Auditing and Assurance Standards Oversight Council
Minutes of Meeting
February 16, 2017
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)
Brian Hunt, (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)
|Guests:||Daniella Girgenti, Communications Manager, Standards
Jeremy Justin, Canadian Public Accountability Board
Fred Pries, AASB Vice Chair
Joy Thomas, President and CEO, CPA Canada
Chair’s Opening Comments
Report of the Nominating Committee
Report of the Quality Assurance Committee
Report of the Communications Committee
Report of the Strategy Committee
Review of the CPAB Public Report 2016
Activities of the AASB since the Last AASOC Meeting
Comments from AASOC Observers
CPA Canada Presentation
Review of the Effectiveness of the Oversight Councils
Activities of CPAB, CSA, IAASB, Independence Task Force, IFAC, OSFI and PIOB
Other Administrative Matters
Bill McFetridge welcomed everyone to the meeting. He congratulated Karen Stothers on her appointment to the Public Interest Oversight Board (PIOB). Ms. Stothers noted that she was nominated by the Basel Committee on Banking Supervision. Kevin Dancey, who was nominated by the International Federation of Accountants (IFAC), was also appointed. AASOC’s Terms of Reference require AASOC to invite the PIOB to appoint a representative that is resident in Canada to AASOC. AASOC will extend an invitation to Mr. Dancey to join AASOC.
AASOC discussed a book recently released by Al and Mark Rosen. In the book, they comment on the accounting profession in Canada, including the accounting and auditing standards. AASOC decided that it will discuss the book in more depth at a future meeting, at which time AASOC will decide whether it needs to take action.
The Minutes of the meeting held on October 24, 2016 were approved (offline) as circulated.
Stan Pasternak reported on Nominating Committee activities. There are currently two vacancies on AASOC and the terms of five members, including the Chair, 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 requested 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 believed should be interviewed. AASOC discussed all the applications received and agreed on which applicants should be interviewed. Members of the Nominating Committee conducted these interviews in December 2016.
After discussion, voting members of AASOC present at the meeting unanimously approved the following:
- appointments to AASOC for three-year terms from April 1, 2017 to March 31, 2020:
- Ian Bandeen;
- Donna Bovolaneas;
- Sheila Filion;
- John Walker; and
- Bruce West.
Subsequent to the meeting, voting members of AASOC unanimously approved, by ballot draft, the appointment of Kathryn Bewley to AASOC for a three-year term from April 1, 2017 to March 31, 2020.
AASOC discussed at length how to fill the Chair position. After discussion, voting members of AASOC present at the meeting unanimously approved the appointment of Bruce Winter as Interim AASOC Chair for a period of not more than two years commencing April 1, 2017. This appointment is conditional on Mr. Winter agreeing to recuse himself on any voting on which he has a potential independence threat. This includes new and revised auditor reporting standards and CAS 720, The Auditor's Responsibilities Relating to Other Information. Mr. Winter was a member of the International Auditing and Assurance Standards Board (IAASB) when these standards were approved.
In addition, the terms of four Auditing and Assurance Standards Board (AASB) members will end on March 31, 2017. Voting members of AASOC present at the meeting unanimously approved the following:
- reappointment to the AASB for a three-year term from April 1, 2017 to March 31, 2020:
- Doug King; and
- appointments to the AASB for three-year terms from April 1, 2017 to March 31, 2020:
- Nancy Cheng;
- Michael Pickup; and
- Janet Stockton.
Phil Cowperthwaite reported on Quality Assurance Committee activities. The Committee is reviewing the AASOC Terms of Reference and Oversight Framework and Operating Plan. In light of ongoing discussions of the Subcommittee established to review the effectiveness of the AASOC and the Accounting Standards Oversight Council (AcSOC), AASOC decided to defer discussions on the Terms of Reference and Oversight Framework to a subsequent AASOC meeting.
At a recent meeting of the AASOC/AcSOC Joint Review Subcommittee, members of the Subcommittee noted that neither AASOC nor AcSOC have conducted a formal risk assessment. The Boards that AASOC and AcSOC oversee have undertaken risk assessments. However, the Subcommittee members noted that risks faced in setting standards differ from those faced in providing effective oversight.
