When the Critical Audit Matter (CAM) standard was released by the PCAOB, I felt that could be a viable path for auditors to bring more visibility to financially material ESG matters. My idea didn’t seem to be getting much traction as I wrote last year. Back in 2021, Advisory Board member Dan Goelzer provided an excellent overview of then-new studies from the Center for Audit Quality (CAQ) on the increasing importance – and risks – of third party assurance for ESG disclosures. Again, I thought that gave solid footing for the use of CAMs in reporting of ESG issues in 10-Ks/Qs (although in dialogs with Dan, he cautioned me that CAMs are limited in scope to financial statement matters within traditional financial audits and he was less confident in their applicability to ESG).
Over on TheCorporateCounsel.net, Meredith wrote today about an interesting development related to CAMs. It isn’t just ESG matters that aren’t rising to CAM standards – apparently, very little actually is:
During a meeting of the PCAOB’s Standards and Emerging Issues Advisory Group on March 30, 2023, Jeffrey Mahoney, general counsel of the Council of Institutional Investors (CII), expressed concern that subsets of Auditing Standard (AS) 3101 aren’t being addressed in CAM disclosures—specifically, an indication of the outcome of the audit procedures with respect to the CAM and the auditor’s related key observations. Reuters also reports that the number of CAMs per audit has decreased over the years. With CAMs in the spotlight, perhaps that trend will reverse.
She also wrote separately about how auditors are being pulled into the SVB failure lawsuit – which may or may not have an interconnection to a lack of CAMs.
Perhaps naively, I still hold out hope that auditors will take advantage of the CAM standard to increase visibility of ESG risks to their clients – especially as ESG becomes more financially material to investors.
