AAA Spark Meeting of the Regions

Disappearing Audit Disclosure: Changes in the Reporting of Critical Audit Matters

• In Event: Critical Audit Matters / Audit Disclosures

Abstract

Beginning in 2019, the Public Company Accounting Oversight Board (PCAOB) required auditors of large accelerated filers (LAFs) to report critical audit matters (CAMs) and the audit procedures used to address them. We examine the first two years of CAM disclosures by LAFs to determine how the extensiveness of these new disclosures has changed, as well as the determinants and consequences of these changes. We find that auditors disclose fewer CAMs and audit procedures in the second year of reporting, while, on average, the length of CAM sections remains unchanged. We find that decreasing CAM disclosures are associated with changes in firm complexity, operating performance, and prior investor uncertainty. We also show that less extensive CAM disclosures are associated with lower audit fees and shorter audit report lags.

Authors

• Kristyn Calabrese, University of San Diego

• Mary Parlee Durkin, University of San Diego

• Katsiaryna Suslava, Bucknell University