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 several domestic and international organizations.
Ken Charbonneau, AASB Chair
Stephenie Fox, Vice-President, Standards
Ron Salole, Canadian Representative on the IAASB
Michael Tambosso, Independence Task Force Chair
Eric Turner, Director, Auditing and Assurance Standards
Daniella Girgenti, FRAS Canada
Jeremy Justin, CPAB
Kenneth Leung, OSFI
Geneviève Mottard, Chair, Public Trust Committee (part of the meeting)
Mark Pinch, CSA
Chair's Opening Comments
Bruce Winter welcomed everyone to the meeting, and thanked John Gordon for hosting. Mr. Winter informed AASOC that due to the absences of Cameron McInnis and Karen Stothers, Mark Pinch, from the Ontario Securities Commission, and Kenneth Leung, from the Office of the Superintendent of Financial Institutions (OSFI), were attending the meeting.
Mr. Winter updated the Council on the new member-orientation session that was held the previous night. The AASB, Independence Task Force and the Canadian Member of the International Auditing and Assurance Standards Board (IAASB) each presented their mandates, strategic goals, and operational activities. The session was well attended.
Mr. Winter provided an update on the Third Annual Professional Accounting Centre Conference held by the University of Toronto at its Mississauga campus, which he attended on AASOC’s behalf. He participated on a panel about “Professionalism: New Challenges – NOCLAR Standards, ‘in the Public interest,’ courage.”
Mr. Winter informed the Council of Eric Turner’s appointment to the IAASB, taking Ron Salole’s place as the Canadian member.
Mr. Winter invited Daniella Girgenti, Communications Manager, Financial Reporting & Assurance Standards (FRAS) Canada, to share an update on the FRAS Canada website. Ms. Girgenti told the Council about the website redesign project and some of the key changes being implemented based on stakeholder consultations. The website is expected to be relaunched in mid-November 2018.
Approval of AASOC Minutes
Mr. Winter asked for comments on the July 5, 2018, meeting minutes. Subject to minor changes, the minutes of the July meeting were approved.
Nominating and Governance Committee’s Nomination Process Review
Donna Bovolaneas reported on the activities of the Nominating and Governance Committee to recruit the AASOC Chair, and new AASOC and AASB members. Ms. Bovolaneas stated that the public call for the Chair position was posted in mid-July 2018, with a deadline of September 10, 2018. To date, several candidates had applied for this role. The Committee is meeting later this week to review all applications and create a short list of candidates for interviews.
She said the Council that the Committee held a preliminary discussion on how to respond to perceived conflicts of interest with a candidate. This discussion was held as a pre-emptive measure to understand the Committee’s position and to provide Stephenie Fox with guidelines if there was a conflict of interest identified with a candidate. The Committee concluded that perceived conflicts should be dealt with on a case-by-case basis since the circumstances would determine how the issue could be resolved. The Committee also noted that during the interview process, any conflicts of interest would be clarified, and it would ask how the candidate has or could remedy the issue. One member asked whether these conflicts would be brought to the Council’s attention and if it would have any input into the process. Ms. Bovolaneas stated that while the Committee would inform the Council of all conflicts, the Committee believes it is responsible for investigating any conflicts of interest and ensuring they are adequately resolved. Mr. Winter added that currently, there is only one stipulation in the Council’s Terms of Reference; that at all times, the majority of members not be practitioners. He asked whether members thought this needed to be changed for any other requirements. The Council agreed that this is the key requirement for membership. Until a specific condition is identified, there is no need to make changes.
Another member asked what information the Council would receive about candidates and the level of detail that will be reported. Ms. Bovolaneas explained that information (other than the candidate’s name) and a summary of the interview results would be provided in the Committee report. It would also include the Committee’s final recommended candidate for the vacant position, including its rationale.
Ms. Bovolaneas provided an update on the recruitment efforts for the one or two AASOC positions and the three AASB member positions. Public calls for these roles were issued in mid-August, with a deadline of September 28, 2018. The Committee has received several applications for the Council and the Board positions, with a further expression of interest from one candidate. At its meeting later this week, the Committee plans to review all applications and select candidates for interviews. It is working toward bringing final recommendations for all positions to the December Council meeting.
