Auditing and Assurance Standards Oversight Council
Minutes of Meeting
October 24, 2016
The Auditing and Assurance Standards Oversight Council discussed the activities 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.
Stephenie Fox, Vice-President, Standards (non-voting)
Darrell Jensen, AASB Chair (non-voting)
Ron Salole (non-voting)
Karen Stothers (non-voting)
Michael Tambosso, Independence Task Force Chair (non-voting)
Eric Turner, Director, Auditing and Assurance Standards (non-voting)
Brian Hunt (non-voting)
|Guests:||Daniella Girgenti, Communications Manager, Standards
Jeremy Justin, Canadian Public Accountability Board
Mark Pinch, Ontario Securities Commission
Fred Pries, AASB Vice Chair
|Observer:||Kathy Huynh, Office of the Superintendent of Financial Institutions|
Chair’s Opening Comments
Review of the Effectiveness of the Oversight Councils
Independent Standard Setting in Canada – Roles and Responsibilities
PIOB 2017-2019 Strategy Consultation Paper
Report of the Nominating Committee
Activities of the AASB since the Last AASOC Meeting
Comments from AASOC Observers
Activities of CPAB, CSA, IAASB, Independence Task Force, IFAC, OSFI and PIOB
Report of the Strategy Committee
Report of the Quality Assurance Committee
Report of the Communications Committee
Other Administrative Matters
Bill McFetridge welcomed everyone to the meeting.
The Minutes of the meeting held on July 7-8, 2016 were approved (offline) as circulated.
Stephenie Fox provided an update on a joint subcommittee established to review the effectiveness of the Auditing and Assurance Standards Oversight Council (AASOC) and the Accounting Standards Oversight Council (AcSOC). The subcommittee will meet in early November 2016. Members of the subcommittee from AASOC include Bill McFetridge, Phil Cowperthwaite, Susan McIsaac and Bruce Winter. Members from AcSOC include Peter Jewett, Annie Giraudou, Richard Neville and Tom Trainor. The subcommittee’s terms of reference call for reporting to AASOC and AcSOC within eight months of its first meeting. Ms. Fox will provide a further update at AASOC’s February 2017 meeting.
Ms. Fox gave a presentation on the roles and responsibilities of AASOC, the Auditing and Assurance Standards Board (AASB), the Vice President, Standards, staff and the Chartered Professional Accountants of Canada (CPA Canada). The presentation clarified the roles of each body, as well as the inter-relationships. AASOC raised a number of key points:
- How the role and responsibilities of a paid AASB chair would differ from a volunteer chair.
- There may be confusion in the marketplace regarding the responsibility for standard setting. The AASB is the body responsible for setting auditing, other assurance and related services standards. However, CPA Canada produces the CPA Canada Handbook – Assurance.
- AASOC noted that there could be circumstances when other bodies issue pronouncements. A representative from the Office of the Superintendent of Financial Institutions (OSFI) noted that OSFI has the ability to specify requirements for auditors, but do not often do this. OSFI noted that consistency in setting auditing standards provides stability in the marketplace. The representative from the Canadian Securities Administrators (CSA) noted that the AASB engages with regulators to ensure issues are appropriately dealt with. This avoids any need for the regulators to issue their own requirements.
- AASOC expressed concern that staff that support the AASB could be seen as not independent, as they are employees of CPA Canada. Ms. Fox noted that the Director, Auditing and Assurance Standards, with input from the Chair of the AASB, performs staff evaluations. The Vice President, Standards, evaluates the Director. CPA Canada does not influence or evaluate staff. AASOC recognized that perception may differ from the reality, noting that any perceived lack of independence should be addressed. The Communications Manager, Standards, has begun a project to consider branding of the standard-setting boards and oversight councils. This includes considering how staff present themselves to outside parties (i.e., as staff support for the boards and/or councils versus as employees of CPA Canada). AASOC asked staff to prepare an analysis of threats to independence and safeguards in place to address these threats. This analysis will be discussed at a future meeting. Further, AASOC asked the Quality Assurance Committee to address the issue of independence in its annual assessment of AASOC.
- In a recent AcSOC meeting, AcSOC noted that the Directors of the various departments within the Standards Group are included as non-voting members of the Councils and/or various committees. In AASOC’s view, Directors should not be members, but should attend meetings.
- The slide deck presented to AASOC should be included in new member orientation material going forward.
