Identifying and Assessing the Risks of Material Misstatement

Current Status Next Steps

Exposure Draft approved.

Fourth quarter of 2018 – AASB to deliberate comments received.

OBJECTIVE AND SCOPE OF THIS PROJECT

There are challenges involved in identifying and assessing audit risks for entities — in particular, those that vary in size and nature. Clearer or additional guidance is needed to help address these challenges.

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As a result, the International Auditing and Assurance Standards Board (IAASB) is proposing revisions to ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding of the Entity and its Environment.

The IAASB proposal includes establishing more robust requirements and appropriately detailed guidance to drive auditors to perform appropriate risk assessment procedures in accordance with the size and nature of the entity. This would be done by focusing on enhancing the auditor’s approach to understanding the entity and risk assessment activities in light of the changing environment.

It is anticipated that the IAASB will consider whether and how ISA 315, in organization and structure, can be modified to promote a more effective risk assessment.

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PROJECT NEWS & DECISION SUMMARIES

In Brief Podcast — Exposure Draft of a Proposed Revised Standard on Identifying and Assessing the Risks of Material Misstatement
September 19, 2018. Listen to AASB staff give a brief explanation of this exposure draft and why Canadian stakeholders should get involved and influence the development of this standard for them.

AASB Exposure Draft – Identifying and Assessing the Risks of Material Misstatement
September 7, 2018. The AASB issued an Exposure Draft proposing the adoption of ISA 315 (Revised), with appropriate Canadian amendments, if any. Stakeholders are invited to comment until November 2, 2018.

In Brief: A plain and simple overview of the AASB’s Exposure Draft on Identifying and Assessing the Risks of Material Misstatement
August 28, 2018. The Board plans to issue an exposure draft proposing the adoption of ISA 315 (Revised), with appropriate Canadian amendments, if any. This In Brief provides an overview of that exposure draft and ways you can provide input.

Webinar – ISA 315 Exposure Draft Key Revisions Explained
August 20, 2018. Listen to this 60-minute IAASB webinar to understand how the proposed revisions to ISA 315 (Revised) aim to enhance the auditor’s procedures in identifying and assessing the risks of material misstatement, ultimately improving audit quality. Webinar available in English only.

Video Conference Discussions – Stakeholders’ Views Sought on the Proposed Revisions to CAS 315
August 3, 2018. Participate in a video conference taking place this September to provide your views on the soon-to-be-released Exposure Draft, “Identifying and Assessing the Risks of Material Misstatement”. The AASB wants your feedback!

Webinar – AASB Exposure Draft: Risks of Material Misstatement
July 26, 2018. Tune into this webinar on September 11, 2018 (English) and September 19, 2018 (French) to learn about the AASB’s planned exposure draft of revisions to CAS 315 and how you can provide input to the AASB.

Approved! Exposure Draft of a Proposed Revised Standard on Identifying and Assessing the Risks of Material Misstatement
July 23, 2018. The AASB unanimously approved a Canadian exposure draft of revised CAS 315. The exposure draft is based on the IAASB’s exposure draft of proposed changes to ISA 315, with no proposed Canadian amendments. Set to be issued September 7, 2018, comments will be due November 2, 2018. To support you in providing feedback, we are doing extensive outreach and will be issuing numerous plain language resources. Stay tuned for more!

AASB Decision Summary – July 10, 2018
The Board unanimously approved the Canadian exposure draft of revised CAS 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment and conforming amendments. The exposure draft is based on the International Auditing and Assurance Standards Board’s (IAASB’s) exposure draft of proposed revisions to International Standard on Auditing (ISA) 315, with no proposed Canadian amendments. The exposure draft is expected to be issued in early September 2018, with a comment deadline of November 2, 2018.

The Board also discussed the communication and outreach plan related to the exposure draft. English and French webinars will be conducted to build awareness of the exposure draft. The requirements will be field tested to better understand the practical implications of the proposed revisions. Staff will also be holding several video conferences in September to hear stakeholders’ views on the exposure draft.