Mr. Winter asked about the process when AASB members are eligible for reappointment. Ken Charbonneau replied that he has developed a framework to reappoint members. He is sharing this with the Nominating and Governance Committee later this week. Based on the Committee’s input, the framework will be applied to the two members who are up for reappointment this year.
Ms. Bovolaneas thanked AASOC for providing feedback and stated that the Committee will continue to move ahead with recruitment efforts.
Public Trust Committee
Bruce Winter invited Michael Tambosso, Chair of the Independence Task Force, and Geneviève Mottard, President and CEO of CPA Quebec and Chair of the Public Trust Committee, to provide an update on their activities. Mr. Tambosso told the Council that the independence framework is before the Chief Executives Committee (CEC) for approval. The CEC recognizes that the framework will change the structure of how independence is managed in Canada and is looking at the related resource and budget requirements. He asked Ms. Mottard to provide a further update on the Committee’s work on these matters. She directed the Council to agenda item 2, which:
- provides an overview of the Committee and its responsibilities;
- reports on the creation of an independence standing committee of the Canadian profession; and
- seeks the Council’s input on the implementation and oversight of this standing committee.
She highlighted that the Committee’s key concern is how to find people who have the technical knowledge to serve on the standing committee and staff to support its work.
Mr. Winter asked whether the Committee has considered having someone outside of the profession on the standing committee. Ms. Mottard explained that public members are well represented on the Boards of the Provincial Institutes and its other standing committees. She said that while she would be happy to have non-practitioners on the committee, this interest is well represented throughout the independence process.
Another member asked whether representatives from Canadian regulatory organizations should be added to the standing committee. Ms. Mottard will take this suggestion back to the Committee for consideration. However, there is some thought that regulators participate in the independence process through their role in AASOC.
One member suggested adding an individual with background in governance to the standing committee. Mr. Winter suggested that these traits be added to the skills requirement and considered as candidates are identified for the committee. Another member asked about the its anticipated size and its budget constraints. Ms. Mottard explained that although there is no budget for this committee currently, it will be created once its structure is finalized. However, no final determination has been made about the size; although, the Committee is hoping to keep it workable. Ms. Mottard clarified that while the Committee is creating the structure for how the independence process should work in Canada in the future, it will need to be approved by each provincial government. That is where the legislation for independence for the profession resides. There is always a possibility that a provincial government could say no to this proposal.
Ms. Mottard asked AASOC what role it would like to play with the independence standing committee. The Council agreed that it should have an oversight role, as it does with Independence Task Force and the AASB. Mr. Winter asked what the scope of this oversight should be. Ms. Mottard explained that ethics are within the independence standards. However, this was never part of the Independence Task Force’s mandate because the Provincial Institutes have their own process to manage ethics for members. Mr. Winter explained that at the international level, the Public Interest Oversight Board (PIOB) oversees the IAASB and the International Ethics Standards Board for Accountants. This may change based on the Monitoring Group’s activities, but this model has merit. Ms. Mottard replied that the regulatory environment is different in Canada, and the Provincial Institutes are responsible for ethics and discipline of members. Another member suggested that the development of ethics standards could be scoped-in, while keeping the disciplinary process at the provincial level.
Mr. Winter shared highlights from a 2014 letter written by Bill McFetridge, the AASOC Chair at the time to the Committee Chair about considerations to improve the independence process in Canada. He encouraged Ms. Mottard to consider those points again, since they are relevant to today’s discussion. She thanked the Council for its views on these matters. She will take this feedback to the Committee as it develops the proposal for independence moving forward.
Performance Review Committee Update
Bruce West provided an update on the Performance Review Committee’s activities. It is working on its Terms of Reference, which will be brought forward to AASOC at a future meeting. The Committee has held discussions with the AASB about the annual planning and performance review processes and outlined dates for the next cycle. The Board is also about to start its mid-term review of the five-year Strategic Plan. The Committee will oversee this work in addition to its other activities. One member suggested the Committee consider the Terms of Reference for the Accounting Standards Oversight Council’s (AcSOC) Performance Review Committee. However, Stephenie Fox clarified that its Terms of Reference are still to be developed and these will be aligned with the AASOC Committee.