In August 2016, the Public Interest Oversight Board (PIOB) issued a Consultation Paper on its 2017-2019 strategy. AASOC discussed whether it should submit a response and, if so, which questions should be answered. The AASOC members presented differing views. Some expressed the view that AASOC should respond because AASOC is a parallel organization to the PIOB. AASOC’s perspective is relevant, as there are not many other bodies worldwide that have the same perspective. On the other hand, other members noted that the Monitoring Group is discussing enhancements of standard-setting governance with the International Federation of Accountants. Some members thought that AASOC should wait until these discussions are completed. Then AASOC can provide a more thoughtful, complete response. AASOC asked staff to prepare a draft response stating that any changes are premature given enhancements to the standard-setting process are under review. After reviewing this draft offline, AASOC will decide whether to submit it.
AASOC noted that it does not have a process in place to determine to which public consultations it should respond and how. AASOC will discuss whether to develop such a process at a future meeting.
Stan Pasternak reported on Nominating Committee activities. There are currently two vacancies on AASOC and the terms of five members will end on March 31, 2017. The Nominating Committee issued a Call for Nominations in May 2016, with a deadline to apply in early September 2016. In addition, the AASOC members were encouraged to reach out to personal contacts to encourage them to apply. In total, 30 applications were received. The Nominating Committee met twice in September to review the applications. The Nominating Committee developed a short list of applicants that it believes should be interviewed. AASOC discussed all the applications received and agreed on which applicants should be interviewed. Members of the Nominating Committee will conduct these interviews through November and December 2016. The Nominating Committee will make recommendations to AASOC regarding which individuals should be appointed at AASOC’s February 2017 meeting.
In addition, the terms of four AASB members will end on March 31, 2017. Efforts are underway to find replacements for those who will be completing their second terms. Those completing their first terms have been contacted regarding renewing for a second term. The Nominating Committee will make recommendations to AASOC regarding appointments at AASOC’s February 2017 meeting.
Darrell Jensen, Fred Pries and Eric Turner presented an overview of the activities of the AASB. They noted that a number of matters were discussed at the AASB’s September and October 2016 meetings, including the following:
Auditing Accounting Estimates
The AASB discussed issues related to the International Auditing and Assurance Standards Board’s (IAASB) project to revise ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, including:
- the scalability of ISA 540, in particular that ISA 540 should address accounting estimates relating to significant accounts and disclosures as opposed to all estimates;
- the factors considered in identifying and assessing the risk of material misstatement; and
- the work effort in responding to the assessed risk of material misstatement.
Developments related to the AASB’s project to adopt revisions to auditor reporting standards include the following:
- The AASB Chair and staff held discussions with the Office of the Superintendent of Financial Institutions (OSFI), the Canadian Public Accountability Board (CPAB) and the Canadian Securities Administrators (CSA) Chief Accountants Committee.
- The AASB sent a letter to the Chief Accountants Committee in October 2016, responding to a request for the AASB to address the concerns identified in its comment letters on auditor reporting proposals.
- The AASB discussed the auditor reporting standards at both its September and October 2016 meetings.
- The U.S. Public Company Accounting Oversight Board is expected to finalize its auditor reporting standards in December 2016, with approval by the U.S. Securities and Exchange Commission in late March 2017.
AASOC discussed how the AASB is responding to public interest considerations, acknowledging that some stakeholders have presented the AASB with opposing views. AASOC noted that communication to stakeholders is required to increase awareness of this project. The AASB will issue a communication on its planned approach in the near term.
The AASB discussed issues related to the IAASB’s project to revise ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:
- the relevance of the five components of internal control;
- whether the concept of significant risk should be retained with certain improvements to the definition and application material;
- whether filters should be applied to the population of identified higher inherent risks; and
- whether introducing a concept of spectrum of risk would introduce too much complexity into the risk assessment.
The AASB will establish a Canadian advisory group to support the AASB on this project.
The AASB discussed issues related to its project to revise Section 9200, Compilation Engagements, including:
- what items should be required to be included in engagement documentation;
- what the requirements should be regarding engagement acceptance when the compiled financial information is intended for distribution to users outside the entity;
- how consultation should be conducted.
The AASB’s Task Force will conduct consultations with stakeholders. The Task Force has developed a paper that will be used as a basis for the consultations.
