Canada: Technical Bulletin: October 2015 Part 2

Assurance

New pronouncements

Section 7060, Auditor Review of Interim Financial Statements

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

Replaces Section 7050 and contains requirements relating to agreeing to engagement terms, inquiries relating to fraud, procedures related to going concern, identification of risks of material misstatement and addressing those risks,  determination of materiality and accumulation and evaluation of misstatements,  communication with audit committee, management representations, addressing misstatements and misrepresentations In interim MD&A.

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

Effective for reports dated on or after April 1, 2016

CPA Canada Resources:

Implementation tool (April 2015)

Audit and assurance alert (October 2014)

Client briefing (February 2015)

Addresses matters beyond the scope of the audit or review of financial statements that come to the attention of the practitioner when performing the audit or review.

Includes requirements related to acceptance of engagement, performing the engagement and reporting.

Revisions to Independence Standards

Effective for assurance engagements in respect of reporting periods commencing after December 15, 2014. 

Changes 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.

CSAE 3000, Attestation Engagements Other than Audits or Reviews of Historical Financial Information and CSAE 3001, Direct Engagements

Effective for attestation and direct engagements where the assurance report is dated on or after June 30, 2015

Replace Sections 5025, 5030, 5049 and 5050.  CSAE 3000 is adopted from ISAE 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information.  CSAE 3000 contains Canadian amendments to address differences between ISAE 3000 and the applicable Canadian assurance standards. These differences include narrowing the scope of CSAE 3000 to address attestation engagements only, references to relevant ethical requirements and terminology. CSAE 3001 sets out requirements related to planning, performing and reporting on direct engagements. Differences in wording between CSAE 3000 and CSAE 3001 relate only to differences between the performance of an attestation engagement and the performance of a direct engagement.

Section 7170, Auditor's Consent to the Use of the Auditor's Report Included in a Business Acquisition Report

Effective for an auditor's consent to the use of the auditor's report in a business acquisition report issued on or after June 1, 2016

Replaces section 7500. Section 7170 sets out new requirements relating to the auditor's responsibilities in responding to requests to consent to the use of the auditor's report on the audited financial statements of the acquired business that are to be included in a business acquisition report issued by the acquirer and the format and content of the auditor's consent.

Recently issued document for comment

Responding to Non-Compliance or Suspected Non-Compliance with Laws or Regulations

The IAASB issued this ED in July 2015.  The ED proposes limited amendments to various standards resulting from the proposed changes to the International Ethics Standards Board for Accountants (IESBA) Code of Ethics addressing non-compliance with laws or regulations.  The IAASB's proposals are intended to allow for flexibility when ethical requirements other than the IESBA Code are applied.  For instance, in Canada, the rules of professional conduct/code of ethics issued by various professional accounting bodies are followed, rather than the IESBA's Code of Ethics, however, Canadian rules are at least as stringent as the IESBA Code.  The AASB's ED was issued in August 2015, with no Canadian amendments proposed.

Comment period closed on September 30, 2015 for the AASB's ED and ends on October 21, 2015 for the IAASB's ED.

Engagements to Report on Summary Financial Statements

The IAASB issued this ED in August 2015.  The objective of this project is to develop amendments to ISA 810, Engagements to Report on Summary Financial Statements to explain how the enhancements resulting from the new and revised Auditor Reporting standards apply to engagements to report on summary financial statements.

The AASB issued a corresponding ED in August 2015, with no Canadian amendments proposed. 

Comment period ended on October 2, 2015 for the AASB's ED; ends on November 2, 2015 for the IAASB's ED.

Reports on Compliance with Agreements, Statutes and Regulations

The AASB issued this ED in September 2015.  The new standard, CSAE 3530, Reports on Compliance with Agreements, Statutes and Regulations, will replace Sections 5800, 5815 and 8600.  Objective of the proposal is to update the standards and to rewrite them in a clarity format.  The proposed standard will cover both audit and review engagements.

Comment period ends on December 23, 2015.

In the works...