2019-2020 AASOC Meeting Dates
Bruce Winter asked AASOC for feedback on the proposed meeting dates for 2019. The proposal put forward to the Council suggests moving from the current four meetings to three in-person meetings of 1,5 days each, keeping the total meeting time unchanged. Donna Bovolaneas asked whether the timing of Nominating and Governance Committee’s and Performance Review Committee’s activities had been considered when selecting the meeting dates. Mr. Winter replied that Committees’ activities were considered; however, they may not align completely with the meeting dates. The Council will likely hold two conference calls to allow for timely reports from the Committees. Mr. Winter stressed that from time to time, an additional conference call or meeting may need to be added based on when the AASB approves a standard.
ASSOC supported moving to three meetings a year. It felt that this would allow more time for more education sessions and outreach activities. Ken Charbonneau pointed out that the proposed June meeting would be before the June Board meeting. This would make it difficult to provide an update since the Board would not have discussed some matters. Mr. Winter stated that the June meeting date was tied to the timing of two professional conferences, FEI Canada and the Institute of Corporate Directors, at which the Council wishes to conduct outreach activities. Another member asked if these were the only two professional groups considered for the outreach. Mr. Winter explained that staff had researched various professional groups in Canada. These two groups were selected based on the timing of their national conferences. Mr. Winter said that he will reach out to these two groups to assess how Council could collaborate with them and report back at the next Council meeting. Based on today’s discussion, Mr. Winter concluded that staff will move forward with polling the Council for 2019 meeting dates. These dates will also consider the Committees’ activities as much as possible.
Bruce Winter provided an update on the Monitoring Group’s recent activities. Several AASOC members attended a roundtable held in Toronto at the end of September. Mr. Winter asked them for their feedback on the session. One member said that it was well attended; however, it seemed that the Group representatives were not fully engaged. They were not making notes of the comments being shared, and there was no audio or video being recorded. Other members also noted that there was no explanation of how the feedback from the roundtable sessions will inform the Group’s work.
The Monitoring Group had indicated it would publish a white paper by late 2018 or early 2019.
Mr. Winter asked AASOC to keep abreast of the Monitoring Group’s activities. Any proposals put forward will need to be considered for how they affect Canadian standard-setting process.
AASB Terms of Reference
Bruce Winter asked Eric Turner and Ken Charbonneau to provide an update on the AASB’s revisions to their Terms of Reference. Mr. Turner highlighted some of the key changes made to the Terms of Reference. One member asked for clarification of paragraph 4 and how it ties to AASOC’s responsibilities in its Terms of Reference. Mr. Winter agreed that the Council’s responsibilities should align to those in the Board’s Terms of Reference. Another member noted that under the previous Terms of Reference there was an “accountability” section, which seems to have been replaced with paragraphs in other sections. She questioned whether the new paragraphs completely capture the accountability perspective and are as clear as the paragraphs in the old Terms of Reference. Mr. Charbonneau indicated this will be reviewed again.
Ron Salole noted that the previous Terms of Reference indicated there were to be three members from the public sector on the AASB. This has been revised to delete the number requirement because a wide range of skills and experience are considered based on the Board’s needs for members. No other groups have a set requirement for representation. Mr. Salole noted that the number of public sector members had been negotiated when the CPA Canada Public Sector Accounting Handbook was revised to pull out the auditing standards. This had been a condition of allowing the Board to be responsible for all auditing and assurance matters. Going forward, it will focus on members’ skills and experience to determine the best composition for the Board. Another member suggested that it may be appropriate to add ranges, rather than a specific number for representation from various sectors.
AASOC discussed a few other clauses and made suggestions for consideration. Mr. Charbonneau indicated today’s feedback will be taken to the AASB. A final version of the Terms of Reference will be brought to the Council at the next meeting.
