Auditing and Assurance Standards Oversight Council
Minutes of Meeting
April 5, 2018
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.
Ken Charbonneau, AASB Chair
|Guests:||Jeremy Justin, CPAB
Chair’s Opening Comments
AASB Due Process
AASB Annual Plan
Nominating and Governance Committee Update
AASOC 2017 Self-assessment
Crisis Communication Plan
Activities of the AASB Since the Last AASOC Meeting
Comments from AASOC Observers
Activities of the International Auditing and Assurance Standards Board (IAASB) Since the Last AASOC Meeting
Independence Task Force Update
Canadian Public Accountability Board (CPAB) Report
Activities of AcSOC, CPAB, CSA, IFAC, OSFI, and PIOB
Other Administrative Matters
Phil Cowperthwaite welcomed everyone to the meeting, and thanked Carol Paradine and Jeremy Justin for hosting the meeting. Mr. Cowperthwaite notified the Council that, due to illness, Bruce Winter would not be joining today, and that he was asked to chair the meeting. Mr. Cowperthwaite welcomed two new Council Members: Carol Paradine and Neil Sinclair. Ms. Paradine is the new CEO of the Canadian Public Accountability Board (CPAB) and joins AASOC as their representative. Mr. Sinclair is the new member appointed at the February 5, 2018, meeting. Mr. Cowperthwaite reviewed the agenda with the Council and no new items were identified.
The minutes of the November 9-10, 2017, and February 5, 2018, meetings were approved.
AASOC considered the AASB’s decisions relating to the approval of the following items:
- limited revisions to Assurance and Related Services Guideline (AuG)-18, Criteria for Reports Issued under Subsection 295(5) of “an Act Respecting Trust Companies and Savings Companies” in Quebec; and
- the Basis for Conclusions for Amendment Criteria.
Director, Auditing and Assurance Standards, Eric Turner noted that the limited revisions to AuG-18 were identified as a result of developing the new standards Canadian Standard on Assurance Engagements (CSAE) 3530, Attestation Engagements to Report on Compliance; and CSAE 3531, Direct Engagements to Report on Compliance. The limited revisions to AuG-18 were not exposed due to the Guideline having very limited application. The AASB contacted the two practitioners that use this Guideline and the regulator, who is the sole user of the report. Their feedback was incorporated into the revisions. The limited revisions to AuG-18 meet the AASB’s criteria for not exposing a standard.
The Basis for Conclusions for the amendment criteria was developed to outline the results of the AASB’s review of its criteria for making amendments when adopting International Standards for Auditing (ISAs) as Canadian Auditing Standards (CASs). Mr. Turner highlighted that this review was completed as part of the 2016-2021 Strategic Plan. The Basis for Conclusions document will be published and attached to the Handbook to provide transparency on this topic.
Following this discussion, voting AASOC members present at the meeting unanimously confirmed that the AASB had followed due process with proper regard for the public interest when approving these items.
Past AASB Chair Darrell Jensen and current AASB Chair Ken Charbonneau presented the AASB's 2018-2019 Annual Plan. Mr. Charbonneau noted that AASOC reviewed a draft version of the Plan at its February 5, 2018, meeting. All comments from Council members were incorporated and the final draft was presented to the Performance Review Committee on March 8, 2018. The Board approved the Plan via email at the end of March. In a written report, Performance Review Committee Chair Bruce West stated that the Committee is satisfied with the process the Board followed in developing the Plan and that public considerations were adequately addressed.
The AASB posted the 2018-2019 Annual Plan on its website on April 2, 2018. One AASOC member raised concern with publishing the Plan prior to Council confirming due process. Mr. Charbonneau stated that this will be carefully monitored in the future.
Following this discussion, voting AASOC members present at the meeting unanimously confirmed that the AASB had followed due process with proper regard for the public interest in developing the Board’s 2018-2019 Annual Plan.
Donna Bovolaneas reported on the Nominating and Governance Committee’s activities. The Committee is still searching for a candidate to fill the vacancy left by Shannon Gangl on AASOC. One potential candidate has been identified, and the Committee is following the due process to vet this individual. A conference call will be organized when the Committee is ready with a recommendation.
Ms. Bovolaneas provided an update on the nomination process review that the Committee is conducting. The objective of this review is to identify areas for improvement in the existing nomination process. To ensure this review and its conclusions will be robust, the Committee is using the AASOC Framework of Public Interest Principles set out in the August 2016 publication, What the Public Interest Means to AASOC. The Committee aims to have this review substantially complete before the 2019 recruitment process begins. A final report with recommendations for improvements will be presented to the Council at the July meeting. To date, the Committee has explored steps involved with identifying recruitment needs and the search for candidates. Next, the Committee will review the steps involved in screening candidates, performing interviews, and making a final selection. Council members were supportive of the Committee’s work to date and timeline for completion.