AASOC agreed that it should perform a risk assessment, independent of any risk assessment done by the AASB. The Quality Assurance Committee will carry out this exercise and bring results of the assessment to AASOC at a future meeting.
Phil Cowperthwaite reported on Communications Committee activities. The Committee reviewed the draft communications strategy for CPA Canada’s Standards group, and will refer to this framework when developing AASOC’s communication strategy. At a future AASOC meeting, the Committee will obtain the views of the AASOC members regarding:
- the key components of a communication strategy, including overall objectives;
- AASOC’s strengths and weaknesses related to communication;
- designation of spokespeople; and
- effective communication vehicles.
Susan McIsaac reported on Strategy Committee activities. She attended the AASB’s January 2017 meeting, during which it discussed key components of its Operating Plan for 2017-2018. Ms. McIsaac emphasized the need for the Strategy Committee to have sufficient time to review materials to be able to provide meaningful input.
Brian Hunt and Jeremy Justin presented the results from the Canadian Public Accountability Board’s (CPAB) recent inspections of the four largest public accounting firms. Standards in areas for which CPAB had findings are on the IAASB’s and AASB’s operating plans, including auditing significant accounting estimates and identification of and response to risks. Other areas in which CPAB identified concerns included:
- understanding and testing internal controls;
- responding to fraud risks;
- testing journal entries;
- using the work of management’s expert;
- obtaining sufficient appropriate audit evidence;
- professional skepticism; and
- audit documentation.
Mr. Hunt noted that CPAB plans to shift its inspections approach. CPAB will initially review consistency in the execution of firm processes within each firm. CPAB will continue to select audit files as a core component of its review process for the foreseeable future. Mr. Hunt stated that this approach will apply to all public accounting firms, not simply the largest ones. The approach is scalable to the size and nature of the firm.
An AASOC member asked if CPAB keeps statistics on the root causes of findings. Mr. Hunt noted that CPAB has started tracking common issues.
CPAB will release the results of its remaining inspections in March 2017 for discussion at the AASOC’s April 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 November 2016 and January and February 2017 meetings, including the following:
Auditing Accounting Estimates
The AASB discussed issues related to the IAASB’s project to revise ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. The AASB also discussed:
- the approach for obtaining feedback from Canadian stakeholders;
- risks associated with the effective implementation of the standard; and
- how these risks may be addressed, including potential implementation challenges that may be faced depending on the timing of the release of the final CAS and its effective date.
The AASB reviewed draft basis for conclusion documents related to the adoption of auditor reporting standards in Canada. It also discussed risks associated with the effective implementation of these standards and key messages to communicate to stakeholders. The AASB agreed to release draft material to provincial accounting bodies for use in developing courses and training in March 2017 and expect to approve final auditor reporting standards in April 2017.
The AASB continues to monitor the progress of the U.S. Public Company Accounting Oversight Board’s (PCAOB) auditor reporting proposals. AASOC discussed whether there would be any drawbacks in issuing the auditor reporting standards before knowing the position of the PCAOB. Mr. Jensen noted that if the PCAOB takes a different position regarding reporting on key audit matters, there would be an impact on dual-listed entities, who could choose to follow PCAOB rules. AASOC noted that it is important for larger companies to follow Canadian standards to provide examples for smaller and middle market companies to follow.
The AASOC members noted the importance of increasing awareness of the standards and educating stakeholders. AASOC believes that the revisions will positively impact audit quality, but stakeholders will need good examples to follow.
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 new concepts that the IAASB proposes to introduce in the revised standard, and the clarity around explaining these concepts. Such new concepts include:
- changes to the classes of risks and the terminology used to describe them;
- the use of qualitative factors in identifying and assessing inherent risks; and
- understanding how internal controls affect the risk assessment.
Staff and an AASB member conducted cross-country consultations to obtain feedback on the Compilation Engagement Task Force’s discussion paper. Approximately 170 people attended, including 155 practitioners and five lenders. Staff and the Task Force Chair will summarize and discuss feedback received at the AASB’s March 2017 meeting.