Ken Charbonneau provided an update on the AASB’s activities as it deals with issues related to auditor reporting standards. The Board is discussing the key issue of whether investment funds should be subject to disclosure of key audit matters (KAM). The Public Company Accounting Oversight Board (PCAOB) has given investment funds an exemption for reporting critical audit matters. Board staff has researched investment fund reporting in Canada and the size of this market to develop a proposal related to investment funds. The Board discussed this proposal at its September meeting. It decided to issue an exposure draft to address the applicability of KAM reporting for investment funds and all other listed entities, including Toronto Stock Exchange (TSX) Venture issuers. The Board decided to amend CAS 700, Forming an Opinion and Reporting on Financial Statements, to require communication of KAMs for listed entities on the TSX, other than entities that are required to comply with National Instrument 81-106, Investment Fund Continuous Disclosure. The Board will approve the amendments at its next meeting.
John Gordon shared his feedback from observing the September AASB meeting. He remarked that the Board worked hard to differentiate the issues so it could move forward with the staggered implementation, and ensure there was enough information to put forward in the proposed exposure draft. He recognized this was a critical decision for the Board and he was pleased with the level of debate and consideration of perspectives to ensure the public interest will be served.
Bruce Winter asked AASOC members representing Canadian regulators if they were satisfied with the AASB’s response to these issues. Kenneth Leung responded that the Board has kept OSFI and other regulators appraised of developments and has asked for their views throughout this process.
AASOC will continue to monitor the AASB’s activities as the Board moves forward with changes to the auditor reporting standards.
Activities of the AASB Since the Last AASOC Meeting
Ken Charbonneau and Eric Turner presented an overview of the AASB’s activities since the July AASOC meeting. They covered matters discussed during the Board’s conference call on July 10, 2018, and the two-day meeting in September 2018. Mr. Charbonneau highlighted some of the Board’s other activities that are not in the report. They include:
- Meeting with PCAOB and SEC – In July 2018, Mr. Charbonneau and Mr. Turner met with representatives from the SEC and the PCAOB to discuss the challenges faced by auditors of dual-listed entities. The differences in the auditor reporting standards of the two countries will not allow for auditors to issue a single audit report that complies with each country’s standards. SEC and PCAOB representatives recognized it would be ideal for investors to have a single audit report that complies with each country’s auditing standards. They agreed to review a sample of a combined audit reports and provide feedback to the AASB.
- National Standard-setters meeting – At the May 2018 National Standard-setters meeting, there was discussion of how this group, which represents the world’s 20 largest economies, can collaborate and advance topics important to the group. Its next meeting will be at the World Congress of Accountants, to be held in November 2018 in Australia. Mr. Charbonneau will be attending this meeting and bringing forward the Canadian perspective.
- Key performance indicators (KPI) – AASB staff is working with CPA Canada to research assurance implications of the AcSB’s KPI framework and the CSA’s proposed rule on non-GAAP measures. The Board will use this research to inform its response to these proposals.
One AASOC member recently heard that financial statements only make up 20 per cent of the information investors use to make decisions. He asked why this may be so low, considering other information sources lack consistency and assurance. Mr. Charbonneau indicated that timeliness of information is a key factor for investors. Even though other information that entities release may not be supported by information in the financial statements, investors latch on to it because it is more current. The Board is discussing what assurance may be provided on KPI’s since there seems to be demand for it. Mr. Winter agreed that it is important for the Board to investigate the role auditors can play with respect to KPIs.
Mr. Turner provided an update on the IAASB project related to audits of less complex entities. For the last few years, the IAASB has been hearing from small and medium practitioners that it is becoming difficult to conduct audits of small entities efficiently when the standards are getting more and more complex. The IAASB is conducting outreach in November with small and medium practitioners to understand these challenges better.
Comments from AASOC Observers
AASOC reviewed written reports from Bruce Winter and John Gordon, who observed the AASB’s July 2018 and September 2018 meetings, respectively. Both observers were pleased with how the meetings were conducted, and the quality of discussions and meeting materials. Mr. Gordon noted that the Board is making progress on key topics such as KPIs and auditor reporting. 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 IAASB Since the Last AASOC Meeting
Ron Salole directed AASOC to agenda item 8 for highlights from the IAASB’s September 2018 meeting. Mr. Salole said he was pleased with the selection of Eric Turner to replace him as the Canadian representative on the IAASB. Mr. Turner will take over as Chair of the Agreed-upon Procedures Task Force and the ISA 540 Implementation Guidance Task Force.