IAASB has commenced work on a number of projects that are expected to result in recommendations or guidance.  A Staff Audit Practice Alert has recently been issued by the IAASB on the following topic:

Other topics in the works:

  • How to more effectively respond to issues related to professional skepticism.
  • Data analytics – developments in audit data analytics and the most effective way for IAASB to respond.
  • Integrated Reporting – exploring emerging developments, demand for assurance and whether there is a need for an international standard or guidance.

Current status of documents previously issued for comment

New and Revised Auditor Reporting Standards and Related Conforming Amendments

IAASB issued new and revised standards in January 2015.

AASB intends to adopt the standards with limited amendments.

AASB issued an invitation to comment in June 2015 to obtain input on implementation challenges in Canada.

Final standards are expected to be issued by the AASB in Q1 of 2016.

The AASB has tentatively decided to set effective dates as follows:

  • CASs other than CAS 701 – for audits of financial statements for periods ending on or after December 15, 2017,
  • CAS 701 – for audits of financial statements of TSX-listed entities for periods ending on or after December 15, 2017 and for audits of financial statements of other entities for periods ending on or after December 15, 2018.

IAASB issued new ISA 701, Communicating Key Audit Matters in the Independent Auditor's Report, and revised ISA 700, 705, 706, 570 and 260, along with some conforming amendments to other ISAs. 

New section to communicate key audit matters and disclosure of the name of the engagement partner are mandatory for audits of listed entities.  Enhanced reporting on going concern, affirmative statement about the auditor's independence, enhanced description of the responsibilities of the auditor and key feature of an audit and change in order of the opinion and basis for opinion sections are mandatory for all audits. 

The AASB's invitation to comment notes that the AASB concluded that auditors of entities listed on the four recognized stock exchanges in Canada should apply the requirements of the new auditor reporting standards for listed entities.  The definition of listed entity will not be amended by the AASB.

Addressing Disclosures in the Audit of Financial Statements

The IAASB issued revisions in July 2015.

The AASB has not yet issued the final amendments in the Handbook, which are expected in Q1 of 2016.

The revisions clarify expectations of auditors when auditing financial statement disclosures. The changes clarify the concept of disclosures as an integral part of the financial statements and emphasize the need for auditor consideration of disclosures earlier in the audit process. Strengthened requirements and new guidance focuses on requiring the auditor to understand relevant aspects of the information system relating to information disclosed in the financial statements, identifying and assessing the risks of material misstatements in quantitative and qualitative disclosures, obtaining sufficient appropriate audit evidence relating to disclosures, and evaluating the overall presentation of the financial statements, including their relevance and understandability.

The Auditor's Responsibilities Relating to Other Information

Revised ISA 720 issued by the IAASB in April 2015. 

AASB will be issuing an exposure draft in Q3 of 2015 relating to adoption issues in Canada, designed to clarify the scope of application of CAS 720, with final Handbook material to be issued in Q1 of 2016.

Effective date is expected to align with the effective date of the CASs impacted by the new and revised auditor reporting standards

Specifies responsibilities of auditors relating to the range of other information in documents containing audited financial information.  The scope of other information is broadened and clarified and is linked to the concept of an "annual report".  Improves transparency by requiring auditors to articulate in their reports their responsibilities under the revised ISA 720 and the outcome of their work.

Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements ("Statement")

ED was issued by the AASB and the Canadian Bar Association (CBA) in November 2014. 

Comment period closed on April 6, 2015. Currently in deliberations.

Revised statement is expected to be effective for inquiry letters dated on or after December 1, 2016.

The new Statement will replace the existing Statement, with the same title, and Assurance and Related Services Guideline, AuG-46, Communication with Law Firms under New Accounting and Auditing Standards (often known to lawyers as the "Interim Guidance").

Auditor's Consent to the Use of a Report of the  Auditor Included in an Offering Document

ED was issued by the AASB in March 2015.

Comment period ended on May 1, 2015. Currently in deliberations.

Amendment is expected to be effective for an auditor's consent to the use of a report of the auditor in an offering document issued on or after January 1, 2016.

The primary objective of the proposed amendments is to address the requirements of stock exchanges (recognized by securities regulatory authorities in Canada) for the auditor's consent to include certain statements. 

Consent to the stock exchange is issued separately from that issued to the securities regulator. This means that addressing the auditor's consent to both Canadian securities regulators and the stock exchange would not be appropriate.

