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We have some good news…nothing that would make you jump and click your heels together, but maybe you’ll nod approvingly as if to say, Oh, that’s nice to hear.
Ready for it? Nearly all institutional investors use Critical Audit Matters (CAMs) to make investment decisions, according to a Sept. 5 report from the Center for Audit Quality, and most of them have been trained on why and how they’re important.
Many of the 100 investors the CAQ surveyed in July—mostly executives at investment and commercial banks and insurance companies—would love even more information.
Always nice when the stewards of vast pools of capital are paying attention, right?
Here are some of our top takeaways from their findings:
Investors get it. Five years after CAMs first became mandatory in some audit reports, institutional investors are widely using them, at least based on this survey. More than nine in 10 (92%) said they use CAMs to make decisions about investments and that “CAMs play an important role in their analysis of a potential investment” (93%). The CAMs they most often cited as influential were about valuation and goodwill appraisal, financial statements and misstatements, and revenue recognition. The type of information in a CAM that would sway them the most is, unsurprisingly, “the inherent risk level associated with the matter.”
They know what to look for…Nearly seven in 10 (68%) told surveyors that they’ve had “significant training,” written explanations, or both about why and how CAMs help them make investment decisions. Another one in five said they’d received some. Those who'd gotten some education reported learning at seminars or conferences, from in-house or external experts, or from college or online courses.
…and most look for it. Three-quarters always or often read the CAM section in 10-Ks of companies they’re researching or investing in, and 31% said they never fail to check it. Just 15% read them “sometimes.” A combined 7% said they “rarely” or “never” read them. You might think that ignoring the CAMs is unwise. But in fairness to the 7%, it’s paragraphs, even a few pages, of reading per year. Who has the time? Besides, it’s not like anyone’s retirement savings is at stake.
Hungry for more. Let’s shift back to the investors who actually want information. Just over half of respondents said they’d like more detail in CAMs, and more CAMs, period, and one in four want them to be required for specific parts of an audit such as revenue recognition, valuation, compliance, or fraud. They also want more information about how a critical audit matter affects a company’s finances, earnings, and risk profile.