Mr. Salole noted that after making amendments in response to the comments from IAASB members, the exposure draft for Agreed-upon Procedures (AUP) was approved and it is expected to be issued in early November. In finalizing the exposure draft, the IAASB agreed that independence is not required for an AUP engagement. To enhance transparency, the AUP report will include statements addressing circumstances whether the practitioner is required to be independent, and whether the practitioner is in fact independent . This was a controversial topic. Michael Tambosso noted that independence is a lot harder to monitor when you are not the auditor; therefore, he was not surprised by the controversy.
Bruce Winter stated that AUPs are being requested more often since the entity can specify the work it would like done. Practitioners need to ensure that users of the report understand there is no opinion being provided and that practitioners report only on the results of their procedures. The exposure draft communicates this well.
Activities of AcSOC, CPAB, CSA, IFAC, PIOB, and OSFI
Canadian Public Accountability Board (CPAB)
Jeremy Justin provided the following updates:
- CPAB has finished its Fall Inspection Report, which will be released later this week. In this inspection cycle, CPAB introduced a new methodology to assess existing quality management systems at the firms. This methodology requires the firms to demonstrate the effectiveness of their quality systems. Specific weaknesses and gaps were noted with every firm.
- CPAB is preparing its three-year strategic plan, which is set to be released in December 2018.
- CPAB noted that 40 to 50 Canadian companies have crypto assets on their balance sheets to date. The majority of auditors for these entities are not the Big Four. CPAB is concerned these auditors do not have the resources or technical knowledge to appropriately audit these balance sheets. It is working with these auditors to understand the auditing challenges.
Carol Paradine reported that the large accounting firms are researching and developing methodologies for auditing crypto assets. One of the key auditing issues is proving ownership of these assets because everything is based on the blockchain. CPAB has been raising this question to ensure smaller practitioners understand all the implications. Mr. Winter asked Ms. Paradine to keep AASOC informed as more information on these audits becomes available.
Canadian Securities Administrators (CSA)
Mark Pinch, Associate Chief Accountant with the OSC, provided the following updates:
- In early September, the CSA published proposed National Instrument (NI) 52-112, Non-GAAP and Other Financial Measures Disclosure, which will establish disclosure requirements for issuers that disclose non-GAAP and other financial measures. There is a 90-day comment period from the publication date.
- The CSA is also looking at auditing and assurance issues with cryptocurrencies, which includes participating in the Crypto-asset Working Group being led by CPA Canada staff.
- At the last AASOC meeting, Ritika Rohailla updated the Council on the International Organization of Securities Commissions’ (IOSCO) Consultation Report on Good Practices for Audit Committees in Supporting Audit Quality, which was released in late April. All feedback is being analyzed now, and a report is expected in November 2018.
International Federation of Accountants (IFAC)
Carol Bellringer provided the following update from the September IFAC meeting:
- This was Ms. Bellringer’s last meeting as an IFAC member. There will continue to be several Canadian representatives on IFAC, so she encouraged AASOC to invite those members for regular updates.
- Kevin Dancey is settling into his role as CEO of IFAC.
- IFAC received an update on the Monitoring Group’s activities. While the discussion with the Group is starting to change, there is still a lot unknown. IFAC is continuing to work on its priorities and not let this be a distraction.
- The World Congress of Accountants will be held in Australia in November 2018. This is an excellent conference and she encouraged any Council members to attend.
Office of the Superintendent of Financial Institutions (OSFI)
Kenneth Leung provided the following update:
- Jeremy Rudin has been appointed as Chair of the Financial Stability Board’s Roundtable on External Audit for a two-year term, covering the 2019 and 2020 Roundtables.
- Last month, OSFI issued Corporate Governance Guideline (CGG). The revised guideline is more principles-based and provides boards of directors of federally regulated financial institutions with clear principles that replace expectations in all risk management and capital guidelines and advisories. OSFI has removed requirements from these other guidance documents and consolidating them in the CGG.
Other Administrative Matters
Bruce Winter directed AASOC to the July post-meeting survey. Overall, members are pleased with how the meeting was conducted and the content of meeting materials. There were positive comments regarding the improvements made to meeting materials.
AASOC 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 is planned for December 20, 2018, in Toronto.
There being no further matters to discuss, the meeting was terminated.