Association -  Canadian Standard on Association (CSOA)

ED was issued by the AASB in March 2015.

Comment period closed on July 10, 2015.

Proposed CSOA 5000 would be effective as of, and would be applicable to a practitioner's consent provided on or after, June 1, 2016.

The fundamental principles underlying proposed CSOA 5000 are consistent with those underlying Section 5020 which is being replaced, however, certain aspects may differ significantly from some

practitioners' interpretations of Section 5020, including: scope; use of the practitioner's name or communication in connection with accompanying information; use of the practitioner's communication in another language; becoming aware of information to which the practitioner had attached a communication that has been subsequently issued without the practitioner's communication; and issuing consent if the practitioner has expressed an adverse conclusion or disclaimed a conclusion.

Changes for Reporting on Special Purpose Financial Statements 

ED was issued by the IAASB in January 2015 and by the AASB in March 2015 (with no Canadian amendments)

Comment period closed on April 22, 2015.  Currently in deliberations.

Amendments proposed to CAS 800 and CAS 805 to provide guidance on how the enhancements to the auditor's report issued by the IAASB in January 2015 would apply in audits of special purpose financial statements.

Proposed Revisions to Independence Standards

Issued by the Independence Task Force (ITF) of CPA Canada's Public Trust Committee.

Comment period closed on May 15, 2015. 

Revisions are expected to be applicable for assurance engagements commencing after December 15, 2016.

Revisions address recent amendments issued by the

International Ethics Standards Board for Accountants (IESBA) in relation to breaches of the Code of Ethics for Professional Accountants (Code) and approach related to the impact that contingent fees charged to an assurance client have on independence.

Engagements to Review Historical Financial Statements

A revised ED was issued by the AASB in May 2015 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 first ED was issued in June 2013, with AASB deciding to issue a re-exposure draft based on substantial feedback that was received subsequent to its issue.  

Proposed CSRE 2400 would be effective for reviews of financial statements for periods ending on or after December 14, 2017, with earlier application not permitted. 

Comment period ended on July 10, 2015.

Proposed CSRE 2400 continues to be based on ISRE 2400 issued by the IAASB in September 2012.

Key changes in the re-exposure draft:

  • Removal of prohibition from using proposed CSRE 2400 for review engagements undertaken by an entity's auditor to report on interim financial statements, except when the auditor of an entity reviews interim financial statements in the circumstances described in Section 7060, Auditor Review of Interim Financial Statements
  • Removal of some Canadian guidance added to the ED to address concern that it inappropriately implied that an evaluation of control risk would be required
  • Amendments to some paragraphs and removal of certain Canadian guidance to address concerns that references to "risk" in a review engagement is problematic on the grounds that it is generally associated with the work effort undertaken in an audit engagement; and it would be inappropriate for the CSRE to imply that the practitioner is required to perform a risk assessment, and identify and document those risks of material misstatement related to each assertion underlying financial statement items dclosures
  • Paragraphs added  to address the practitioner's responsibility to obtain sufficient appropriate evidence about the opening balances in an initial review engagement
  • Paragraphs added to address possible modifications to the practitioner's report
  • Changes made to avoid the implication that a review engagement entails gathering evidence similar to that obtained in an audit

The concept of limited assurance was retained.  

Questions?

Reporting Implications of New Auditing and Accounting Standards

This guide is published by CPA Canada, and has been developed by the Task Force on Audit Reporting Implications of the New Canadian Auditing Standards.

The purpose of this guide is to promote consistency in the form and content of practitioners' reports by providing guidance with respect to commonly occurring circumstances. This publication was last updated in April 2014 (Issue No. 12).

ACRONYMS USED

AASB – Auditing and Assurance Standards Board
AcSB – Accounting Standards Board
ED – Exposure Draft
GAAP – Generally Accepted Accounting Standards
IAASB – International Auditing and Assurance Standards Board
IASB – International Accounting Standards Board
IFRIC – International Financial Reporting Interpretations Committee
CMA – Certified Management Accountants
CPA – Chartered Professional Accountants
CPAB – Canadian Public Accountability Board
CSA – Canadian Securities Administrators
PSAB – Public Sector Accounting Board

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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