The AASB discussed issues related to its project to revise Sections 5800, Special Reports - Introduction, 5815, Special Reports — Audit Reports on Compliance with Agreements, Statutes and Regulations, and 8600, Reviews of Compliance with Agreements and Regulations, including:
- developing two standards to mirror the construct of the umbrella assurance standards;
- incorporating the part of Section PS 5300, Auditing for Compliance with Legislative and Related Authorities in the Public Sector, dealing with compliance with specified authorities;
- describing clearly what the entity is required to comply with;
- concluding in an attestation compliance engagement versus a direct compliance engagement; and
- using the terms “reasonable assurance” and “limited assurance” versus “audit” and “review”.
Public Sector Auditing Standards
The AASB discussed issues related to its project to update the Sections in the CPA Canada Handbook – Assurance dealing with the special circumstances that may apply to the audits of public sector entities. In particular, the AASB focussed its discussion on a new guideline that is being developed to address one part of Section PS 5300. Issues discussed included:
- the scope of the guideline, in particular that it clearly needs to set out the circumstances under which the guideline would be used;
- whether the guideline should focus on reporting or performance of the engagement;
- the contents of the auditor’s report;
- guidance on modified opinions;
- guidance on assessing the impact of non-compliance; and
- whether the guideline should be developed based on the auditor reporting standards currently in effect or the auditor reporting standards that the AASB expects to adopt in 2017.
The AASB reviewed a project proposal to revise CSAE 3416, Reporting on Controls at a Service Organization. The AASB will base the proposed revisions to CSAE 3416 on revisions made to an equivalent standard issued by the American Institute of Certified Public Accountants. The project will be undertaken in two steps. First, the AASB will issue an interim communication to stakeholders to highlight the key differences that will arise, because the U.S. standard is effective for service auditors’ reports dated on or after May 1, 2017. The second step will involve proposing revisions to CSAE 3416.
At its November 2016 meeting, the AASB will consider the timeline, resources and implications with regard to the IAASB’s standard addressing service organizations.
The AASB discussed issues related to the IAASB’s initiatives related to:
- agreed-upon procedures;
- group audits;
- professional skepticism; and
- quality control.
Due Process Review
AASOC considered the AASB’s decisions relating to the approval of:
- Canadian Standard on Association (CSOA) 5000, Use of the Practitioner’s Communication or Name; and
- revisions to CAS 250, Consideration of Laws and Regulations in an Audit of Financial Statements.
AASOC discussed why Canada is one of the few jurisdictions to have a standard on association. Darrell Jensen noted that the AASB believes that a standard is needed to establish requirements and provide guidance to practitioners in considering how to respond to requests from clients. Eric Turner noted that the IAASB does not have a framework standard. Association is addressed in several standards, as necessary.
Fred Pries presented a new document that will be prepared for all projects. This document highlights the risks associated with the implementation of the new standards. The intent will be to confirm with the AASB that all the risks have been identified, then to work with other groups to address the risks.
Following this discussion, voting members of AASOC present at the meeting unanimously confirmed that the AASB had followed due process with proper regard for the public interest when approving these standards.
The AASB held a special meeting on October 17, 2016 to meet with stakeholders from the regulatory and small and medium-sized practitioner communities. Participants were given key questions for discussion in advance of the session. A roundtable format was employed to encourage discussion amongst participants. Key topics discussed included implementation of standards, communication by the AASB and future developments in the profession.
The AASB also received updates from staff on various projects undertaken to implement its Strategic Plan for 2016-2021. These projects include:
- conducting research on the mandates, processes, composition and other matters of national standard setters;
- establishing a paid chair role for the AASB;
- reviewing AASB processes;
- improving stakeholder engagement;
- considering scalability of standards;
- communicating to stakeholders;
- reviewing the AASB’s criteria for amending international standards when adopting them as Canadian standards;
- developing a post-implementation review process;
- responding to current and future developments; and
- enhancing the AASB’s understanding of implementation issues.
Project Progress and Monitoring Activities Reports
AASOC reviewed the AASB’s project progress report. It also reviewed a report tracking the results of the AASB’s monitoring activities. AASOC had no comments on either of these documents.
