Auditing and Assurance Standards Oversight Council
Minutes of Meeting
February 18, 2016
The Auditing and Assurance Standards Oversight Council discussed the activities and performance of the AASB and the Independence Task Force. As part of its monitoring responsibilities, AASOC also received reports on the activities of a number of domestic and international organizations.
Brian Hunt (non-voting)
Lindsay Colley, Director, CPAB
Chair’s Opening Comments
Report of the Nominating Committee
Review of the CPAB Public Report 2015
IAASB Invitation to Comment and Overview
Activities of the AASB since the Last AASOC Meeting
Comments from AASOC Observers
Report of the Quality Assurance Committee
Activities of CPAB, CSA, IAASB, Independence Task Force, IFAC, OSFI and PIOB
Other Administrative Matters
Bill McFetridge welcomed everyone to the meeting. He thanked David Rattray, who is retiring from AASOC after this meeting, for his contributions over the years.
Mr. McFetridge noted that this was the last AASOC meeting for Cathy MacGregor, Chair of the Auditing and Assurance Standards Board (AASB). For the past four years, two as Vice Chair and two as Chair, Ms. MacGregor provided leadership in ensuring the AASB fulfilled its mandate. Mr. McFetridge stated that each Chair has faced their special challenges and Ms. MacGregor’s term has been no exception. She handled the issues calmly and thoughtfully with a clear and unswerving resolve to move the standards forward consistent with the AASB’s commitment to adopting international standards. She is leaving the AASB in the capable hands of Darrell Jensen who will be a very engaged and competent Chair. AASOC thanks Ms. MacGregor for her invaluable contribution to auditing and assurance standards and for making AASOC’s oversight responsibilities so much easier.
The Minutes of the meeting held on October 22, 2015 were approved (offline) as circulated.
Stan Pasternak reported on Nominating Committee activities since the last AASOC meeting. Public calls for nomination were posted on the website for new members for both the AASB and AASOC and several applications were received. AASOC discussed the recommendations of the Nominating Committee and considered options for filling the remaining vacancy. Mr. Pasternak noted that finding a member from industry with interest in being involved with auditing, other assurance and related services standards, is often challenging. Currently, the Nominating Committee is reviewing two applications and considering other options for identifying possible candidates. The Nominating Committee expects to make a recommendation to AASOC at its April 2016 meeting.
Mr. Pasternak noted that a few applications were received in response to the call for nominations for AASOC. However, given the large number of retirements expected in March 2017, the Nominating Committee has not yet made recommendations for the replacement of David Rattray, whose term on AASOC ends on March 31, 2016. Instead, the Nominating Committee will consider the profile of AASOC and the types of candidates it will be looking for to replace the retiring members next year. The Nominating Committee is also still pursuing avenues regarding identifying someone to replace Mr. McFetridge as Chair.
All voting members of AASOC present at the meeting unanimously approved the following:
- reappointments to the AASB for three-year terms from April 1, 2016 to March 31, 2019:
- Marcel Couture;
- Michael Frankel; and
- Anna Moreton;
- reappointment to the AASB for a one-year term from April 1, 2016 to March 31, 2017:
- Jim McCarter; and
- appointments to the AASB for three-year terms from April 1, 2016 to March 31, 2019:
- Julie Corden; and
- Jean-Francois Trépanier.
Jeremy Justin and Lindsay Colley presented the results from the Canadian Public Accountability Board’s (CPAB) recent inspections of the four largest public accounting firms. Certain areas for which CPAB had findings are on the IAASB’s and AASB’s operating plans including auditing accounting estimates and identification of and response to risks. Other areas in which CPAB identified difficulties included:
- selection and application of accounting policies;
- understanding and testing of internal controls;
- journal entry testing; and
- using the work of management’s expert.
Some AASOC members noted that, despite the audit deficiencies identified by CPAB, there were no restatements of financial statements following CPAB inspection. However, it was noted that there is not necessarily a correlation between errors in the financial statements and audit quality. Audit quality might be deficient but the financial statements were not wrong. Mr. Justin noted that firms have been performing root cause analyses to determine if issues identified by CPAB are a result of execution or if problems exist with the auditing standard itself. For example, CPAB has noted issues with the standard for group audits.
CPAB also shared its current areas of focus in Canada and internationally as well as CPAB’s current projects, including thought leadership. AASOC discussed whether material prepared by CPAB could serve to interpret auditing standards if it refers to the work of auditors. Mr. Justin indicated that efforts are made through having the material reviewed to make sure that this does not happen. AASOC discussed whether the AASB or its staff should be involved in these reviews. Cathy MacGregor noted that the AASB generally supports the work that CPAB is doing to educate audit committees about their role in overseeing the work of auditors as this can enhance audit quality.
