Canada: Technical Bulletin - October 2014 - Part 2

2.    ASSURANCE

Pronouncement effective for assurance reports covering periods ending on or after September 30, 2013

CSAE 3410 – Assurance Engagements on Greenhouse Gas Statements

This new standard deals with assurance engagements to report on an entity's greenhouse gas statement, and was adopted from the ISAE 3410 issued by the IAASB.

Pronouncements effective for audits of financial statements for periods ending on or after December 15, 2013

CAS 315 – Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment

This standard replaces the existing CAS 315 and incorporates changes resulting from revisions to CAS 610.  Changes include more guidance on when to apply CAS 610 and matters that the auditor needs to consider when making inquiries and obtaining understanding of internal audit function.

CAS 610 - Using the Work of Internal Auditors

This standard replaces the existing CAS 610.  It establishes a strengthened judgment-based framework for use by the external auditor in deciding whether and, if so, to what extent, to use the work of the internal audit function. In February 2013, the AASB approved changes to CAS 610. These changes deal with the auditor's use of direct assistance from internal auditors and mirror the changes made by the IAASB in finalizing ISA 610, and are effective for periods ending on or after December 15, 2014.

Pronouncement effective for reviews of interim financial statements for interim periods of fiscal years beginning on or after December 15, 2014

Section 7060, Auditor Review of Interim Financial Statements

Focus of the new standard is consistent with that of Section 7050, which this standard replaces, to assist the audit committee in discharging its responsibilities with respect to interim financial statements that are to be issued under the provisions of securities legislation.

Section 7060 contains new requirements with respect to:

  • agreeing to terms of engagement with both management and the audit committee;
  • inquiries relating to fraud, illegal acts, and non-compliance with provisions of laws and regulations;
  • procedures relating to going concern;
  • accumulation and evaluation of misstatements;
  • responses to discovery of a material misstatement subsequent to the issuance of the auditor's interim review report; and
  • content and extent of documentation.
  • determination of materiality;
  • identification of the risks of material misstatement and design and performance of procedures to address the identified risks;
  • the auditor's response when he or she becomes aware of a misrepresentation in the interim management discussion and analysis;
  • the date of management representation; and
  • communication of the effect of accumulated misstatements to management and the audit committee in misstatements.

Pronouncement effective for reports dated on or after April 1, 2016

CSRS 4460 - Reports on Supplementary Matters Arising from an Audit or a Review Engagement

The development of CSRS 4460 was undertaken by the AASB to address an increasing trend by various third parties, including regulators, to place responsibility on the practitioner to report on matters beyond the scope of the audit or review of an entity's financial statements. Such matters are relevant to the third party, and may have come to the attention of the practitioner when performing the audit or review. These matters are referred to as "supplementary matters".

This new Canadian Standard on Related Services deals with engagements to report on supplementary matters to a third party and sets out requirements related to:

  • accepting the engagement, including circumstances when acceptance is prohibited;
  • performing the engagement; and
  • reporting, including the content of the practitioner's report.

Revisions to Independence Standards

The revisions are based on the final report of the Independence Task Force (ITF) of CPA Canada's Public Trust Committee. A number of changes have been made in order that the Rules be no less stringent than the requirements of the Code of Ethics for Professional Accountants (Code) issued by the International Ethics Standards Board for Accountants, unless it is determined that a particular provision is either not in the public interest or it is prohibited by law or regulation.

The changes take effect for assurance engagements in respect of reporting periods commencing after December 15, 2014.

Current Status of Documents Previously Issued for Comment

Addressing Disclosures in the Audit of Financial Statements

This exposure draft was issued by the IAASB in May 2014, aiming to clarify expectations of auditors when auditing financial statement disclosures.  The proposals include new guidance on considerations relevant to disclosures—from when the auditor plans the audit and assesses the risks of material misstatement, to when the auditor evaluates misstatements and forms an opinion on the financial statements.

The proposed changes are as follows:

  • To clarify that the definition of financial statements in the ISAs includes all disclosures.
  • To highlight that it is beneficial for auditors to agree with management their responsibilities relating to the preparation of disclosures, as well as providing access to information necessary for audit purposes.
  • To add emphasis for auditors to consider disclosures when assessing the risk of misstatement arising from fraud.
  • To encourage auditors to discuss matters relating to disclosures and the financial statements early in the audit process.
  • To focus auditors on the planning considerations related to disclosures earlier in the audit process.
  • To assist auditors with more effectively and consistently identifying and assessing the risks of material misstatement in disclosures.
  • To clarify that the nature of potential misstatements in disclosures is also relevant to the design of audit procedures to address the risks of material misstatement.
  • To assist auditors with more effectively responding to the risks of material misstatement in disclosures.
  • To clarify that misstatements in disclosures are accumulated, and the effect of uncorrected misstatements, both individually and in aggregate, are to be considered in light of the financial statements as a whole.
  • To provide guidance for the audit procedures when evaluating the presentation of the financial statements, including whether fair presentation has been achieved (if applicable).