AASOC reviewed written reports from Karen Stothers and Bruce Winter, who observed the AASB’s September and October 2016 meetings on behalf of AASOC. AASOC also received a verbal update from Bill McFetridge, who observed part of the October 2016 meeting. The observers noted no significant issues regarding due process and the consideration of the public interest by the AASB. Karen Stothers noted that the AASB does not make an explicit statement regarding public interest when making its decisions in the standard making process. However, she noted that, in her view, the public interest was addressed. She suggested that staff notes should document the public interest discussion, including any differing views expressed. She acknowledged that AASOC observers only see a portion of discussions as topics are discussed over several meetings. Darrell Jensen stated that staff will take the comments into consideration when considering changes to AASB processes and documentation.
Bruce Winter commended the AASB for its approach to its October 2016 meeting. The AASB has an already busy agenda, but it is important to take time to conduct outreach with stakeholders. He noted that the key challenge for the AASB will be taking the ideas and information obtained, and working it into its operating plan, where appropriate.
AASOC accepted the observer reports as presented.
Canadian Public Accountability Board (CPAB)
Jeremy Justin reported the following:
- The Monitoring Group is reviewing the international standard-setting process, including how standards are set and overseen. The Monitoring Group has established a working group that is Chaired by Brian Hunt, to conduct this review.
- CPAB has completed its inspections of the large four public accounting firms. It will issue its report in late November 2016.
- CPAB is continuing to engage stakeholders on the topics of audit committees and audit quality. It will hold its next audit quality symposium in May 2017.
Canadian Securities Administrators (CSA)
Mark Pinch noted the following:
- The CSA is continuing its research into the use of measures to report on performance other than generally accepted accounting principles (GAAP), often referred to as “non-GAAP measures.” A recent Globe and Mail article noted that a large percentage of listed entities in the United States are using non-GAAP measures. AASOC discussed what impact such use may have on GAAP and whether auditors would be perceived as auditing information that is not particularly relevant. AASOC also discussed whether the auditor will be responsible under revised CAS 720, The Auditor’s Responsibilities Relating to Other Information, to perform procedures and/or report on the non-GAAP information. CPA Canada is considering a project to develop guidance for audit committees, which may include guidance on how the audit committee can obtain comfort, particularly when information is prepared by management and the auditor has not performed procedures on the information. Both the Canadian Accounting Standards Board (AcSB) and the International Accounting Standards Board (IASB) are reviewing standards to determine if revisions are necessary.
- The CSA is continuing its project on audit committee reporting. It expects to issue a concept paper in the spring of 2017.
- The CSA is considering a project arising from CPAB’s concerns regarding access to files of component auditors. The CSA will hold discussions with stakeholders by the end of 2016.
Independence Task Force
Michael Tambosso noted the following:
- Work has begun on a comparison of the rules of professional conduct and U.S. Securities Exchange Commission independence rules. A new task force will likely be recruited to address issues identified through this comparison.
- Staff support for the Independence Task Force is still an issue since Shirley Sommer’s retirement last year.
International Auditing and Assurance Standards Board
Ron Salole noted the following regarding a September 2016 meeting of the IAASB:
- The IAASB continued to discuss its project to revise ISA 540. The IAASB will hold a conference call on November 1, 2016 to discuss issues related to ISA 540. The IAASB aims to approve an exposure draft in December 2016.
- The IAASB discussed issues related to its project to revise ISA 315. The IAASB is still discussing high-level issues and plans to continue discussions through 2017.
- The IAASB is considering comments raised by respondents on 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 is expected to approve project proposals to revise ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements, and ISA 600, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors), at its December 2016 meeting.
- The IAASB is working in conjunction with the International Ethics Standards Board for Accountants and the International Accounting Education Standards Board on the topic of professional skepticism. A working group comprised of members from each Board is drafting a thought piece for discussion at the IAASB’s December 2016 meeting. It may also make recommendations about other steps that might be taken to revise standards to promote robust professional skepticism.
- The IAASB’s Steering Committee approved a discussion paper on agreed-upon procedures. The paper will be issued in November 2016 with an April 2017 comment deadline.
- Kathy Healy, Technical Director, has left the IAASB. IFAC has advertised for a replacement.
International Federation of Accountants (IFAC)
Carol Bellringer noted the following:
- An outside advertising company has been hired to help with international advertising. There are some concerns about how one can accurately measure success in an international advertising campaign.
- IFAC recently issued a thought piece for the G20 on trust and integrity that calls for stronger governance in business and the public sector.
Office of the Superintendent of Financial Institutions (OSFI)
Karen Stothers noted the following:
- OSFI issued new life insurance capital adequacy requirements that will be effective January 1, 2018. The new requirements are more risk sensitive than the current requirements. The requirements take into account specific risks, including interest rate risk, credit risk, market risk and insurance risk.
