Auditing and Assurance Standards Oversight Council
Minutes of Meeting
November 9-10, 2017
The Auditing and Assurance Standards Oversight Council (AASOC) discussed the activities of the Auditing and Assurance Standards Board (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.
|Attendees (non-voting):||Stephenie Fox, Vice-President, Standards
Darrell Jensen, AASB Chair
Michael Tambosso, Independence Task Force Chair
Eric Turner, Director, Auditing and Assurance Standards
Brian Hunt, (non-voting)
|Guests:||Jeremy Justin, CPAB
Chair’s Opening Comments
Report of the Nominating Committee
AASOC/AcSOC Joint Subcommittee on Oversight of Standard Setting
Activities of the AASB Since the Last AASOC Meeting
Activities of the Independence Task Force Since the Last AASOC Meeting
Comments from AASOC Observers
Activities of the International Auditing and Assurance Standards Board Since the Last AASOC Meeting
Relevance of the Audit
Report of the Communication Committee
Activities of AcSOC, CPAB, CSA, IFAC, OSFI and PIOB
Other Administrative Matters
Bruce Winter welcomed everyone to the meeting, thanking Shannon Gangl for hosting. Kevin Nye, a past AcSOC Chair attended as an observer.
The Minutes of the July 6, 2017 meeting were approved offline.
AASOC held an in-camera session to discuss the search for a compensated AASB Chair. Following this discussion, voting Council members present at the meeting unanimously approved the appointment of Ken Charbonneau to the Board for a three-year term beginning April 1, 2018. It was agreed that a supplemental paper would be drafted for AASOC members to document the entire process over the past year of appointing the AASB chair.
Donna Bovolaneas reported on Nominating Committee activities. Three AASB members have terms ending on March 31, 2018. Voting Council members present at the meeting unanimously approved the following:
- reappointment of Sophie Gaudreault to the Board for a three-year term from April 1, 2018 to March 31, 2021; and
- appointments of Luke Baxter and Pamela Murphy to the Board for three-year terms from April 1, 2018 to March 31, 2021.
The Nominating Committee issued a Call for Nominations in September 2017, with an application deadline in mid-October 2017, to fill the vacant industry-member position. The Committee is considering applications it has received. It is also reaching out to personal contacts to identify more candidates for the position.
The appointment of a compensated Board Chair has identified a need to increase Board membership by one to maintain the existing breadth and balance of stakeholder representation. The broadened role and time commitment attached to the compensated Chair position limits the potential for this individual to also represent a key stakeholder group.
Increasing the Board membership will result in an even number of voting members. However, the majority of votes require a two-thirds majority, rather than a simple majority. As a result, with 14 members, a two-thirds majority will be 10 members. After discussion, voting Council members present at the meeting unanimously approved to increase the Board’s size from 13 to 14 members, including the new compensated Chair.
Three Council members have terms ending on March 31, 2018. All three members are completing their second terms, which cannot be renewed. The Nominating Committee issued a Call for Nominations in September 2017, with an application deadline in mid-October 2017. Few applications were received. Bruce Winter asked Council members to reach out to personal contacts to encourage them to apply. The Committee will continue to search for candidates and will recommend nominations at the next Council meeting.
Mr. Winter noted that Kevin Nye is attending the Council meeting as an observer. He is a past AcSOC Chair. The Nominating Committee approached him to ask him to consider joining AASOC. This is an opportunity to leverage the expertise between the Councils.
Mr. Nye excused himself from the meeting before the consideration of his appointment. After discussion, voting Council members present at the meeting unanimously approved the appointment of Mr. Nye to the Council for a three-year term from April 1, 2018 to March 31, 2021.
The AASOC/AcSOC Joint Subcommittee on Oversight of Standard Setting met on October 5, 2017, to follow up on discussion points arising from each of the Council meetings in June and July 2017. The meetings focused on proposed changes to each Council’s Terms of Reference and a review of each Council’s various committees, with recommendations regarding these committees.