The AASB issued a related Canadian exposure draft in June 2014 and proposes no Canadian amendments to the proposed revised ISAs.

The IAASB is proposing that the effective date for the revised ISAs be aligned with the effective date for the revisions arising from the auditor reporting project and the project to revise ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements. The revised ISAs are expected to be effective approximately 12 to 15 months after the issuance of the revised ISAs, the new and revised ISAs resulting from the auditor reporting and ISA 720 projects as final standards. The revised CASs would have the same effective date as the revised ISAs.

Comment period ended on August 15, 2014 relating to the AASB's exposure draft and on September 11, 2014 relating to the IAASB's exposure draft.  Currently in deliberations.

Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs)

This ED was issued by the IAASB in July 2013, with a goal of improving the auditor's report on audited financial statements. 

Key enhancements are identified as follows:

  • Prominent placement of the auditor's opinion and other entity-specific information in the auditor's report.
  • Auditor reporting on "Key Audit Matters", required for audits of financial statements of listed entities. Key audit matters are those matters that, in the auditor's judgment, were of most significance in the audit of the current period financial statements.
  • Auditor reporting on going concern, including a conclusion on the appropriateness of management's use of the going concern basis of accounting in preparing the financial statements and a statement as to whether a material uncertainty that may cast significant doubt on the entity's ability to continue as a going concern has been identified.
  • Auditor reporting on other information (to be finalized as part of the separate project to revise ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements).
  • An explicit statement that the auditor is independent of the entity and has fulfilled the auditor's other relevant ethical responsibilities, with disclosure of the source(s) of those requirements.
  • Disclosure of the name of the engagement partner, required for audits of financial statements of listed entities, unless, in rare circumstances, such disclosure is reasonably expected to lead to a significant security threat to the individual.
  • Improved description of the responsibilities of the auditor and key features of the audit (together with provision for certain components of this description to be relocated to an appendix to the auditor's report, or for reference to be made to such description on the website of an appropriate authority).

Comment period for this ED closed on November 22, 2013.  Proposed standards are expected to be finalized in 2014.

Engagements to Review Historical Financial Statements

This ED was issued by the AASB in June 2013, with the objective of issuing a new Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements, which will replace Sections 8200 and 8500, as well as Assurance and Related Services Guidelines AuG-20 and AuG-47. 

The ED proposed CSRE 2400 would be effective for reviews of historical financial statements for periods ending on or after December 14, 2015.

Comment period closed on December 11, 2013.    The AASB at its March 2014 meeting decided that the effective date will be deferred while it continues to deliberate on this matter.

The Auditor's Responsibilities Relating to Other Information

This re-exposure draft, issued by the IAASB in April 2014, proposes revisions to ISA 720, The Auditor's Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements.  The AASB approved a related Canadian re-exposure draft, which was issued in May 2014.

Proposed ISA 720 (Revised) deals with the auditor's responsibilities relating to other information included in an entity's annual report, as defined in the standard. The scope is expanded to include a combination of documents that accompany the audited financial statements, as opposed to being limited to a document that contains the audited financial statements.   However, the scope is narrowed to limit it to a document, or combination of documents, that meets the definition of an annual report.

The AASB is proposing to include a Canadian-only application and other explanatory paragraph. CAS 720 (Revised) would state that in Canada, the Management Discussion and Analysis (MD&A) issued under the provisions of Canadian securities legislation would normally be considered to be within the scope of CAS 720. If an entity issues an annual report, the annual report would also be within the scope of CAS 720 if it meets the definition set out in the standard.

Comment period closed on July 4, 2014 relating to the AASB's re-exposure draft and on July 18, 2014 relating to the IAASB's re-exposure draft.  Currently in deliberations.  Final Handbook material is expected in Q2 of 2015.

Attestation and Direct Engagements

This ED was issued by the AASB in June 2014.  AASB proposes to adopt International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, as Canadian Standard on Assurance Engagements (CSAE) 3000, Attestation Engagements Other than Audits or Reviews of Historical Financial Information and issue a new CSAE 3001, Direct Engagements.

These standards will replace:

  • Standards for assurance engagements other than audits of financial statements and other historical financial information, Section 5025;
  • Quality control procedures for assurance engagements other than audits of financial statements and other historical financial information, Section 5030;
  • Use of specialists in assurance engagements other than audits of financial statements and other historical financial information, Section 5049;
  • Using the work of internal audit in assurance engagements other than audits of financial statements and other historical financial information, Section 5050; and
  • General review standards, Section 8100.

Comment period ends on November 3, 2014.

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