807), but also more total audit opinions (7,111).  In both years, 68 percent of audit opinions included a CAM.

• The number of CAMs is also falling, both in absolute numbers and in terms of CAMs per audit opinion.  The 5,908 total CAMs in FY2024 was the lowest number during the five years on which IAA reported. (In FY2021, there were 7,012 CAMs.)  The average number of CAMs per opinion hit a five-year low of 1.27 in FY2024, declining from 1.31 in 2023 and 1.51 in 2020.

• Most audit reports contain only one CAM.  The frequency of opinions with only one CAM has increased every year. In FY2024, 77 percent of opinions with CAMs had only one.  Nineteen percent of opinions contained two CAMs, and three percent contained three.  Deutsche Bank, with six CAMs, had the highest number in 2024.

• Revenue recognition continues to be the top CAM topic, followed by allowance for credit losses. As mentioned above, 17 percent of CAMs are related to revenue recognition.  Revenue recognition was also the most common topic during the 5-year period of the study; 14 percent of CAMs during that period discussed revenue recognition.  IAA offers this explanation of the frequency of revenue recognition CAMs:  “The revenue recognition standard FASB ASC Topic 606, Revenue From Contracts With Customers, was a significant change in US GAAP. It requires a five-step approach to recognizing revenue and includes numerous aspects where significant judgments may apply. Frequent sub-topics illustrate the judgmental areas and include performance obligations, variable consideration, stand-alone selling price and percentage of completion method.”

• Allowance for credit losses was the second most common CAM topic. Allowance for credit losses, discussed in nine percent of CAMs, rose to second place in 2024 from third place in 2023.  IAA observes: “Under the Current Expected Credit Losses (CECL) model, which replaced the previous "incurred loss" model, companies must estimate the full amount of expected credit losses over the lifetime of a financial asset. This is a forward-looking process that relies heavily on management's judgment and assumptions. * These factors introduce a high degree of estimation uncertainty, which makes the allowance for credit losses a challenging and complex area for management to get right.”

• CAM topics by industry. The audit issues that involve especially challenging, subjective, or complex auditor judgment vary by industry.  As discussed, revenue from customer contracts is the most common CAM topic among all public companies and the most common CAM topic in audit opinions for companies in four industries:  Technology, trade and services, manufacturing, and industrial applications and services. The table below, which appears on page 12 of IAA’s report, shows the most frequent CAM topic for each industry group IAA tracks.

Source:  Ideagen Audit Analytics, Critical Audit Matters: A Five-Year Review 2020-2024 (2025), page 12. 

• Going concern qualifications and CAMs do not seem to mix. When the auditor concludes that there is substantial doubt about the entity’s ability to continue in business for one year after the financial statement date, the audit opinion must contain a paragraph reflecting that doubt. In FY2024, only 37 percent of going concern opinions contained a CAM.  Since 68 percent of all opinions contained at least one CAM, an opinion with a going concern paragraph was about half as likely to report a CAM as the average opinion. Other debt and the going concern determination were the most common CAM topics in going concern opinions that contained a CAM.

Audit Committee Takeaways

Audit committees might find the IAA study useful as a tool for comparing the number and nature of their company’s CAMs with the study’s overall findings and with trends in the same industry.  Audit committees of companies that have no CAMs – or more than two CAMs – may want to discuss with their auditor why their company differs from the broad averages. The PCAOB has provided guidance concerning the types of questions audit committees should raise with their auditor concerning CAMs. See More PCAOB Advice for Audit Committees on CAMs, July 2019 Update.