Eric Turner presented a summary of the International Auditing and Assurance Standards Board’s (IAASB) Invitation to Comment and Overview, “Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits.” The IAASB is considering whether revisions are necessary in the areas of professional skepticism, quality control and group audits. Because of the number of issues that overlap these areas, the IAASB has combined the topics into one discussion paper. The IAASB has identified public interest issues related to these areas, which include:
- fostering an appropriately skeptical auditor mindset;
- enhancing documentation of auditor judgments;
- keeping International Standards on Auditing fit for purpose today and in the future;
- encouraging proactive quality management at the firm and engagement levels;
- exploring transparency and its role in audit quality;
- focusing more on firms and networks and their monitoring and remediation activities; and
- reinforcing the need for robust communication and interactions among those involved in the audit.
The AASB is reviewing these issues in depth, with stakeholder outreach being done in February and March 2016. A Canadian Invitation to Comment will be issued shortly directing respondents to issues and questions that are particularly relevant to Canadian stakeholders.
AASOC discussed the expected workload of the AASB arising from this initiative and how the AASB would coordinate efforts, where appropriate, with other CPA Canada groups.
Cathy MacGregor presented an overview of the activities of the AASB since the last AASOC meeting. She noted that a number of matters were discussed at the AASB’s November 2015 and January 2016 meetings including the following:
The AASB discussed issues raised by respondents to the Exposure Draft, “Association.” The AASB made a number of changes in response to these issues, including to the scope, to provide more clarity. The AASB agreed that changes made to the Exposure Draft were significant and, therefore, re-exposure was necessary. The AASB unanimously approved a re-exposure draft of proposed CSOA 5000, Use of the Practitioner’s Communication or Name. The re-exposure draft is expected to be issued in March 2016 with a response deadline of mid-May 2016.
The AASB discussed key issues related to the project to revise Section 9200, Compilation Engagements, including the preliminary scope of the revised standard and whether the basis of accounting should be disclosed in the Notice to Reader. This is expected to be a lengthy project, with much in-depth discussion of the issues.
AASOC noted that Section 9200 is not covered by CSQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements. AASOC questioned whether this is a concern from a public interest perspective. The IAASB’s standard, ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, applies to related services engagements, including compilation engagements.
The AASB received ten written responses to its Exposure Draft, “Reports on Compliance with Agreements, Statutes and Regulations.” Certain issues raised by respondents had been previously debated by the AASB while drafting the Exposure Draft. The AASB decided that a subgroup of AASB members will review the issues raised in detail prior to making recommendations to the AASB.
The AASB discussed issues related to the IAASB’s initiatives related to:
- auditing accounting estimates;
- data analytics;
- non-compliance with laws and regulations; and
- summary financial statements.
Due Process Review
AASOC considered the AASB’s decisions relating to the approval of revisions to:
- the “Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements” appended to CAS 501, Audit Evidence — Specific Considerations for Selected Items, as well as Canadian-specific conforming amendments to CAS 501; and
- Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements.
AASOC asked how the AASB staff and the AASB deal with comments raised by stakeholders consulted, either verbally or in written responses to public documents for comment. In some cases, it seems that comments raised resulted in no changes to the standards. Ms. MacGregor noted that the AASB reviews all comments raised, and how comments were dealt with is addressed in the Basis for Conclusions document. AASOC discussed the importance of asking the right questions in documents for comment, and identifying the appropriate stakeholders to ask the questions. AASOC further discussed whether the AASB’s responses to comments raised are appropriate. Eric Turner noted that the AASB’s draft Strategic Plan for 2016-2021 includes increased focus on how the AASB engages stakeholders and obtains input.
Following this discussion, all voting members of AASOC present at the meeting unanimously confirmed that the AASB had followed due process in approving these standards.
AASB Operating Plan 2016-2017
The AASB reviewed a draft Operating Plan for 2016-2017. The Operating Plan includes consideration of how the AASB will begin to implement its Strategic Plan for 2016-2021, which the AASB expects to approve by June 2016. The AASB is expected to approve the Operating Plan for 2016-2017 at its March 2016 meeting.
Project Progress and Monitoring Activities Reports
AASOC reviewed the project progress report used by the AASB to monitor whether identified project milestones are being met and to take action when unforeseen problems arise. It also reviewed a report tracking the results of these monitoring activities. Items that might be of particular interest were highlighted for AASOC’s attention. Mr. Jensen noted that the U.S. Public Company Accounting Oversight Board (PCAOB) has further deferred its Auditor Reporting project. Several Canadian stakeholders with whom the AASB consulted on auditor reporting suggested that the AASB not make any final decisions until the direction of the PCAOB becomes clear. If the AASB defers, this could delay the potential effective date of the auditor reporting suite of standards.
AASOC reviewed written reports from Bill McFetridge who observed the November 2015 and January 2016 AASB meetings on behalf of AASOC. Mr. McFetridge noted no significant issues regarding due process and the consideration of the public interest by the AASB. AASOC accepted the observer reports as presented.
Bruce Winter reported that the Quality Assurance Committee developed a paper, “AASOC’s Consideration of the Public Interest.” This paper identifies who is AASOC’s public and what are their interests, as well as how AASOC assesses whether an action, decision or policy is in the public interest. The paper sets out how this assessment can be performed.
