Decision Summary – October 16-18, 2017

This summary of decisions of the Auditing and Assurance Standards Board (AASB) has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on projects and other matters, which might change after further deliberations by the AASB. Decisions to publish exposure draft and Handbook material are final only after a formal voting process.

Canadian Auditing Standards (CASs)

Auditing Accounting Estimates

The AASB provided input to the CPA Canada nominee on the International Auditing and Assurance Standards Board (IAASB) on issues related to the IAASB’s project to revise ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. Key issues discussed included:

  • whether the threshold of low inherent risk should be removed;
  • emphasizing the spectrum of risk to demonstrate scalability;
  • providing some examples to demonstrate scalability; and
  • the proposed testing strategies and requirements related to control testing and work effort.

Auditor Reporting

The Board discussed issues related to the CASs on auditor reporting, including:

  • the effective date of key audit matters reporting for TSX-listed entities;
  • whether there are implications of disclosing the engagement partner’s name in the auditor’s report not previously considered; and
  • the status of activities related to developing a combined U.S. and Canadian auditor’s report, and potential for acceptance by the U.S. Securities and Exchange Commission.

The Board will continue to discuss these and other issues at future meetings.

Identifying and Assessing the Risks of Material Misstatement

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.

Assurance and Related Services Standards (other than CASs)

Agreed-upon Procedures

The Board unanimously approved a project proposal to consider adopting (if appropriate) the revised ISRS 4400, Engagements to Perform Agreed‐Upon Procedures Regarding Financial Information, for use in Canada. If adopted, CSRS 4400 would replace existing standard Section 9100, Reports on the Results of Applying Specified Auditing Procedures to Financial Information Other than Financial Statements. Depending on the direction taken by the IAASB with regard to non-financial information, CSRS 4400 may also replace Section 9110, Agreed‐Upon Procedures Regarding Internal Control over Financial Reporting. This project also includes providing staff support to the IAASB.

Compilation Engagements

The Board discussed issues identified in developing a revised standard to replace Section 9200, Compilation Engagements, including requirements related to:

  • the practitioner’s knowledge of the entity;
  • performing the engagement;
  • documentation requirements; and
  • matters affecting engagement acceptance and terms of the engagement.

The Compilation Engagement Task Force also provided an update on the online survey, seeking feedback on proposed changes to the standard. This survey is anticipated to be launched by the end of October 2017.

Special Reports – Assurance on Compliance with Agreements, Statutes and Regulations

The AASB reviewed revisions resulting from comments received on the re-exposure of proposed CSAE 3530, Special Considerations — Attestation Engagements to Report on Compliance, and CSAE 3531, Special Considerations — Direct Engagements to Report on Compliance. Key comments discussed included:

  • the reporting requirements relating to:
    • the informative summary of the work performed; and
    • the statement that the engagement is not a legal analysis;
  • the requirement to obtain management acknowledgement that the criteria and significant interpretations developed for the engagement are appropriate;
  • the use of subtitles in the illustrative reports; and
  • aggregating instances of non-compliance.

The Board will continue to discuss these and other issues at its next meeting.

AASB Planning

AASB Operating Plan 2017-2018

The AASB received a mid-term update on the 2017-2018 Operating Plan. The Board reviewed the progress of key projects and activities planned for the balance of the year. This information will feed into the development of the 2018-2019 operating plan.

AASB Strategic Plan 2016-2021

The AASB received mid-term progress updates on various projects addressing key elements of its 2016-2021 Strategic Plan, including:

  • amendment criteria;
  • communications;
  • post-implementation reviews;
  • responding to current and future developments;
  • scalability; and
  • understanding implementation issues.

The Board considered possible standards on which a pilot post-implementation review could be done and agreed to consider at a future meeting whether to conduct a review of CSRS 4460, Reports on Supplementary Matters Arising from an Audit or a Review Engagement.

In its 2016-2021 Strategic Plan, the Board committed to reviewing the amendment criteria it uses when adopting ISAs as CASs. The Board completed this review and concluded that the amendment criteria remain appropriate. This decision will be communicated to stakeholders in a Basis for Conclusions document attached to the Preface to the CPA Canada Handbook – Assurance and in the AASB’s annual report for 2017-2018.

The Board provided feedback on a preliminary framework for monitoring current and future developments that may impact the Board’s work.

The AASB will continue its work in these areas as it executes the five-year plan.

Stakeholder Outreach

The AASB conducted two outreach sessions with Canadian stakeholders. The first session, “Enhancing Investor Confidence in Financial Information beyond Financial Statements,” included stakeholders representing audit committees, investors and financial statement preparers. Topics discussed included:

  • the use of non-GAAP measures by investors;
  • the auditor’s role in “other information”;
  • whether assurance should be provided to enhance the value of information outside of the financial statements (non-GAAP measures and key performance indicators); and
  • a review of audit reports from Australia under ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, and ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.

The second session, “Issues in Applying Canadian Auditing Standards (CASs) to Audits of Small and Medium-sized Entities (SMEs),” included representatives from practices that perform audits of SMEs. Topics discussed included:

  • the scalability and proportionality of the CASs;
  • whether there is a need for a separate set of standards for audits of SMEs; and
  • how to encourage greater participation by practitioners in the standard-setting process and engagement with the AASB.

The AASB also received a presentation from CPA British Columbia’s CEO Lori Mathison and VP Member Services David Chiang, regarding the challenges facing local practitioners. Views were exchanged on how to continue collaboration on the development and implementation of standards.