The Council reviewed results from the 2017 AASOC self-assessment. Council members were generally satisfied with the relevance of meeting agendas, effectiveness of meetings and AASOC’s oversight processes. Some concerns were raised in the survey regarding the quantity and quality of meeting materials. Some Council members commented in the survey there was too much material presented and that it focused excessively on technical detail, whereas AASOC’s role is to assess due process and considerations of the public interest. Phil Cowperthwaite reminded the Council that at its inception in 2006, there were no standard meeting materials. Over the years, these materials have grown, and now may be an opportunity to re-evaluate the quantity and quality of them. Three Council members agreed to participate in a working group to re-assess meeting materials and how these can be improved. This initiative will be reported on as it progresses.
Kathryn Bewley presented the Crisis Communication Plan, which provides detailed guidance for dealing with communication during a crisis. One member suggested that a definition for “crisis” be added to the document so it is clear when this communication plan would be used. Phil Cowperthwaite clarified that it would be at the discretion of AASOC’s Chair to make this determination. Another member recommended that this plan highlights the need for the Council to perform a risk assessment. Vice-President, Standards, Stephenie Fox informed the Council that the Accounting Standards Oversight Council (AcSOC) is undertaking a risk assessment and that this may be useful information for the Council to review. Mr. Cowperthwaite agreed that AASOC should review AcSOC’s risk assessment and consider completing one also in the future. The Council accepted the Crisis Communication Plan presented.
Eric Turner presented an update on the issues related to auditor reporting being considered by the AASB, including:
- dual-listed entity reporting; and
- effective date for key audit matters reporting.
The AASB has determined that developing a combined U.S. and Canadian auditor’s report starting in 2018 is not feasible unless the Board relaxes requirements in several areas.
Without a combined report, there is concern that some Canadian companies, depending on regulation or contractual agreements, will choose to report under the U.S. Public Company Accounting Oversight Board (PCAOB) standards only going forward. One member suggested that the Board discuss this issue with the PCAOB directly. AASB Chair Ken Charbonneau concurred that the Board would make efforts to discuss this issue with the PCAOB and other regulators since it is an issue of global concern. Mr. Turner explained that the Board anticipates concluding on this issue and the effective date for key audit matter reporting at its June meeting. The Council will continue to monitor these issues and receive updates on the Board’s activities at the next meeting.
Darrell Jensen, Ken Charbonneau, and Eric Turner presented an overview of the AASB’s activities. They noted some of the key matters discussed at the Board’s December 2017, January, and March 2018 meetings, including the following:
The AASB discussed key issues related to the Board’s project to revise Section 9200, Compilation Engagements, including:
- whether the scope of the revised standard should be based on the client’s need for a compilation engagement report;
- should there be a requirement to obtain knowledge of the entity’s accounting system and accounting; and
- whether pre-exposure draft consultations should be conducted to solicit feedback on the proposed standard.
The Board anticipates approving an exposure draft of the revised standard in the fall of 2018.
Public Sector Auditing Standards
The AASB issued an Exposure Draft of AuG‐49, Reporting on Compliance with Specified Authorities for Transactions Coming to the Auditor’s Notice during the Audit of Financial Statements, in August 2017. The Board received 12 responses to the Exposure Draft and is currently considering changes to the proposed Guideline based on the feedback. Some of the key concerns raised in the responses include:
- related to the proposal to withdraw Section PS 5300, one respondent raised a concern with using CSRS 4460, Reports on Supplementary Matters Arising from an Audit or a Review Engagement, to conduct engagements currently addressed by Section PS 5300 part ‘c’. The respondent believes the scope of CSRS 4460 is not applicable to legislative auditors, and requested amendments to the standard; and
- a request for AuG-49 to permit early adoption so that auditors can implement the new reporting under AuG-49 at the same time as adopting the new Auditor’s Report.
The Board is considering these requests and anticipates approving AuG-49 in the spring of 2018.
Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents
The AASB approved the Exposure Draft of revised Section 7170, Auditor's Consent to the Use of the Auditor's Report in Connection with a Designated Document, at its March 2018 meeting. The revised standard will replace:
- extant Section 7170, Auditor's Consent to the Use of the Auditor's Report Included in a Business Acquisition Report; and
- Section 7500, Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents.