The AASB approved a re-exposure draft of proposed Canadian Standard on Assurance Engagements (CSAE) 3530, Special Considerations — Attestation Engagements to Report on Compliance, and CSAE 3531, Special Considerations — Direct Engagements to Report on Compliance. The re-exposure draft clarifies the difference between attestation and direct compliance reporting, as well as the difference between reporting on compliance and reporting on historical financial information. The re-exposure draft is expected to be issued in April 2017 and will have a July 28, 2017 comment deadline.
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 whether:
- the guideline should address performance of the engagement or focus only on reporting; and
- the compliance opinion should be stand-alone or included within the auditor’s report on the financial statements.
Reporting on Controls at a Service Organization
The AASB approved a project proposal to revise CSAE 3416, Reporting on Controls at a Service Organization, to align with the equivalent American Institute of Certified Public Accountant’s (AICPA) standard that was revised and issued in April 2016. The new AICPA standard will be effective before revisions can be made to CSAE 3416. The project will involve two steps:
- The AASB will issue an interim communication in spring 2017 to highlight key differences between the new AICPA standard and CSAE 3416.
- The AASB will revise CSAE 3416 with a goal of issuing an exposure draft in early 2019.
The AASB discussed issues related to the IAASB’s project 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 220, Quality Control for an Audit of Financial Statements, including:
- how the IAASB will integrate a quality management approach into ISQC 1 and how such changes will address scalability concerns;
- the objective and execution of the engagement quality control review;
- which engagements should be subject to an engagement quality control review; and
- ensuring that the overall responsibility for the audit remains with the engagement partner.
The AASB will establish two Canadian advisory groups to assist the AASB and staff in analyzing and responding to IAASB issues.
The AASB discussed issues related to the IAASB’s initiatives on:
- professional skepticism; and
- its work plan for 2017-2018.
Strategic Plan Implementation
The AASB discussed topics related to the implementation of its Strategic Plan for 2016-2021, which included the following stakeholder engagement events:
- Staff and an AASB member attended cross country in-person roundtable sessions with practitioners to discuss compilation and agreed-upon procedure engagements. These sessions were very well attended and were augmented with video-conference sessions for those unable to attend in-person sessions.
- The AASB conducted outreach with Canadian stakeholders to obtain Canadian views to inform the AASB’s response to the IAASB’s Request for Input, “The Growing Use of Technology in the Audit, with a Focus on Data Analytics.”
- The AASB met with the Canadian Securities Administrators (CSA) to provide input on the CSA’s development of a concept paper on enhancing audit committee public reporting.
- The AASB, CPAB and the CFA Society Toronto held an event to discuss auditing and the relevance of the audit.
The AASB also discussed various topics related to enhancing the AASB’s standard-setting capability, including:
- establishing a compensated AASB chair position and increasing the staff component;
- establishing a steering committee that would work with staff to advance progress on certain projects outside of AASB meetings;
- developing a framework for post-implementation reviews;
- developing a framework for identifying and responding to future developments; and
- strengthening discussion of public interest issues in documents for comment.
Brendan Murtagh, an IAASB member, attended a portion of the January 2017 AASB meeting to discuss issues related to the scalability of standards to audits of entities of varying sizes. Further, an AASB member and two staff attended an IAASB conference for small and medium-sized practices. An AASOC member also attended this conference.
AASOC discussed its role in recruiting a compensated AASB Chair. AcSOC has conducted similar searches for both the Accounting Standards Board and the Public Sector Accounting Board. AASOC will obtain information on AcSOC’s process for discussion at AASOC’s April 2017 meeting.
Preliminary Draft AASB Operating Plan 2017-2018
The AASB had a preliminary discussion of key components that will drive its operating plan for 2017-2018. The AASB will review a draft operating plan for 2017-2018 at its March 2017 meeting, with a goal of approving the plan in late March or early April 2017. Susan McIsaac, a member of AASOC’s Strategy Committee, observed these discussions and provided feedback to the AASB.
AASB 2016 Self-assessment Results
Mr. Jensen presented the results of the 2016 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. Mr. Jensen noted that there tended to be strong agreement on key characteristics. The results will be shared with the AASB at its March 2017 meeting.
