Audit and Assurance Practice Exam

When should an auditor expect management to express disagreement regarding a CAM?

1. When the matter is factual rather than subjective

2. When the issue stems from complex judgments

3. When the matter is clearly stated in the report

4. When the auditor's opinion is deemed unnecessary

The correct answer is: When the issue stems from complex judgments

The correct choice highlights that management is likely to express disagreement regarding a Critical Audit Matter (CAM) when the issue involves complex judgments. This scenario arises because complex judgments often reflect areas of significant estimation or interpretation, which can lead to varying opinions on the appropriateness of the assumptions or methodologies applied by management in financial reporting. In such cases, management may have a vested interest in defending their positions, as these judgments can significantly impact the financial statements. This creates a natural tension, as the auditor's assessment of these complex areas may differ from the management’s perspective, leading to a likelihood of expressed disagreement. Greater complexity often introduces ambiguity and subjectivity, influencing how management views the appropriateness of their accounting choices versus the auditor's evaluation. Consequently, when the discussion involves intricate issues, it is reasonable to anticipate that management might contest the auditor’s conclusion or the implications identified in the audit. Contrastingly, situations where matters are factual or clearly outlined do not typically lend themselves to disagreement, as the data or findings stand independently of interpretation. Thus, there would be less grounds for management to dispute the auditor’s conclusions in those instances.