PCAOB Investor Advisory Group Has Suggestions to Improve CAMs

Members of the Public Company Accounting Oversight Board’s Investor Advisory Group (IAG) have published The Second Annual Investor Advisory Group Most Decision-Useful Critical or Key Audit Matters For 2024.  The report discusses four topics:  a brief history of critical audit matters (CAMs), the IAG’s activities related to CAMs, the findings of the IAG’s CAM evaluation process, and suggestions for improving CAMs. For audit committees, the IAG report provides insight into how investors view CAM reporting and how they would like it enhanced. Below is an overview.

History of CAMs

The PCAOB adopted the CAM requirement in 2017.  See PCAOB Adopts New Auditor’s Reporting Model, May-June 2017 Update. A CAM is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that relates to accounts or disclosures that are material to the financial statements and involves especially challenging, subjective, or complex auditor judgment.  Under the PCAOB’s auditing standards, an audit report must identify each CAM and describe the principal considerations that led the auditor to determine that the matter is a CAM, describe how the CAM was addressed in the audit, and refer to the relevant financial statement accounts or disclosures.  

The International Standards on Auditing (ISAs), which govern most audits outside the U.S., incorporate a similar requirement. Under the ISAs, the auditor’s report must include key audit matters (KAMs), defined as those matters that were communicated to those charged with governance and that, in the auditor’s professional judgment, were of most significance in the current period audit of the financial statements. The auditor’s report must describe the most significant assessed risks of material misstatement (whether or not due to fraud); summarize the auditor’s response to those risks; and, where relevant, discuss key observations with respect to those risks.

IAG Activities Related to CAMs

Since 2024, the IAG has annually requested nominations from the general public (including public company issuers, auditors, financial analysts, and investors) for the most decision-useful CAM or KAM in an audit report filed with the SEC as part of a Form 10-K or Form 20-F for the prior fiscal year. See Read Any Good CAMs Lately? The PCAOB’s Investor Advisory Group Wants to Know, May-June 2024 Update. The IAG selects the top three CAMs/KAMs from among the public nominations. In 2025, the three CAMs/KAMs that received the most IAG votes were:

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• “Cost Estimates for Fixed-Price Development Contracts,” which appeared in Deloitte & Touche LLP’s audit report on the 2024 financial statements of The Boeing Company. (Deloitte conducted this audit under the PCAOB’s auditing standards, including the CAM requirement.)

• “Long-term contract accounting and associated provisions,” which appeared in PricewaterhouseCoopers LLP’s audit report on the 2024 financial statements of Rolls-Royce Holdings plc. (PwC conducted this audit under the U.K.’s version of the ISAs, including the KAM requirement).

• “Uncertain direct tax provisions,” which appeared in KPMG LLP’s audit report on Compass Group PLC. (KPMG conducted this audit under the U.K.’s version of the ISAs, including the KAM requirement).

IAG Findings and Analysis

Two of the three most useful 2024 CAM/KAM reports were prepared under the U.K.’s ISAs, and the IAG report opines that the U.K. “continues to lead the world in the quality of Auditor Reports, and likely overall audit quality.”  The report cites two reasons for its belief in the U.K.’s leadership: 

• U.K. KAMs are “better formatted in that they contain conclusions and more quantitative information, explaining to the investors what the auditors have found, in addition to what they have done.”

• U.K. KAMs often explore lesser-known areas, such as the effect of tax provisions. “Exploring lesser-known topics of investors’ interest is important, and it distinguishes value-added CAMs from those that are merely fulfilling regulators’ expectations * * * .” The IAG adds that the purpose of CAM reporting is “to remediate against the information asymmetry between investors and management and help investors make more prudential investment decisions,” but that, at present, many CAM disclosures simply repeat matters addressed in prior years.

Suggestions for Improvement

The IAG report concludes with three recommendations for improving CAM reporting:

• CAMs should include what the auditors found. “To facilitate communication, auditors should present their findings by including a detailed conclusion.” The IAG recommends that the PCAOB amend the CAM standard to require the auditor to describe its conclusions.  Currently, the PCAOB standard merely states that the auditor “may describe” such matters as the outcome of the audit procedures performed and key observations with respect to the CAM.

• CAMs should explore non-routine topics that are more likely to provide decision-useful information. The report states: “Perhaps fearing that unique CAMs will reveal information that the management would prefer not to be disclosed, many auditors use the same topics for their CAMs every year. However, repeating CAM topics may offer little additional information to investors.”  The IAG encourages auditors to use CAMs “as an opportunity to actively explore more unique, lesser-understood topics, such as tax provisions, to communicate with investors.”

• The number of CAMs reported should increase. The number of CAMs has decreased over time.  See Most Audit Reports Contain a CAM, But Only One, November-December 2025 Update. The IAG report recommends that auditors consider increasing the number of CAMs in their reports.

In addition to these steps to improve CAM reporting, the IAG members also suggest adding quantitative information to CAM disclosures, providing more description of the audit procedures performed, using more bullet points, and increasing coverage of CAMs on investment research platforms.

Audit Committee Takeaways

In the near term, it is unlikely that the PCAOB will expand the CAM requirement or encourage firms to expand their CAM reports. However, if users remain dissatisfied with the scope of CAMs, audit firms may come under investor pressure to voluntarily implement the IAG’s recommendations, particularly those relating to the number of CAMs and the tendency to repeat the same CAMs each year. Audit committees may want to discuss these ideas with their auditor and make sure they understand the reasons for the auditor’s approach to CAM reporting. Audit committees may also want to obtain input from the company’s investor base on possible improvements to CAM reporting.