I would not be surprised if the Accounting Establishment has a number of concerns that they

were not willing to express publicly during the PCAOB and SEC deliberation phases. For
example, there is the high likelihood that readers will take CAMs to be signals about the
reasonableness of management estimates and audit quality before the ink is even dry on the
auditor’s report. In this loan loss reserve example, an analyst might claim that based on a
review of market prices for similar assets, the current value of the audited loans could well be
much lower than indicated by management’s estimate of the allowance; and that the auditors
might not have weighted this information properly before concluding that the bad debt
allowance is reasonable.
That kind of threat to the auditors, leads me to predict that CAM communications will be
boilerplate right out of the box. The PCAOB will have egg on their face, and they will deserve
it. The real, boilerplate-defeating information about CAMs is the auditor’s own assessment of
management’s estimates. Because the Board acceded to the Accounting Establishment on
this point, U.S. financial reporting will look tarnished as compared to the European approach
to CAM communications.

If I were on the Board that approved this rule, I would not have supported caving on the
communications of the auditor’s assessments. But, if I were on the current Board, I would not
give CAMs the shaft, even if I became convinced that they are a recipe for pure boilerplate.
Even though the optics would be very embarrassing, communication of CAMs
really should deter superficial audits. Like taking our shoes off at the airport, we will have no
way of knowing for sure whether CAM communications will reduce the incidence of auditor
failures, but that is a fact of life regulators must accept when promulgating in good faith
securities laws for the protection of investors.