Auditing and Assurance Standards Oversight Council
Minutes of Meeting
July 6, 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.
|Regrets:||Darrell Jensen, AASB Chair (non-voting)
Jeremy Justin, CPAB
Kenneth Leung, OSFI
Fred Pries, AASB Vice Chair
Chair’s Opening Comments
Activities of the AASB Since the Last AASOC Meeting
Activities of the Independence Task Force Since the Last AASOC Meeting
Comments from AASOC Observers
PIOB Public Report
CPAB Public Report
Review of the Effectiveness of the Oversight Councils
Report of the Quality Assurance Committee
Report of the Communication Committee
Canadian Standard-setting Process
Activities of CSA, IAASB, IFAC, OSFI and PIOB
Other Administrative Matters
Bruce Winter welcomed everyone to the meeting, noting that three observers would join the meeting after the morning in-camera session.
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 concluded that there was no need to respond or take further action.
The Minutes of the meeting held on April 20, 2017 were approved offline.
Fred Pries and Eric Turner presented an overview of the AASB’s activities. They noted that a number of matters were discussed at the AASB’s June 2017 meetings, including the following:
The U.S. Public Company Accounting Oversight Board (PCAOB) issued its final auditor reporting standards in June 2017. Requirements other than reporting on critical audit matters have an effective date of December 2017 for all entities. Reporting on critical audit matters will be required for large accelerated filers in June 2019, and in December 2020 for other filers. The U.S. Securities and Exchange Commission (SEC) is expected to approve the PCAOB auditor reporting standards in October 2017.
There are three significant differences between the PCAOB auditor reporting standards and the Canadian Auditing Standards (CASs) on auditor reporting that the AASB approved in April 2017. These include:
- more extensive descriptions of the responsibilities of management and the auditor in the CAS report;
- a section on “other information,” which is included only in the CAS report; and
- disclosing the length of auditor tenure, which is included only in the PCAOB standards.
There are a number of entities in Canada that are listed on both Canadian and U.S. stock exchanges. These dual-listed entities are affected by the differences between Canadian and U.S. auditor reporting. The AASB discussed the effect of these differences, including whether auditors of dual-listed entities could continue to issue a single auditor’s report. Mr. Pries advised AASOC that members of the Audit Reporting Implications of the New Canadian Auditing Standards Task Force are developing illustrative combined auditor’s reports that could be used for fiscal year-ends 2017 and 2018. These combined reports would illustrate how the new auditor reporting standards in Canada can be combined with the new PCAOB standards. The Task Force will need to work with relevant U.S. authorities to confirm that such a combined report would be acceptable to them. The AASB will keep AASOC apprised of the Task Force’s progress on this initiative.
The AASB also discussed the issue of when reporting on key audit matters should be required in Canada and to which entities it should apply. Its tentative conclusion is that key audit matter reporting should apply to audits of TSX-listed entities for periods ending on or after June 30, 2019. However, the AASB will discuss this conclusion with key stakeholders over the next few months. The AASB expects to make final decisions on these matters at its December 2017 meeting, assuming the SEC approves the PCAOB standards in October 2017.
The AASB concluded, on a preliminary basis, that re-exposure of the auditor reporting standards incorporating key audit matter reporting for TSX-listed entities will likely not be necessary. However, it will not make a final decision until after SEC approval. AASOC discussed the public interest implications of not re-exposing changes.
AASOC also asked if the AASB has formally established criteria for analyzing and supporting a decision on whether it is necessary and appropriate to re-expose proposals, when changes are made to original proposals. The AASB takes a number of factors into consideration when considering if revisions should be re-exposed. The AASB will report to AASOC at a future meeting.
Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents
The AASB approved a project proposal to revise Section 7500, Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents. The AASB intended to withdraw Section 7500 when Canadian Standard on Association (CSOA) 5000, Use of the Practitioner’s Communication or Name, was issued. However, CSOA 5000 does not address an auditor’s consent to the use of the auditor’s report on an entity’s financial statements filed with securities regulators. Therefore, the AASB decided to retain and revise Section 7500. The revisions will be limited to documents filed with securities regulators.
The AASB discussed issues raised by the provincial accounting bodies on the Compilation Engagement Task Force’s Consultation Paper, “Compilation Engagements: Exploring Options for Change,” including concerns about:
- the proposed scope of the standard; and
- the application of quality control standards to compilation engagements.
The AASB considered possible approaches for the scope of the standard, including compilation with no report. The AASB did not conclude on this issue; rather, it asked the Task Force to give further thought to the public interest issues related to compilation engagements.
The International Auditing and Assurance Standards Board (IAASB) has started a project to revise its quality control standards. The AASB will monitor the progress on that project. The AASB will also consider the need for research on the issue of quality control as it relates to related services such as compilation engagements prior to deciding whether to extend the scope of Canadian quality control standards.