AASOC reviewed proposed revisions to its Terms of Reference, recognizing that there are areas, such as the Councils’ missions, where differences between AASOC and AcSOC might be warranted. An AASOC member noted that the AASB may not be seen to represent the public interest because of its composition, that is, being composed primarily of members from the accounting profession. Therefore, AASOC must be seen to represent and protect the public interest. This differs from the Accounting Standards Board (AcSB) and AcSOC, since the AcSB is setting standards for the preparation of financial statements, in contrast to the AASB, which sets standards for the profession.
After discussion, voting AASOC members present at the meeting unanimously approved changes to AASOC’s Terms of Reference. The revised Terms of Reference will be posted to the website.
AASOC also discussed whether a review of the Councils’ effectiveness should be conducted jointly with AcSOC every three years, as recommended by the Joint Subcommittee. AASOC members noted that the review is a time-consuming exercise for staff, but worthwhile. AASOC noted that future reviews will likely be less extensive than the first one.
The Joint Subcommittee compared and contrasted each Councils’ committees. The Joint Subcommittee recommended disbanding current committees and proceeding with only two: the Nominating and Governance Committee and the Performance Review Committee. AASOC agreed with this recommendation, noting that the activities of existing committees will be covered by these two Committees. Staff will prepare terms of reference for the two new Committees, which AASOC will review at a future meeting.
Darrell Jensen and Eric Turner presented an overview of the AASB’s activities. They noted that a number of matters were discussed at the Board’s July, September and October 2017 meetings, including the following:
The AASB approved a project proposal to consider adopting (if appropriate) the revised International Standard on Related Services (ISRS) 4400, Engagements to Perform Agreed‐Upon Procedures Regarding Financial Information, for use in Canada. If adopted, CSRS 4400 would replace Section 9100, Reports on the Results of Applying Specified Auditing Procedures to Financial Information Other than Financial Statements.
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 Board noted that the scope of the project would be limited to documents filed with securities regulators.
The AASB discussed key issues related to the Board’s project to revise Section 9200, Compilation Engagements, including:
- the scope of the revised standard;
- requirements related to acceptance and terms of the engagement;
- requirements related to performing the engagement and documentation;
- quality control, including how the Board should proceed with regard to the issue of applicability of quality control standards to compilation engagements and other related services engagements; and
- the release date of an exposure draft.
The Board issued a survey to get stakeholders’ views on key issues. To date, the Board received more than 500 responses.
The AASB discussed the proposed disposition of comments raised by respondents to the Re-exposure Draft and other key issues related to the Board’s project to revise standards dealing with reporting on compliance with agreements, statutes and regulations. Key issues discussed included:
- the requirement to include an informative summary of the work performed in the practitioner’s report on compliance;
- the requirement for the practitioner to include a statement that the practitioner did not perform a legal analysis of the entity’s compliance in the practitioner’s report on compliance;
- clarifying the definition of non-compliance in the attestation standard; and
- whether to include examples of how to accumulate instances of non-compliance.
The AASB conducted a number of activities to inform its discussions on various International Auditing and Assurance Standards Board (IAASB) projects including:
- field testing proposals in the IAASB’s Exposure Draft of International Standard on Auditing (ISA) 540 (Revised), Auditing Accounting Estimates and Related Disclosures, and using the feedback to inform the AASB’s response to the IAASB Exposure Draft;
- hosting the IAASB’s ISA 540 Task Force meeting in September 2017, which staff attended as observers;
- holding limited consultations with Canadian stakeholders on initial proposals related to quality control to provide input to the Canadian member on the International Federation of Accountants (IFAC) Small and Medium Practices Committee;
- invited Gord Cummings, a former Board member and current member of an IAASB working group exploring the merits of a separate standard for audits of small and medium-sized entities, to attend the outreach sessions held during the Board’s October 2017 meeting and to provide the Board with an update on the IAASB’s initiative.
