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2nd Big 4 Audit Report with 2 CAMs

By | August 3, 2019

An audit report was filed with a 10-K that includes two CAMs.  One is related to revenue recognition and the other is related to uncertain tax positions.

More specifically on revenue recognition the audit report states the auditors identified the evaluation of the allocation of contract price to the identified performance obligations within the contracts as a critical audit matter because a higher degree of auditor judgment was required in evaluating the methodology and frequency used to establish stand alone selling price.  I doubt this is a surprise to anyone as the prior 10-K included extensive language in the MD&A regarding critical accounting polices although perhaps cast somewhat differently.

I think revenue recognition CAMs are going to become somewhat boiler plate and not likely to attract a lot of attention absent special circumstances.

The CA M on uncertain tax positions is a little more interesting.  The audit report provides “We identified the evaluation of uncertain tax positions as a critical audit matter because a higher degree of auditor judgment was required in evaluating the Company’s interpretation of, and compliance with tax law globally across its multiple subsidiaries. In addition, a higher degree of auditor judgment was required in evaluating the Company’s estimate of the ultimate resolution of its tax positions.”

I don’t know if this will raise eyebrows but maybe some will wonder why it is so hard to figure out the accrual and what games are being played.

Neither CAM reflects adversely on the issuer, its Board or audit committee.

Contact Steve Quinlivan for more information.