Investors relying more on CAMs disclosures

Disclosures of critical audit matters are fueling investment decisions, according to a study released Thursday by the Center for Audit Quality, which found 92% of the institutional investors surveyed say they rely on CAMs when making investment decisions. 

In addition, 93% of the investors surveyed by the CAQ say CAMs play an important role in their analysis of a potential investment. However, these weren’t just regular retail investors or day traders. The Q3 survey research was conducted online in July among 100 U.S. institutional investors. The respondents are professional investors employed at companies with a minimum of $500 million in assets under management and served at the director level or higher with at least five years of experience.

Some 88% of the investors surveyed have received training and/or written explanation on the value and utilization of CAMs. Nearly all the investors surveyed indicated they read the CAMs section in 10-Ks, and nearly eight in 10 do so often.

Over half of the investors surveyed indicated they prefer to see more CAMs in an auditor’s report to inform their decisions, but that industry or market conditions also play a role.

Nine out of 10 of the investors polled expressed satisfaction with the quality and clarity of CAMs in audit reports, and only 2% expressed dissatisfaction.

Half of the investors polled by the CAQ said that either increasing the number of CAMs or increasing the detail provided in CAMs would be beneficial for their investment decisions.

The Public Company Accounting Oversight Board approved a rule change in 2017 requiring companies to disclose critical audit matters starting in 2019 in their auditor reports. CAMs are those matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment. “By expanding the audit report to include CAMs, the PCAOB hoped to increase its relevance to financial statement users,” said CAQ CEO Julie Bell Lindsay in a CAQ newsletter Thursday. “The research demonstrates that investors value the addition of CAMs to the audit report.” 

A separate report by Ideagen, however, recently found a decline in CAMs disclosures since 2020, however, so even as auditors are including CAMs in more of their opinions, they’re including fewer CAMs per opinion on average.