In addition, Eric Turner was invited to join a working group of the American Institute of Certified Public Accountants (AICPA) to consider issues related to ISA 500, Audit Evidence. The working group includes IAASB members and technical advisors. The IAASB hopes to leverage from this work. Another staff member was invited to observe AICPA meetings related to its project to consider materiality.
Michael Tambosso provided an update on the Independence Task Force’s Framework for Canadian Independence Standards. The Task Force received feedback from the Chief Accountants of the Canadian Securities Administrators, the Canadian Public Accountability Board and the Office of the Superintendent of Financial Institutions stating that it should consider developments in independence standards beyond Canada, in addition to the International Ethics Standards Board for Accountants (IESBA). The Task Force deliberated this issue and expressed concern that consideration of independence standards other than IESBA would be onerous. It has been suggested that the Task Force consider performing a periodic environmental scan to monitor events around the world and consider implications for Canada. The Council recognized that IESBA will remain the base for Canadian Independence Standards; however, monitoring international changes in this field will allow the Task Force to make more informed decisions. The Task Force will develop a plan to implement this recommendation and share it at the next meeting.
AASOC reviewed written reports from Karen Stothers, Sheila Filion and Carol Bellringer, who observed the AASB’s July, September and October 2017 meetings, respectively; and from John Gordon, who observed the Independence Task Force’s August 2017 meeting on the Council’s behalf. No significant issues were noted regarding due process and the consideration of the public interest.
AASOC accepted the observer reports as presented.
Ron Salole provided an update regarding the IAASB’s September and October 2017 meetings. Projects discussed at these meetings included:
- agreed-upon procedures;
- auditing accounting estimates;
- audit risk;
- group audits; and
- quality control.
Mr. Salole noted that the AASB provided staff to assist the IAASB on its agreed-upon procedures project. In addition, an initiative investigating emerging forms of external reporting will be funded by an external organization. AASOC recognized the IAASB’s efforts in identifying new ways to move projects forward despite staffing constraints.
The Council expressed concern regarding the delays to the group audits project. Mr. Salole noted that the IAASB recognizes this issue and is working diligently to address resource constraints. The IAASB believes that issues related to audit risks and quality control must be addressed first so these frameworks can be considered from a group audits perspective.
The IAASB Steering Committee and the IESBA Planning Committee also held a joint meeting to discuss collaboration in key areas.
Darrell Jensen noted that the AASB spent considerable time at its meetings reviewing IAASB agenda papers and providing comments to Mr. Salole. The Board also considers Canadian implications of the IAASB’s proposals.
Eric Turner presented an update on the issues related to auditor reporting being considered by the AASB, including:
- the status of activities related to developing a combined U.S. and Canadian auditor’s report that can be used by dual-listed entities, and potential for acceptance by the U.S. Securities and Exchange Commission;
- considerations related to revising the effective date for key audit matters reporting for TSX-listed entities; and
- implications of disclosing the engagement partner’s name in the auditor’s report.
The AASB members involved in developing a combined auditor’s report believe it is possible to achieve this objective for 2017 based on similar content in both reports. However, due to the nature of the differences for auditor’s reports starting in 2018, the Board members believe it will not be possible to create a combined auditor’s report. This may lead some Canadian companies, depending on regulation or contractual agreements, to report under the United States Public Company Accounting Oversight Board standards. AASOC discussed how to promote the use of Canadian auditor reporting standards, outside of regulatory action. The Council will continue to monitor this issue and receive updates on Board activities at the next meeting.
Darrell Jensen provided an update on the AASB’s two recent outreach sessions. The first session was with investors, audit committee members and preparers of financial statements regarding the relevance of the audit. Richard Talbot from the CFA Society, and Carla‐Marie Hait from the B.C. Securities Commission joined the Board Chair and Vice-Chair to discuss the trend toward using non-GAAP measures and key performance indicators by companies and investors. AASOC recognized that this is a global issue and an area where Canada can provide leadership by exploring investors’ assurance needs. Mr. Jensen noted that this topic requires involvement from a number of parties to ensure a comprehensive outcome.