IAASB Exposure Draft – Identifying and Assessing the Risks of Material Misstatement (Proposed amendments to ISA 315)
July 17, 2018. The International Auditing and Assurance Standards Board (IAASB) issued an Exposure Draft proposing changes to ISA 315 that could drive more consistent and effective identification and assessment of the risks of material misstatement. Stakeholders are invited to comment by November 2, 2018.

AASB Decision Summary – June 11-12, 2018
The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including whether:

  • the exposure draft should include a requirement for the auditor to consider whether all significant classes of transactions, account balances and disclosures, and their relevant assertions, have been identified (referred to as the “stand-back” requirement);
  • proposed conforming amendments are appropriate and complete; and
  • the proposed exposure period and planned effective date of the final standard are appropriate.

The IAASB expects to approve an exposure draft of revised ISA 315 in June 2018. The Board anticipates approving a Canadian exposure draft shortly thereafter. The Board also discussed items to include in the highlights summary that will accompany the exposure draft in Canada, the possible implementation risks associated with the revision of this standard, and the communication and outreach plan related to the exposure draft.

AASB Decision Summary – March 5-6, 2018
The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • the inclusion of introductory paragraphs;
  • the definition of inherent risk factors; and
  • requirements related to identifying and assessing the risks of material misstatement, including a separate assessment of inherent and control risks.

The IAASB expects to approve an exposure draft of revised ISA 315 in June 2018. The Board anticipates approving a Canadian exposure draft shortly thereafter.

AASB Decision Summary – December 4-5, 2017
The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • changes to key definitions such as “qualitative inherent risk factors” and “significant class of transactions, account balance or disclosure”;
  • requirements related to understanding each component of internal controls; and
  • requirements to identify and assess the risks of material misstatement, including inherent and control risks.

AASB Decision Summary – October 16-18, 2017
The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • proposed definitions for “internal controls” and “controls”;
  • proposed changes relating to enhancing the auditor’s considerations of IT, in particular, as related to identifying and understanding general IT controls; and
  • the requirement to obtain an understanding of the entity and its environment and the applicable financial reporting framework.

AASB Decision Summary – September 14-15, 2017
The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • new and revised definitions for terms such as “internal controls”, “controls” and “significant risk”;
  • proposed changes to the definitions of the five components of internal controls; and
  • identification and assessment of the risk of material misstatement, in particular the separation of the requirements relating to the assessment of inherent risk and the assessment of control risk.

AASB Decision Summary – March 6-7, 2017
The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • how to identify internal controls relevant to the audit;
  • whether there should be a separate or combined assessment of inherent and control risks; and
  • the working definition of significant risks.

AASB Decision Summary – November 28-29, 2016
The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • identifying significant accounts and inherent risks;
  • classes of risks and terminology to describe them;
  • use of qualitative factors in identification and assessment of inherent risks;
  • exploration of including a “spectrum of risk”; and
  • understanding how internal controls impact the risk assessment.

AASB Decision Summary – September 12-13, 2016
The AASB discussed issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • the components of internal control relevant to the audit;
  • assessment of the risk of material misstatement; and
  • whether risks should be assessed on a “spectrum of risk”.

The AASB strongly supports this project and intends to setup an advisory group to assist staff and the AASB identify Canadian issues.

AASB Decision Summary – June 13-14, 2016
The AASB provided input to the CPA Canada nominee on the IAASB regarding issues related to the IAASB’s early-stage initiative to consider revisions to ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment, including:

  • the possible objectives to be set out in the project proposal;
  • considering what drives risk;
  • identification of controls relevant to the audit;
  • how a walkthrough might be considered within the standard; and
  • the relationship between ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements, and ISA 330, The Auditor’s Responses to Assessed Risks, with the proposed project.

The AASB strongly supports the IAASB commencing a project to revise ISA 315 (Revised). Reflecting the importance of the project to a broad range of Canadian practitioners, the AASB decided that an advisory group would be established to assist staff and the AASB by providing Canadian insights on issues raised during the project.

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Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.