Anamol Khadka

Document Type

Honors Thesis


Critical Audit Matters includes any matter arising from the audit of the financial statements that involves especially challenging, subjective, or complex auditor judgments. These matters are material and need to be communicated to the audit committee by the auditor. The problem with Critical Audit Matters (CAMS) is that it differs for each company, even within the same industry. This can alter from the changing risk environments, new accounting standards and policies, and also from the nature of complexity of each individual audit. The research involved identifying industries whose firms reported the largest numbers of CAMS as well as identifying the significant accounting areas to which those CAMS are related. The top 100 companies by market capitalization from S&P 500 index for the fiscal years 2021 and 2022 were studied and analyzed by the accounts, industries, and audit opinions from the audit reports. It was discovered that the accounting areas which reported more CAMS are revenue recognition, other contingent liabilities, and tax liabilities. Revenue recognition is a relatively new standard that requires substantial judgements and is the most significant account in the income statement. It was also observed that the technology, financial services and pharmaceutical industries reported 180% more CAMS than other industries due to the substantial assumptions and estimates required. For instance, the technology industry has very innovative revenue models which leads to more judgements and issues being reported.

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