- OSFI is preparing a draft advisory on capital rules specific to mortgage insurers.
Public Interest Oversight Board (PIOB)
The AASOC members were provided with a copy of the PIOB’s annual report. Bruce Winter, Jeremy Justin and Stephenie Fox attended the PIOB’s Public Interest Workshop in September 2016. Approximately 50 people attended.
Susan McIsaac presented recommendations regarding the continuing oversight of the AASB’s Strategic Plan, including:
- establishing a standing Strategy Committee charged with completing a detailed review of the AASB strategic planning process on behalf of AASOC;
- completing the strategic planning process before considering the annual operating plans;
- allowing sufficient time for the Strategy Committee to submit questions to the AASB regarding the strategic plan, and for the AASB to respond, prior to finalization of the strategic plan; and
- ensuring Strategy Committee members observe all AASB meetings at which the strategic plan is discussed.
Given the next update to the AASB’s Strategic Plan will not happen for several years, AASOC discussed how to ensure that these recommendations are implemented. The AASOC Terms of Reference will be updated to establish the responsibilities of the Strategy Committee. Stephenie Fox noted that AcSOC has a Performance Review Committee that reviews the annual performance of the AcSB and PSAB. The Performance Review Committee is also involved in the development of the strategic plans from an early stage in the process. The Performance Review Committee has a well-defined process that AASOC could consider adapting for the Strategy Committee.
AASOC suggested that the Strategy Committee review the AcSOC Performance Review Committee process and make recommendations regarding AASOC’s process at a future meeting. This may tie in with the review of the effectiveness of the Councils referred to above.
Bruce Winter presented recommendations from the Quality Assurance Committee regarding its triennial review of the AASOC membership, Terms of Reference and Oversight Framework. In light of the review of the effectiveness of the Councils, the Quality Assurance Committee does not recommend that it undertake a detailed review. However, the Terms of Reference and Oversight Framework should be reviewed to identify any apparent matters in need of immediate update. For example, the Oversight Framework makes no reference to AASOC’s oversight of the Independence Task Force.
Mr. Winter reported that he attended AcSOC’s October 2016 meeting to present AASOC’s paper, “What the Public Interest Means to AASOC.” AcSOC had a good discussion about the paper — in particular, on the paragraph dealing with judgment. AcSOC stated its view that if due process is followed, the result will be a high-quality standard in the public interest.
Phil Cowperthwaite reported on Communications Committee activities.
- The Communications Committee discussed whether certain documents, such as AASOC’s public report and its public interest paper, should be further distributed to contacts. These documents have been promoted through various means, including the FRAS Canada enewsletter, the CPA Canada website and monthly enewsletter, CPA Magazine, FRAS Canada Twitter and LinkedIn accounts and through provincial bodies and other associations and organizations.
- The Communications Manager, Standards, is preparing a new communications package for all the boards and councils. The Communications Committee and/or the Chair of AASOC will review proposed graphics and documents. In addition, going forward, final drafts of AASOC documents will be reviewed by either the Communications Committee or the Chair of AASOC prior to publishing. All the AASOC members will review and provide input on the content. The final review will focus on design and graphics only.
- AASOC reviewed the PIOB public report at a previous meeting. AASOC noted at that time that the PIOB public report is very different from the AASOC annual report. AASOC discussed whether there is information included in the PIOB public report that should be included in the AASOC annual report. The Quality Assurance Committee will review the PIOB public report and will make recommendations to AASOC at a future meeting.
- AASOC discussed whether it should establish a formal process for responding to documents for comment. Stephenie Fox noted that AcSOC’s process is to discuss, as a group, whether it should respond and, if so, the Strategy Committee meets to discuss a response. Stephenie Fox drafts the response, which is reviewed by the Strategy Committee, then distributed by email for comments to AcSOC. The AASOC members agreed that it should follow a similar approach for future documents for comment.
AASOC Budget 2017-2018
AASOC reviewed a draft budget for 2017-2018. AASOC does not approve its budget; this is the responsibility of CPA Canada’s Audit Committee. However, AASOC members discussed the nature of and amounts proposed in the draft budget. No significant comments were raised.
The AASOC members held an in-camera session.
The next meeting of AASOC will be held on February 16, 2017 in Toronto.
There being no further matters to discuss, the meeting was terminated.