The Board will deliberate all comments received in response to the Exposure Draft.
The AASB launched a project to revise CSAE 3416, Reporting on Controls at a Service Organization. These revisions are needed to address requirements of entities that need to report in accordance with Canadian and U.S. standards. The Association of International Certified Professional Accountants issued a new standard, AT‐C Section 320, Reporting on an Examination of Controls at a Service Organization Relevant to User Entities’ Internal Control Over Financial Reporting, which became effective for reports dated on or after May 1, 2017. The introduction of this new standard means the Canadian standard is no longer aligned with the U.S. standard. A Task Force is being recruited to drive this project and analyze the differences between the standards.
The AASB is carefully following and providing input to the Canadian representative on the International Auditing and Assurance Standards Board (IAASB) in relation to the following projects:
- Agreed-upon Procedures (CSRS 4460);
- Auditing Accounting Estimates (ISA 540);
- Identifying and Assessing Risks of Material Misstatement (ISA 315); and
- Quality Control (ISQC 1 and ISA 220).
AASOC reviewed written reports from John Walker, Sheila Filion, and Kathryn Bewley, who observed the AASB’s December 2017, January, and March 2018 meetings, respectively. No significant issues were noted regarding due process and the consideration of the public interest.
AASOC accepted the observer reports as presented.
Activities of the International Auditing and Assurance Standards Board (IAASB) Since the Last AASOC Meeting
Ron Salole provided an update regarding the IAASB’s December 2017 and March 2018 meetings. Projects discussed at these meetings included:
- Agreed-upon Procedures;
- Auditing Accounting Estimates;
- Identifying and Assessing Risks;
- Professional Skepticism; and
- Quality Control.
Mr. Salole highlighted that considerable progress was made in addressing Exposure Draft comments on auditing accounting estimates. The IAASB is scheduled to vote on the final standard in June 2018.
Mr. Salole noted that due to AASB staff assisting on the Agreed-upon Procedures project, all Canadian feedback has been incorporated into the initial draft.
The IAASB is also launching an initiative to explore stakeholder views on the viability of
developing standards addressing the unique characteristics of small and medium enterprises or less complex entities. The IAASB has decided to form a working group that will develop a project proposal and a discussion paper for submission to the Board.
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, CPAB, 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 concluded that it will perform 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 be discussing this matter with the Public Trust Committee in May. Further details will be provided to AASOC at the July 2018 meeting.
Jeremy Justin and Carol Paradine presented highlights from the CPAB’s 2017 Inspection Findings Report, which was released on March 27, 2018. Overall, CPAB has noted improvements to audit quality; however, similar themes as past years are still present. Consistency in audit quality is a top concern and this will continue to be an area of focus for CPAB in 2018. One member asked about how CPAB determines which files to inspect. Mr. Justin explained that CPAB takes a risk-based approach when selecting files for inspection. Ms. Paradine also noted that a key finding has been that quality is not the same across the same firm in different countries. CPAB continues to advocate for revisions to ISA 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors), which could assist in improving quality for these audits.
Accounting Standards Oversight Council (AcSOC)
Stephenie Fox provided the following updates:
- AcSOC is currently undertaking a risk assessment, which will come forward to the Council at the June meeting. Based on comments discussed today, AASOC may wish to review this risk assessment also.
- AcSOC is also reviewing its nomination process, and it may be useful for the two Councils to compare results to identify any improvements.
Canadian Public Accountability Board (CPAB)
Carol Paradine provided a quick summary of her first month with CPAB. Her focus has been on meeting with stakeholders to better understand key issues and determine areas of focus for CPAB. CPAB is working with CPA Canada on a publication regarding audit quality indicators, which is expected to be released in mid-2018.
Canadian Securities Administrators (CSA)
Cameron McInnis noted the following:
- In early April, the CSA will be publishing CSA Staff Notice 52-329 Distribution Disclosures and Non-GAAP Financial Measures in the Real Estate Industry. The notice details findings of a recent review and provides additional guidance on disclosure expectations relating to distributions and non-GAAP financial measures for real estate reporting issuers.
- The International Organization of Securities Commissions will be publishing its Consultation Paper, “Good Practices for Audit Committees in Supporting Audit Quality,” by the end of April.
- The CSA is considering comments received on its Consultation Paper, “Auditor Oversight Issues in Foreign Jurisdictions.”
- The CSA has a project to reduce regulatory burden, which is examining whether requirements for management discussion and analysis (MD&A) can be reduced for certain entities, creating a template for reporting of financial statements, notes and the MD&A all in one document, and requirements for prospectus documents.