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. The AASB approved an exposure draft of a new guideline that will address reporting on compliance with specified authorities for transactions coming to the auditor’s notice during the audit of the financial statements. The exposure draft is expected to be issued in July 2017 and will have a response deadline of November 10, 2017. The AASB staff will conduct targeted consultations with legislative auditors, the expected primary users of the guideline, during the summer and fall of 2017.
The AASB discussed issues related to the IAASB’s projects on:
- group audits;
- professional skepticism; and
- quality control.
The IAASB is discussing issues related to its group audits and quality control projects. The AASB is obtaining input from a number of sources, including Canadian advisory groups, and providing input to the CPA Canada nominee on the IAASB.
Strategic Plan Implementation
The AASB discussed topics related to the implementation of its Strategic Plan for 2016-2021.
- Enhancing the relevance of the audit. The Canadian Public Accountability Board (CPAB) held a symposium in May 2017.
- Scalability. The AASB discussed how it can better serve practitioners in audits of small to medium-sized entities. The AASB’s work plan focuses on improving three key processes that may assist in identifying and responding to scalability issues:
- improving consultation with stakeholders from small and medium-sized practices and entities;
- enhancing Canada’s influence at the IAASB on issues related to small and medium-sized practices and entities; and
- better assisting practitioners in successfully implementing standards.
The AASB received presentations on cybersecurity and blockchain, and received an update on IAASB and CPA Canada activities related to the use of data analytics in audits. The AASB discussed what possible actions it could take in these areas. With regard to blockchain, the AASB decided that, while it needs to remain vigilant, no action is currently required. The AASB will discuss the other topics further at future meetings.
Michael Tambosso noted the following:
- The Independence Task Force met to discuss comments received on its Consultation Paper discussing a proposed framework for how Canadian independence standards could be maintained, and detailed comparisons of the current Canadian independence standards to each of the International Code and the U.S. Independence rules.
- The Task Force continues to believe that the International Code is the appropriate base for future changes to the Canadian independence standards. However, in light of regulator comments received concerning the U.S. standards, the Task Force revised the proposals in the Consultation Paper to include consideration of U.S. standards in situations where the International Code proposes an approach that may be different than that proposed or in effect in the United States, and whether the U.S. approach would be more appropriate in the Canadian situation. A Framework was drafted to reflect this revision. The Task Force concluded that changes made to the Framework were not significant, and that obtaining more public comments is not necessary.
- The Public Trust Committee has considered this Framework and has approved it.
- The Task Force will prepare a Basis for Conclusions document that will be circulated to AASOC.
AASOC deferred further discussion on the Framework pending reaction from the Canadian Securities Administrators to the changes made and review of the Basis for Conclusions document.
AASOC reviewed written reports from Donna Bovolaneas, who observed the AASB’s June 2017 meeting, and Cameron McInnis, who observed the Independence Task Force’s May 2017 meeting, on behalf of AASOC. They noted no significant issues regarding due process and the consideration of the public interest.
AASOC accepted the observer reports as presented.
Brian Hunt provided an update on the activities of the Monitoring Group. The Monitoring Group is reviewing standard-setting processes and oversight of such processes internationally. It expects to issue a consultation paper in the fall of 2017. This paper will address topics such as the mandate of the Public Interest Oversight Board (PIOB), the processes followed by the international standard-setting bodies and the time required to develop a standard.
AASOC will discuss the consultation paper when it is issued and will consider responding. This is an important topic, as many of the Canadian processes have been modelled after the international approach.
Kevin Dancey presented the PIOB Public Report 2016, “Responding to Oversight Demands.” AASOC noted that the PIOB’s report differs significantly in length and content from AASOC’s annual report for 2016-2017. AASOC asked that staff consider the PIOB report when drafting AASOC’s annual report for 2017-2018.
Jeremy Justin presented CPAB’s Public Report for 2016. He noted that CPAB saw an improvement in inspection results from prior years. However, CPAB still has concerns about the consistency of audit execution within firms.
AASOC noted that the main inspection themes appear to be consistent from year to year. Mr. Justin acknowledged that, while themes are consistent, CPAB has seen some improvement. The areas of main concern are the more challenging parts of the audit. CPAB is planning to shift its inspection approach next year to include more focus on those processes and controls within the accounting firm that contribute to consistency of audit execution. This shift in inspection focus may lead to different observations in the future.
Bruce Winter provided an update on a joint subcommittee established to review the effectiveness of AASOC and the Accounting Standards Oversight Council (AcSOC). The subcommittee met in April 2017 to perform a detailed comparison of the Terms of Reference of both Councils. In this area, the subcommittee’s goal is to conform the Terms of Reference where appropriate. This review also helps the Councils discuss their differences and determine whether changes should be made to how the Councils operate.