The second outreach session was with practitioners who audit small and medium-sized entities (SMEs). It focused on challenges in applying the Canadian Auditing Standards (CASs) to audits of SMEs and how to address the concepts of scalability and proportionality in standards.
The Council commended the Board for conducting these outreach sessions and engaging with stakeholders on emerging issues, noting that there are significant public interest issues to be considered in these areas.
The Council also noted that it should consider its role in helping to keep the conversation moving.
Kathryn Bewley summarized the Communication Committee’s activities and its development of guidance for AASOC to manage communications during a crisis. The guidance is based on the Council’s public interest document and best-practice guidance from FRAS Canada’s Issues Management Procedures. The Council reviewed the proposed framework and agreed with the recommended approach. AASOC members Kathryn Bewley and Phil Cowperthwaite will continue to develop a more detailed action plan that can be used in a crisis.
Accounting Standards Oversight Council (AcSOC)
Stephenie Fox provided the following update:
- During its September meeting, AcSOC discussed issues around using non-GAAP measures. In a joint presentation, AcSB Chair Linda Mezon and Council member Tom Trainer highlighted some of the recent activities on this topic, including the CPAB symposium. The Council discussed whether the Board’s mandate should be expanded to include non-GAAP measures. The Council and the Board recognize that this topic needs more discussion and will continue this debate in future meetings. It was noted that this is a global issue. All stakeholders are assessing how to address it and by whom.
- At the last Council meeting, a networking dinner was held with many AASOC members in attendance. This provided an opportunity for the Councils to build relations and discuss relevant emerging issues. Ms. Fox suggested that AASOC consider a similar invitation during its next dinner.
Canadian Public Accountability Board (CPAB)
CPAB’s annual report on the results of inspecting the largest public accounting firms will be released on November 27, 2017. A key focus of this report is quality control processes at the firms, as well as CPAB’s inspection findings.
Canadian Securities Administrators (CSA)
Cameron McInnis noted the following:
- The CSA has started a project on non-GAAP financial measures that will include promoting Staff Notice 52-306 Revised, Non-GAAP Financial Measures and Additional GAAP Measures, from guidance to a rule. The CSA is reviewing the notice for the scope of the measures, some of the terminology and the effect on certification of controls. The target date for publishing the rule is April 2018.
- IOSCO is considering feedback received in response to the Consultation Paper, “Auditor Oversight Issues in Foreign Jurisdictions.” The Paper proposed 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 is launching a project on audit committees, with a mandate to outline good practices for audit committees and their interaction with auditors.
International Federation of Accountants (IFAC)
Carol Bellringer noted the following highlights from a recent IFAC meeting:
- IFAC received a presentation from IBM on its Watson technology and the role technology can play in the profession.
- IFAC has started a CEO search in light of the current CEO’s term ending in December 2018.
- In anticipation of the Monitoring Group’s consultation paper, IFAC discussed this paper’s implications for the standard-setting process and the profession. IFAC has not agreed on the process for nominating the IAASB Chair, which IFAC will need to approve. This is not permitted under the current bylaws so IFAC members will be voting on these changes.
- IFAC is working with the PIOB to understand the potential changes for the nomination process and who will oversee it.
Office of the Superintendent of Financial Institutions (OSFI)
Karen Stothers noted the following:
- In October 2017, OSFI issued Guideline B-20, Residential Mortgage Underwriting Practices and Procedures. This guideline will come into effect on January 1, 2018.
- This week, OSFI issued a draft revised version of the Corporate Governance Guideline for consultation. This guideline consolidates all of OSFI’s expectations of boards of directors of federally regulated financial institutions. Comments on the draft guideline are due no later than December 22, 2017.
- OSFI has published the final 2018 version of its Guideline: Minimum Capital Test for Federally Regulated Property and Casualty Insurance Companies. The revised guideline will be effective January 1, 2018. It provides clarifications based on inquiries OSFI received during the past year.