- whether it has a role in identifying the public interest, or whether the AASB is responsible for identifying the public interest implications, following which AASOC would consider the AASB’s views;
- whether “due process” includes AASOC’s oversight through attendance at AASB meetings;
- the concept of “net benefit” and whether this is an appropriate benchmark;
- how the concept of “optimization” fits with the net benefit assessment (i.e., how much of a net benefit should the AASB strive for when drafting a standard); and
- whether it is possible for the AASB to follow due process, yet approve a standard that is not in the public interest.
AASOC will continue this discussion at a future meeting.
Phil Cowperthwaite provided an update on the implementation of AASOC’s communication strategy, which AASOC established in April 2015. AASOC discussed whether a separate committee should be established to manage AASOC’s communication process. The Quality Assurance Committee will bring a recommendation to AASOC at its April 2016 meeting whether to establish a new committee.
Canadian Public Accountability Board (CPAB)
Jeremy Justin had no additional comments to make.
Canadian Securities Administrators (CSA)
Cameron McInnis noted that the CSA is continuing to consider the topic of audit committees and their role with respect to audit quality. Securities regulatory requirements in this area are contained in National Instrument 52-110 Audit Committees, and are not extensive. The CSA staff are evaluating whether there would be merit in considering enhancements to reporting by audit committees of their evaluation of the external auditor. No formal project has been initiated in this area as yet.
Independence Task Force
Michael Tambosso provided a written report to AASOC as he was unable to attend the meeting. His report noted the following:
- The Independence Task Force is in the process of analyzing responses received to its Consultation Paper, “A Framework for the Canadian Independence Standards.”
- A number of changes have been made to international independence standards since the last changes were made to Canadian rules of professional conduct. The Independence Task Force is in the process of comparing the international and domestic rules to determine whether any revisions to the Canadian rules should be considered.
International Auditing and Assurance Standards Board
Ron Salole noted the following regarding a December 2015 meeting of the IAASB:
- The IAASB approved its Invitation to Comment and Overview, “Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits.”
- The IAASB approved revisions to ISA 810, Engagements to Report on Summary Financial Statements.
- The IAASB approved a project proposal to make revisions to ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. The IAASB’s goal is to issue an exposure draft of proposed changes by December 2016. The IAASB will also issue a publication focusing on the reasons for the project, including a focus on the implications for practitioners arising from IFRS 9 Financial Instruments.
- The IAASB received presentations on non-compliance with laws and regulations, auditor reporting standards implementation and professional skepticism.
International Federation of Accountants (IFAC)
Carol Bellringer, who is a member of the IFAC Board of Directors, noted the following:
- At its November 2015 meeting, IFAC approved various nominations to boards and committees, as well as its Strategic Plan for 2016-2018.
- IFAC decided that compliance reports from member bodies will be disclosed.
- IFAC’s Public Policy and Regulatory Advisory Group reviewed its structure. This review included considering all topics being addressed by IFAC and their timing.
Office of the Superintendent of Financial Institutions (OSFI)
Karen Stothers noted the following:
- OSFI continues to monitor the economic situation in Canada, with a focus on oil and gas and housing.
- OSFI is drafting a new capital framework for life insurance companies. OSFI aims to issue the framework for public consultation in the fall of 2016.
Public Interest Oversight Board (PIOB)
The AASOC members were provided with a copy of a PIOB meeting summary for its December 17-18, 2015 meeting. Mr. McFetridge noted that the PIOB confirmed that the IAASB’s due process was followed in approving ISAs 800, Special Considerations — Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and 805, Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement.
2015 AASB Self-assessment
Cathy MacGregor presented the results of the 2015 AASB member evaluation survey, noting that individual results will be provided to each AASB member. No member had a negative rating; all members are contributing. There has been some movement between the “strongly agree” and “agree” categories, but such a change can be expected and is not concerning. The results will be shared with the AASB at its March 2016 meeting.
The AASOC members held an in-camera session, first without staff and then without the Chairs of the AASB and the Independence Task Force.
After the in-camera session, AASOC reconvened to discuss whether there is a need for a full-time or part-time paid chair for the AASB. Currently the role is filled by a volunteer. AASOC expressed the view that it is necessary to have a compensated Chair for the AASB in order to meet the AASB’s new strategic plan and complete the operating plan. AASOC raised concerns that it would be difficult to complete the AASB’s strategic plan if the position continues to be a volunteer position. Stephenie Fox noted that the issue has been raised with CPA Canada. Different models are being considered and will reflect how the AASB operates. Differences between how the AASB, the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB) operate will also be reviewed. Both the AcSB and PSAB have paid chairs. Ms. Fox agreed to provide an update on this issue to AASOC at each meeting.
The next meeting of AASOC will be held on April 7, 2016 in Toronto.
There being no further matters to discuss, the meeting was terminated.