AASOC discussed differences identified by the subcommittee and how such differences should be dealt with in the AASOC Terms of Reference. Detailed comments made by the AASOC members on the differences will be provided to the subcommittee. The subcommittee will develop recommendations for changes to the AASOC Terms of Reference and present these for review and, if appropriate, approval at a future AASOC meeting.
Shannon Gangl updated AASOC on activities of the Quality Assurance Committee regarding risk assessment. AASOC agreed that it should develop a structured process for identifying, monitoring and managing major risks. AASOC suggested that this work be done in conjunction with the work of the joint subcommittee.
Phil Cowperthwaite updated AASOC on the activities of the Communication Committee. The Committee suggested that a risk assessment be completed first, then the Committee would develop a communication policy responsive to risks identified. AASOC agreed with this approach.
Helen Belanger updated AASOC on her review of the Canadian standard-setting boards and the oversight councils. Her review includes processes followed, benchmarking and considering operations among the boards and councils for consistency. The purpose of her review is to determine if the boards and councils are operating in the most effective manner possible. Ms. Belanger will provide regular updates to the boards and councils on her progress.
Canadian Securities Administrators (CSA)
Cameron McInnis noted the following:
- The CSA has issued a Consultation Paper, “Auditor Oversight Issues in Foreign Jurisdictions.”
The paper proposes to amend National Instrument 52-108, Auditor Oversight to require certain audit firms involved in the audit to register with CPAB as a participating audit firm. This registration will allow CPAB access to working papers during inspections, which is an issue for group audits. In some jurisdictions, there are laws against sharing audit files.
- The CSA started a project on the nature and extent of disclosures that investors may want from audit committees. This project is on hold until the impact of reporting on key audit matters on capital markets can be assessed.
- The CSA has started a project studying the reporting by management of adjusted financial results using measures other than generally accepted accounting principles (GAAP) with a view to converting CSA Staff Notice 52-306 Non-GAAP Financial Measures into a rule.
International Auditing and Assurance Standards Board (IAASB)
Ron Salole noted the following regarding the June 2017 meeting of the IAASB:
- The IAASB discussed issues related to its project to revise its quality control standards. This represented a significant portion of the meeting. The IAASB members expressed support for the general direction proposed by the IAASB’s Task Force with regard to firm-level quality control. However, the IAASB noted that concerns of small and medium-sized practitioners were not addressed in the proposed changes to the quality control standards. Further, additional attention to the public sector may be needed. The IAASB supported some proposals related to engagement-level quality control, but asked the Task Force to do more work in other areas.
- There has been little activity on the group audits project since the IAASB’s Invitation to Comment. The IAASB asked the Task Force to prepare a project update to inform stakeholders of the current status and expected next steps for the project.
- The IAASB Steering Committee and the International Ethics Standards Board for Accountants Planning Committee had a joint meeting regarding collaboration.
- The IAASB received brief updates on data analytics and professional skepticism.
International Federation of Accountants (IFAC)
Carol Bellringer noted the following highlights from a recent IFAC meeting:
- An in-camera session was held to discuss standard-setting processes and the reviews of the Monitoring Group and the PIOB.
- IFAC has formed a technology advisory group to research issues such as cybersecurity, blockchain and data analytics.
- IFAC started a mentorship program between board members and senior IFAC staff, following a conceptual model and framework applied by large organizations.
- Updates from the standard-setting boards were received. The International Public Sector Accounting Standards Board identified issues with resources and capacity. The other standard-setting boards did not raise similar concerns.
Office of the Superintendent of Financial Institutions (OSFI)
Karen Stothers noted the following:
- OSFI is contributing to the Basel Committee on Banking Supervision comment letter on the IAASB’s Exposure Draft on ISA 540, Auditing Accounting Estimates and Related Disclosures.
- OSFI issued a statement limiting the use of the terms “bank”, “banker” and “banking” to federally regulated banks providing financial services.
AASOC members asked if ISA 540 will be issued in sufficient time for auditors to apply it when auditing estimates under the new accounting standard, IFRS 9, Financial Instruments. Ms. Stothers noted that IFRS 9 will apply for October 31, 2018 year-ends of banks. OSFI is hopeful that the IAASB will allow early application of ISA 540.
Public Interest Oversight Board (PIOB)
Kevin Dancey noted the following:
- The recent PIOB meeting included meetings with the standard-setting board Chairs and members from IFAC. PIOB also met with the Chair of the Compliance Advisory Panel to discuss adoption and implementation of international standards.
- The PIOB discussed the impact of information technology on audits.
AASOC held an in-camera session to discuss the search for a compensated AASB Chair. AASOC held a second in-camera session at the end of the meeting, first without staff and then without the Chair and Vice-Chair of the AASB and the Chair of the Independence Task Force.
The next AASOC meeting will be held on November 9-10, 2017 in Calgary.
There being no further matters to discuss, the meeting was terminated.