- The CSA is exploring cryptocurrency and the accounting and auditing issues presented by this new commodity. The CSA believes further research is needed and this topic presents opportunities for thought leadership. It would encourage the Council and the AASB to examine some of the issues cryptocurrency presents.
- The CSA continues to work on its Non-GAAP Financial Measures project. It expects to move forward with changing Staff Notice 52-306 (Revised), Non-GAAP Financial Measures and Additional GAAP Measures, from a guidance to a rule by September 2018.
International Federation of Accountants (IFAC)
Carol Bellringer noted the following highlights from a recent IFAC meeting:
- IFAC selected its new CEO, Kevin Dancey, who will start in mid-May. This will allow Mr. Dancey to work closely with the current CEO, Fayezul Choudhury and ensure a seamless leadership transition by December 31, 2018.
- At the recent Chief Executives Forum meeting, there was significant discussion of how to leverage IFAC’s comparative advantages in transforming the profession and implementing changes coming out of the Monitoring Group paper.
Office of the Superintendent of Financial Institutions (OSFI)
Karen Stothers noted the following:
- Basel III reforms were finalized in late 2017 and approved in early 2018.
- One Canadian bank has been identified as a “globally systemically important bank (G-SIB).” This bank is already subject to OSFI’s framework for domestic systemically important banks and these requirements are generally consistent with the G-SIB framework.
- In January 2018, OSFI issued a set of proposed revisions to its Life Insurance Capital Adequacy Test guideline for federally regulated life insurers. The new capital framework is designed to improve the overall quality of available capital, enhance risk sensitivity, and to more closely align risk measures with the economics of the life insurance business, according to OSFI’s announcement.
- OSFI is awaiting the IAASB’s decision on the effective date for ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. This standard is of great concern for banks, and OSFI is encouraging banks to use the principles in ISA 540 even if the standard is not approved yet.
Public Interest Oversight Board (PIOB)
Karen Stothers provided an update on the PIOB’s activities. At its recent meeting, the PIOB discussed its roles and responsibilities. As the Monitoring Group pursues changes to the operating model for international standard setting, the PIOB will continue to advocate for its role in monitoring the activities of the two standard-setting boards.
Jeremy Justin provided a brief update on the Monitoring Group’s Consultation Paper, “Strengthening the Governance and Oversight of the International Audit-related Standard-setting Boards in the Public Interest.” The Group received more than 180 responses, which included 12 Canadian responses. It is now meeting regularly to review and analyze the responses and anticipates publishing a paper summarizing the results by November 2018.
Mr. Justin highlighted that due to the large number of responses, there is wide diversity in the responses to the Consultation Paper. Many of the concerns raised in AASOC’s response were also raised by other respondents. Eric Turner informed the Council that the AASB is currently analyzing the Canadian responses and found that:
- none of the Canadian responses supported moving to a single board. There was strong Canadian support for having separate boards responsible for auditing and ethics standard setting;
- Canadian respondents were comfortable with the board’s size remaining at 18 members; and
- Canadian respondents supported renumeration for board members.
The Council will continue to monitor the results of this paper as information becomes available.
Stakeholder Outreach Session
Carol Bellringer asked AASOC for feedback on whether it should conduct an outreach session in the fall of 2018 with a key stakeholder group. There is an opportunity for the Council to hold a session during the Canadian Council of Legislative Auditor’s (CCOLA) Annual Meeting in Prince Edward Island. The Council supported pursuing this option. Ms. Bellringer will contact the planning committee for the CCOLA Annual Meeting and determine next steps.
Recognition of Retiring Members
Phil Cowperthwaite acknowledged the contributions of the AASOC members whose terms expired, specifically Shannon Gangl and Martin Ouellet. He also recognized Brian Hunt, Darrell Jensen, and Kevin Dancey, who served on the Council due to their roles with CPAB, AASB, and PIOB, respectively. Additionally, Mr. Cowperthwaite recognized staff who have supported AASOC for the past several years: Jacqui Kuypers and Ritu Parhar. Their responsibilities will be handled by Birender Gill and Anna Ratkowska moving forward.
Carol Bellringer recognized Mr. Cowperthwaite for his long-standing service to AASOC. In his 12 years on the Council, he served on many committees and led several initiatives. Ms. Bellringer highlighted that many of the templates and processes followed by AASOC today are due to his work.
The Council held two in-camera sessions 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 in-person on July 5, 2018, in Toronto.
There being no further matters to discuss, the meeting was terminated.