Public Interest Oversight Board (PIOB)
Kevin Dancey noted the following:
- The PIOB views professional skepticism as applicable to all accountants, not only auditors. This view is not consistent with the IAASB’s and IESBA’s planned approach to their professional skepticism projects. PIOB emphasized the importance for coordination among the standard-setting boards. This project could reveal the need to revise the current IAASB definition in the ISAs, or the need for additional supporting guidance in the ISAs.
- The PIOB discussed the 2018 Call for Nominations. IFAC briefed the PIOB on the progress to date of the selection process for vacancies in the standard-setting boards, Compliance Advisory Panel and the Nominating Committee. The current reform process led by the Monitoring Group was also discussed, as well as the reappointment of the Chairs to the standard-setting boards.
Jeremy Justin presented an overview of key aspects of the Monitoring Groups Consultation Paper, “Strengthening the Governance and Oversight of the International Audit-related Standard-setting Boards in the Public Interest,” which was issued on November 9, 2017.
AASOC discussed if and how it should respond to the Consultation Paper. Council members noted the diverse representation on the Council, which could make it difficult to present a consensus position in a response. Despite this challenge, there was a unanimous view expressed that AASOC should respond to the Consultation Paper. AASOC decided to hold a special in –camera meeting to begin developing a response.
Mid-year Progress on Annual Plan
Darrell Jensen provided AASOC with an update on how the AASB is tracking its progress in relation to goals set in its 2016-2021 Strategic Plan for and its 2017-2018 Operating Plan. In response to comments made by the Council’s Strategy Review Committee when the Board’s 2017-2018 Operating Plan is being developed, the Board is changing the timing and format of its progress review.
The Council noted that delays in certain projects resulted from staffing constraints and from additional staff resources being required for certain projects that turned out to be more complex than anticipated, and asked whether additional staff should be hired. Mr. Jensen noted that an additional staff person was added during the year and another staff member will soon be returning from maternity leave. At that point, the Board will be back to a full staff complement. Staffing will continue to be re-assessed once the compensated Chair is in place.
The Council also noted that the Board had planned to conduct research into auditor reporting in a joint project with the Australian Auditing and Assurance Standards Board. However, this project is delayed. Mr. Jensen noted that the Australian AASB may not continue with the project. Fred Pries is conducting a desk review of auditors reports issued under the new auditor reporting standards. The AASB is continuing dialogue with the Australian AASB and reviewing the implementation results noted by other national standard setters.
Criteria for Re-exposure
At its July 2017meeting, AASOC asked the AASB how it decides to re-expose changes to proposals. The Board considers many factors when deciding if revisions to an exposure draft should be re-exposed. These factors are determined on a case-by-case basis and are not formally documented.
The Board’s default position is to re-expose when it has determined that revisions are significant. Without changing its due process, the Board decided to document its considerations when determining whether to re-expose.
The Council recommended that the due process section on the Board’s website be updated to reflect the criteria.
In its Invitation to Comment on its 2016-2021 Strategic Plan, the AASB proposed to reassess criteria for amending ISAs when adopting them as CASs. This review would be done to determine whether the criteria remain appropriate as a basis for developing CASs, taking into consideration issues that have been raised by stakeholders. The Board conducted its review and concluded that no changes are needed to the criteria. It also concluded that the process it followed to review the criteria and how they are applied is an appropriate response to the comments received on the Strategic Plan Invitation to Comment. A basis for conclusion will be developed for inclusion in the Handbook Guidance Collection.
AASOC held an in-camera session to discuss the search for a compensated AASB Chair.
The Council held a second in-camera session, at the end of the meeting, first without staff and then without the Chairs of the AASB and the Independence Task Force.
The next AASOC meeting will be an in-camera meeting on November 30, 2017 in Toronto to discuss the Monitoring Group Consultation Paper. There will likely be an in-camera conference call in later January or early February 2018, to be followed by the next in-person meeting on April 5, 2018, in Toronto.
There being no further matters to discuss, the meeting was terminated.