AASOC

AASOC Meeting Minutes – Feb 1, 2019

Meeting Minutes of the Auditing and Assurance Standards Oversight Council (AASOC or the Council)

Attendees

Chair:

 

Bruce Winter

Attendees:

 

 

Carol Bellringer
Kate Bewley
Donna Bovolaneas
Sheila Filion
John Gordon
Janet Grove
Kevin Nye
Neil Sinclair
Karen Stothers (Non-voting)

 

Regrets:

 

Ian Bandeen
Cameron McInnis
Carol Paradine (Non-voting)
John Walker
Bruce West
Michael Tambosso, ITF

 

Staff:

 

 

Guests:

 

Noor Abu-Shaaban
Ken Charbonneau, Chair, AASB
Stephenie Fox, Vice-President, Standards
Eric Turner, Director, AASB

 Justin, CPAB
Mark Pinch, OSC

 

Secretary:

 

Birender Gill

 

Date:

 

February 1, 2019 Conference Call

 

Chair’s Opening Comments

Bruce Winter welcomed members and thanked them for attending this special meeting. Mr. Winter explained that from time to time, the AASB approves changes to a standard and requests that AASOC confirm due process outside of the regular meeting schedule. This allows the Board to issue the standard in the CPA Canada Handbook. Today’s meeting is for the Council to conclude whether the Board has followed due process with regard tor the public interest in making the amendment to CAS 700, Forming an Opinion and Reporting on Financial Statements. The amendment defers for one year the application of the requirement to disclose the name of the engagement partner in the auditor’s report for certain listed entities that have filings with the U.S. Securities and Exchange Commission (SEC).

Due Process for Deferral of Engagement Partner Name Disclosure

Bruce Winter asked AASB Chair Ken Charbonneau to update the Council on the change made to the auditor reporting standard. Mr. Charbonneau highlighted the events that brought forward the issue with disclosing the engagement partner name when entities are required to file financial statements with the SEC. The Board Chair updated the Council at its December 2018 meeting on the Board’s decision to defer the application of paragraph 46 of CAS 700 for audits of financial statements conducted in accordance with Canadian generally accepted auditing standards when the name of the engagement partner is submitted on Form AP for filing with the U.S. Public Company Accountability Oversight Board (PCAOB). At this meeting, the Board Chair asked the Council not to conclude on the change because the Board had received new information just prior to the meeting.

Since December 20, 2018, the AASB has obtained additional information regarding the SEC’s position on this matter. However, due to the U.S. federal government shutdown, this position has not been finalized and communicated publicly. The Board debated this matter further at its January 24-25, 2019, meeting and discussed three alternatives:

  • delay the timing of the change to CAS 700;
  • reverse its decision; or
  • continue with the change as decided in December.

After considering the public interest issues, the Board confirmed its December 2018 decision, with one amendment. It decided to amend the change to the Handbook to make clear that the deferral is only for one year. The one-year deferral will allow appropriate time for the affected entities and their auditors to obtain SEC guidance and find appropriate solutions to concerns.

Eric Turner, Director, summarized the public interest considerations the AASB deliberated. The Board believes it is appropriately addressing the public interest considerations since the deferral has been drafted to apply to very few Canadian entities (those required to file a CAS auditor report with the SEC) and there is a deferral deadline. The Board does not believe there will be any unintended consequences. However, if unintended consequences were identified, they would be temporary due to the limited nature of the deferral.

The Council deliberated on this issue. Donna Bovolaneas and Neil Sinclair shared their observations from attending the December and January AASB meetings. Ms. Bovolaneas highlighted that the Board recognized that close monitoring needed to be implemented around this deferral to ensure the underlying issue is resolved in a timely manner. Both AASOC observers noted that the Board considered different alternatives and debated the merits of each, with careful consideration of the impact on the public interest.

One Council member commented that this issue is due to U.S. laws affecting Canadian auditors and inquired whether this sets a dangerous precedent. Mr. Charbonneau explained that the AASB believes the one-year deferral is adequate time to address this issue, noting that significant progress has already been made. Unfortunately, with the U.S. government shutdown, the information from the SEC that would help to resolve the issue has not been finalized. He emphasized that the resolution needs to be led by auditors and their clients as they are the stakeholders directly affected and they are in the best position to find solutions. They will likely require support from legal counsel and securities experts. The Board plans to actively monitor the activities of auditors to assess progress and provide support where possible to assist in resolving this issue.

Another Council member expressed discomfort with auditors receiving this deferral when management and audit committees are already obliged to be personally named in securities filings. Mark Pinch, Associate Chief Accountant, Ontario Securities Commission, stated that this issue is driven by U.S. securities regulation where Canadian auditors do not have the same options available to them as American auditors. The problem is unavoidable because of differences in reporting requirements that have arisen from the implementation of the new Canadian auditor reporting standards. Another Council member was sympathetic to this issue and supported the deferral because it would allow further time to address the root cause which stems from U.S. securities regulations. This member said that while it would seem unfair to treat some filers differently, more time is needed to investigate all alternatives.

Mr. Winter shared comments received via email from Michael Tambosso, Chair of the Independence Task Force. Mr. Tambosso indicated that there are some real issues being considered, as the PCAOB did in the United States. While indicating that he believes a one-year deferral is reasonable, Mr. Tambosso is concerned whether this issue raises questions about the original due process over the auditor reporting standards and why the issue was not addressed.

The Council discussed the PCAOB’s resolution of this issue for U.S. auditors by creating the Form AP filing system and related public database. The partner name is disclosed and made available through the PCAOB database, rather than in SEC filings. The Council discussed whether a similar system could be implemented in Canada to resolve this issue. Council members were concerned that this information is not readily available in Canada but rather on a U.S. website.

Bruce Winter shared his thoughts and considerations on this issue. He stated that we do not have perfect information available at this time and he recognized that this issue warrants further investigation. He noted that for those companies that will be subject to the proposed deferral, the partners’ names will be available in the public domain, consistent with those Canadian companies that will be reporting solely under PCAOB standards. He was encouraged by the AASB’s decision to offer a short-term deferral, with a strong message that the Board expects this issue to resolved within the year. He recognized that the PCAOB and SEC acknowledged that there was a sufficient issue in the United States to implement a solution.

Following this discussion, the majority of voting AASOC members confirmed a motion that the AASB had followed due process with proper regard for the public interest in making this change to CAS 700.

One voting member abstained from the vote on the basis that while the member thought the AASB had acted reasonably to adhere to due process, the member did not feel comfortable voting that this decision was adequately focused on the interests of all Canadian stakeholders.

Two non-voting members did not support this motion. The member from the Canadian Public Accountability Board, who communicated via email, did not agree that the AASB was serving the public interest in providing the deferral to a small group of the largest Canadian companies while others are required to disclose this information. The member was not satisfied that a substantive analysis or legal perspective on the question of increased legal liability was completed.

The member from the Office of the Superintendent of Financial Institutions also did not support the deferral. The member expressed concern that a deferral would mean that Canadian depositors and policyholders would not get consistent information from each financial institution. The member also expressed concern that the details of a deferral have not been made transparent in communications to the public.

Other Administrative Matters

Next Meeting

The next AASOC meeting will be held on February 11-12, 2019 in Toronto.

Termination

There being no further matters to discuss, the meeting was adjourned.