No critical audit matters? Teach students to ask what supports that conclusion

An auditing student reads a report stating that the auditor identified no critical audit matters. “So there were no difficult issues,” they suggest. Another student objects: “But every audit is supposed to have at least one.”

Both responses miss the decision behind the wording. The useful teaching question is not simply whether the report contains a critical audit matter, or CAM. It is what evidence supports the auditor’s conclusion?

That question runs through No Critical Audit Matters: No Problem?, an Accounting Horizons study by Brooke D. Beyer, Binod Guragai and Eric T. Rapley. Their findings give lecturers a reason to examine the absence of a disclosure, without teaching students that absence automatically signals either reassurance or failure.

This is research on accounting practice, not an evaluation of teaching. The classroom comparison proposed below uses the findings to motivate reasoning about audit reporting; its learning benefits have not been tested.

An expectation is not a universal requirement

The excerpts from PCAOB Auditing Standard 3101 reproduced in the paper establish an important distinction. The standard expects that most audits will involve at least one matter requiring especially challenging, subjective or complex auditor judgement. It also explicitly provides for reporting that the auditor determined there were no CAMs.

The CAM definition connects several conditions. A matter must arise from the current-period audit, have been communicated or required to be communicated to the audit committee, relate to accounts or disclosures material to the financial statements, and involve especially challenging, subjective or complex auditor judgement.

For students, those connections matter more than memorising a list of common CAM topics. A business acquisition or valuation estimate may prompt investigation, but its presence alone does not settle the reporting decision. Equally, a relatively small company is not automatically free of challenging audit judgements.

The authors also explain why adding a CAM merely to satisfy an expectation can work against client-specific reporting. Teaching “there must always be one” risks replacing a judgement with a quota.

These are US CAM requirements. Courses using another jurisdiction’s key audit matter framework should apply the relevant local requirements rather than assume the two frameworks are interchangeable.

A surprising conclusion deserves questions, not a verdict

The study examines US public-company reporting from 2019 to 2024. No-CAM reporting became more common, particularly among smaller filers. Among nonaccelerated filers, the rate rose from 11.13% in 2020 to 22.13% in 2024.

The main analysis covers accelerated and nonaccelerated filers, excluding the largest filer category. Larger size, greater reporting complexity, greater Level 3 fair value exposure, merger activity and goodwill impairment were associated with a lower likelihood of reporting no CAMs.

The researchers then used their statistical model to distinguish expected from unexpected no-CAM reports. “Unexpected” means that observable company characteristics made a no-CAM report relatively unlikely according to the model. It does not mean that the researchers examined the engagement evidence and established a standards violation.

In the combined accelerated and nonaccelerated sample, unexpected no-CAM reports had a subsequent misstatement rate of 6.25%, compared with 1.84% for expected reports. Misstatements were identified through later restatements, revisions or out-of-period adjustments. The difference was also statistically significant when nonaccelerated filers were analysed separately.

For lecturers, the practical interpretation is narrower than “no CAMs means poor audit quality”: a surprising conclusion can justify further questions. Neither a statistical classification nor a disclosure count supplies the engagement-level evidence needed to answer them.

The inspection finding was less consistent. Unexpected observations in the combined sample more often had auditors with recent audit report-related PCAOB deficiencies. But in the nonaccelerated-only sample, the difference ran in the opposite direction and was not statistically significant. This measure concerns the audit firm’s inspection history, not necessarily a deficiency on the engagement being analysed.

These are preliminary associations from unadjusted group comparisons. Differences in clients and audit firms could contribute to the results, and reporting no CAMs is not shown to cause misstatements. The paper also leaves unexplained how complete three-year follow-up for subsequent corrections was available for the latest observations. An apparent inconsistency between its tables concerning the aggregate unexpected percentage remains unresolved, so that percentage is not used here.

Compare the basis, not just the client

A lecturer could bring this distinction into an existing audit-reporting lesson by replacing one report-wording exercise with a short comparison. Assume both fictional clients are subject to US CAM reporting and that the supplied summaries concern their current-period audits.

Client A: A relatively straightforward business has no acquisitions or complex valuation arrangements. The engagement summary states that the auditor evaluated all matters communicated or required to be communicated to the audit committee. None involved especially challenging, subjective or complex auditor judgement.

Client B: A business completed an acquisition involving a valuation of acquired intangible assets. The related accounts and disclosures are material, and the valuation matter was communicated to the audit committee. The initial summary says nothing about the auditor’s judgement in auditing the valuation.

Ask students whether each summary supports a no-CAM conclusion, and why. Client A’s summary supports that conclusion because a necessary CAM condition is absent across the matters evaluated, not simply because the company appears uncomplicated. Client B’s summary leaves an essential question unresolved: did auditing the valuation involve especially challenging, subjective or complex judgement?

For students encountering CAMs for the first time, demonstrate the reasoning for Client A while keeping the criteria visible. Then ask them to identify the missing evidence for Client B. This limits unnecessary searching while preserving the decision students need to make.

Next, supply a brief engagement note stating that the valuation audit involved especially subjective judgements about uncertain forecasts and that these judgements were central to the auditor’s work. Students should now connect that evidence with the other supplied conditions and explain why the valuation matter meets the CAM definition.

The debrief, or discussion after the task, can return to the research: company characteristics helped the model identify surprising reports, but the engagement note supplied the evidence needed for this particular conclusion. Those are different kinds of information.

Feedback should address the reasoning, not only the final label. “An acquisition requires a CAM” reaches the right answer here for the wrong reason. “We cannot decide anything” also falls short if the student cannot specify which evidence is missing and how it would affect the decision.

Change the problem before claiming independent judgement

A successful guided discussion shows what students can do with that support. It does not establish what they can recognise and justify independently.

A later individual task could remove the acquisition and instead present a material inventory-obsolescence estimate. Supply evidence about audit committee communication and how the auditor evaluated uncertain demand forecasts. Students would need to decide whether that work meets the judgement criterion and apply the other reporting conditions in a different accounting context, rather than respond to the familiar acquisition cue.

Permit the standards excerpt, but exclude peer discussion, worked answers, AI-generated responses and instructor hints if the aim is to assess independent application with that reference material. Ask for a short conclusion linking the facts to each criterion. Producing the required report wording correctly can demonstrate procedural performance; the explanation provides evidence about the student’s understanding of the decision.

Such a changed task can examine student transfer: applying the criteria beyond the original example. A separate delayed task would be needed to examine retention, meaning what students can still do after a delay. Evidence of improvement would require a suitable baseline or comparison.

The modest curriculum change is to shift attention from finding a disclosure to justifying a reporting conclusion. Start with one comparison, then look for whether students can explain what matters, what remains unknown and what evidence would change their answer.