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 Bill McFetridge and Susan McIsaac, who observed the AASB’s November 2016 and January 2017 meetings on behalf of AASOC. The observers noted no significant issues regarding due process and the consideration of the public interest by the AASB.
AASOC accepted the observer reports as presented.
Joy Thomas, President and CEO of CPA Canada outlined CPA Canada initiatives for the profession and reinforced CPA Canada’s continuing strong support for independent standard setting in Canada.
Stephenie Fox provided an update on a joint subcommittee established to review the effectiveness of the AASOC and AcSOC. The subcommittee met in November 2016 and February 2017. Key issues discussed at these meetings included:
- identifying similarities and differences in processes followed;
- how the Terms of Reference of the two Councils differ and why;
- the various committees of the two Councils that have been established and their purposes; and
- whether the Councils should perform risk assessments.
At its next meeting, the subcommittee will review the Terms of Reference of the two Councils in detail, with a goal to conform them as much as possible. This will help the Councils discuss their differences and determine whether changes should be made to how the Councils operate.
Canadian Public Accountability Board (CPAB)
Brian Hunt and Jeremy Justin reported the following:
- The International Forum of Independent Audit Regulators changed its governance structure. It will open an office in Tokyo and will develop a strategic plan, which is expected to be more proactive. It expects to publicly consult in May though July 2017.
Independence Task Force
Michael Tambosso noted the following:
- The Independence Task Force is comparing Canadian Rules of Professional Conduct with the rules of the U. S. Securities and Exchange Commission. The Public Trust Committee will review this comparison, then provide a report to AASOC.
- Genevieve Mottard is the new Chair of the Public Trust Committee. She will attend an upcoming AASOC meeting to provide an update on the activities of the Public Trust Committee.
- The Public Trust Committee is considering whether the composition of the Independence Task Force needs to change for the next phase of work being done.
International Auditing and Assurance Standards Board (IAASB)
Ron Salole noted the following regarding a December 2016 meeting of the IAASB:
- The IAASB’s project to revise ISA 540 is one quarter behind. However, the IAASB has cleared time on its March 2017 agenda and expects to approve an exposure draft at that time.
- The IAASB approved a project proposal to make revisions to ISQC 1, ISA 220 and ISA 600, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors). The IAASB has set up three task forces to deal with these revisions. A considerable amount of feedback was received in response to the IAASB’s December 2015 Invitation to Comment, “Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control, and Group Audits,” which informed the IAASB’s project proposal.
- The IAASB approved its work plan for 2017-2018.
International Federation of Accountants (IFAC)
Carol Bellringer noted the following:
- The Monitoring Group is reviewing the standard-setting process, and oversight by the PIOB.
- Two IFAC members sit on G20 committees that deal with responsible business conduct and anti-corruption and growth and infrastructure.
Ms. Bellringer also provided an update on IFAC’s compliance program.
Office of the Superintendent of Financial Institutions (OSFI)
Karen Stothers stated that there was no significant activity to report.
Public Interest Oversight Board (PIOB)
Karen Stothers noted the following:
- The PIOB reviewed the AASOC paper on public interest, “What the Public Interest Means to AASOC.”
- The PIOB is reviewing responses to its consultation paper on its 2017-2019 strategy. Comments received included whether:
- the PIOB is engaged early enough in the standard-setting process;
- the PIOB should wait for the Monitoring Group to finish its review of standard-setting processes; and
- there is sufficient transparency around and communication of what PIOB does.
Branding of Standard Setting Boards and Oversight Councils
Daniella Girgenti, Communications Manager, Standards, gave a presentation on the status of new branding for the Canadian standard-setting boards and oversight councils. While many members were supportive, some members had some discomfort with the process and were conscious of the need to ensure that the independence of AASOC from the AASB is clear.
The AASOC members held an in-camera session, first without staff and then without the Chair and Vice Chair of the AASB and Chair of the Independence Task Force.
The next meeting of AASOC will be held on April 20, 2017 in Toronto.
There being no further matters to discuss, the meeting was terminated.