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
Audit Evidence
The AASB discussed issues related to the International Auditing and Assurance Standards Board’s (IAASB) project to revise International Standard on Auditing (ISA) 500, Audit Evidence. Key issues discussed included:
- the modernizing of the standard with respect to technology by including a conditional requirement for when the auditor uses automated tools and techniques during the audit;
- the addition of a definition for persuasiveness in the standard and whether the term needed to be elevated to a requirement;
- the clarification of how the auditor determines which attributes to consider when evaluating relevance and reliability of information intended to be used as audit evidence;
- whether to clarify the conditional requirement to consider accuracy and completeness in relation to information generated by the entity only; and
- whether the stand-back requirement was duplicative with the requirement in ISA 330, The Auditor’s Responses to Assessed Risks.
Fraud
The AASB discussed issues related to the IAASB project to revise ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:
- the support for the overall direction of the IAASB’s proposed draft of ISA 240 (Revised) with the following areas highlighted in the discussion:
- the support of the definition of fraud and the relationship between fraud and corruption, bribery and money laundering – supported the definition of fraud, however the examples to demonstrate the relationship between fraud and corruption, bribery and money laundering could be further strengthened;
- how to evaluate the authenticity of documents with an expressed concern the work effort is not clear when an auditor identifies conditions where a document may not be authentic;
- that it may be difficult to identify the incentives and pressures of third-party fraud and opportunity would be a more appropriate area to focus on;
- the support for the inclusion of understanding other controls activities that prevent, or detect fraud as it ties back to ISA 315 with a fraud lens;
- the rebuttal of risk of fraud in revenue recognition and whether the factors presented when considering the rebuttal (i.e., the nature of the revenue stream being simple and the revenue recognition criteria being straightforward and noncomplex) are appropriate when the revised standard has a strong focus on risk of material misstatement;
- the disclosure of key audit matters and the concern that there may be a widening expectation gap with general users of the financial statements. The proposed revisions to the transparency of “KAMs related to fraud” may lead general users of the financial statements to presume the financial statement now contains fraud and whether further revisions are needed.
- the support for the proposed conforming and consequential amendments; and
- the support for the topics to be included in the IAASB’s Explanatory Memo.
The IAASB is expected to approve an exposure draft at its December 2023 meeting. The AASB will plan for a Canadian exposure draft approval at its January 2024 meeting.
Listed Entity/Public Interest Entity – Track 1
The AASB unanimously approved narrow-scope amendments to Canadian Auditing Standard (CAS) 700, Forming an Opinion and Reporting on Financial Statements, and CAS 260, Communication with Those Charged with Governance, subject to the International Public Interest Oversight Board’s due process approval of narrow-scope amendments ISA 700 (Revised) and ISA 260 (Revised).
Prior to approval, the AASB concluded:
- through unanimous decision, that re-exposure was not necessary as there are no Canadian amendments in CAS 700 or CAS 260; and
- that the narrow-scope amendments will be effective for audits of financial statements for periods beginning on or after December 15, 2024.
Once the Auditing and Assurance Standards Oversight Council confirms that the AASB followed due process with proper regard for the public interest, the final narrow-scope amendments will be issued in the CPA Canada Handbook – Assurance in November 2023.
Listed Entity/Public Interest Entity – Track 2
The AASB received a presentation from the Chair and staff of the Independence Standing Committee (ISC), which provided an overview of the ISC’s project on the definitions of Public Interest Entity and Listed Entity in the Canadian Independence Standards.
Other Canadian Standards
Audits of Less Complex Entities (LCEs)
The AASB discussed issues related to the IAASB’s project to develop an International Standard on Auditing for Audits of Financial Statements of Less Complex Entities (ISA for LCE). Key issues discussed included:
- the certain requirements and essential explanatory material in the IAASB’s draft of the ISA for LCE, including:
- professional skepticism, including the example of conditions that could create pressures on the engagement team is hard to understand and the suggestion of alternate examples; and
- performing procedures at the service organization and concern about how the auditor would meet the requirement considering it is unlikely that a service organization would allow another auditor to perform procedures on its controls, especially if it has a Type 1 or Type 2 report.
- the planned approach to future updates and maintenance of the final ISA for LCE, including the proposed period of stability after the ISA for LCE becomes effective where revisions will not be made.
The AASB also discussed the significant concerns it has raised on the content of ISA for LCE through its response letters to the IAASB Exposure Drafts (ISA for LCE Exposure Draft and Part 10 (Group Audits) Exposure Draft), as well as in review and discussion of post-exposure issues and revisions.
The IAASB is expected to approve the ISA for LCE at its September 2023 meeting. The AASB will be considering the way forward in Canada at a future meeting.
Agreed-upon Procedures
The AASB unanimously approved limited revisions to Canadian Standard on Related Services (CSRS) 4400, Agreed-upon Procedures Engagements, to correct the following:
- in paragraphs C13(k) and CA14, adding back the word “ordinarily” to its previously approved Canadian amendments. This will correct the AASB’s inadvertent narrowing of the relevant ethical requirements that can be applied by practitioners using the standard; and
- in paragraph 30(k), remove the reference to the “IESBA code” and replace it with the relevant ethical requirements in Canada. This Canadian amendment was missed when the standard was approved.
The AASB decided unanimously that the changes do not have to be exposed for the following reasons:
- the changes relate to a correction of an error and reflect prevailing accepted practice for treatment of references to the IESBA Code in the AASB’s standards. The AASB’s due process allows for such changes to be made without exposure; and
- the current inaccuracy in the standard may create confusion/incorrect reporting in practice. It is in the public interest to make a timely revision to the standard.
Once the Auditing and Assurance Standards Oversight Council confirms that the AASB followed due process with proper regard for the public interest, the correction will be made in the CPA Canada Handbook – Assurance in November 2023.
Other
IAASB Strategic Plan
The AASB discussed issues related to the International Auditing and Assurance Standards Board’s (IAASB) Proposed Strategy and Work Plan for 2024-2027. Key issues discussed included:
- the AASB’s overall support for the IAASB’s proposed project categorization between those that:
- will be undertaken during the 2024-2027 period; and
- will not be undertaken during the 2024-2027 period (but in which further information gathering may be conducted).
- the completion of ISA 500 (Revised), Audit Evidence, should not be delayed regardless of the approach taken by the IAASB to address technology. The AASB indicated that there is no need to delay the completion of ISA 500 (Revised) for the following reasons:
- with the speed of change in technology, standard-setting may not be the most appropriate approach to address technology (i.e., technology may be better addressed through non-authoritative guidance); and
- as a principles-based standard, it is unclear that the IAASB’s future work to address technology issues will result in significant changes to ISA 500 (Revised).
Emerging Issues
The AASB discussed emerging issues impacting audit and assurance standards. The Board deliberated whether the emerging issues require the Board to consider additional activities as part of the annual plan. Key topics discussed included talent shortage and the advancement of artificial intelligence.