At its virtual meeting held on June 22-23, 2020, the Auditing and Assurance Standards Oversight Council (AASOC) discussed the activities of the Auditing and Assurance Standards Board (AASB) and related matters.
AASOC received presentations on, and discussed the following:
- Chair’s Opening Remarks
- Approval of May 2020 AASOC Minutes
- AASB Due Process
- AASB Update
- AASB Draft Strategic Plan Update
- AASB 2019-2020 Performance Report
- International Ethics Standards Board for Accountants (IESBA) Update
Chair’s Opening Remarks
AASOC Chair Kevin Nye welcomed all attendees to the meeting.
He informed AASOC that the meeting’s agenda encompasses an update on the AASB’s activities, the due process approval of a standard, an update on the Board’s Draft Strategic Plan, a review of the Board’s Performance Report and an IESBA update from that Board’s Deputy Chair.Stephenie Fox, Vice President, Standards at CPA Canada, updated AASOC on the impact of COVID-19 on CPA Canada. She also provided an update on the most recent cyberattack that impacted the organization.
Approval of May 2020 AASOC Minutes
Subject to minor amendments, the May 22, 2020, meeting minutes were approved AASOC.
AASB Due Process
Canadian Standard on Related Services (CSRS) 4400, Agreed-Upon Procedures Engagements
AASB Chair Ken Charbonneau informed AASOC that the meeting materials include two additional documents (an agreed-upon procedures (AUP) implementation risk analysis and a draft alert). The materials were provided to the Council in response to its feedback at its May 22, 2020, meeting. He added that the Board prepares a similar analysis for each of its standards. The Board reviews these analyses, which address practitioners’ and users’ comments prior to a standard’s approval. Mr. Charbonneau also directed the Council’s attention to the draft communication that will be issued to practitioners once the standard is finalized. This communication highlights changes to the standard and directs the reader to additional guidance material.
In response to a question, Mr. Charbonneau noted that the AASB was concerned with the independence matter related to this standard, adding that it was identified, communicated, and discussed early in the Board’s process. The Board was focused on ensuring that the standard addressed and provided guidance regardless of whether independence was required. The Board also notified the parties (the Public Trust Committee and the CPA provincial bodies) that were responsible for the decision on independence and reinforced with them the importance of dealing with this issue.
Mr. Charbonneau noted that the Public Trust Committee intends that this matter be taken up by the Independence Standing Committee when it is set up. He hopes that the provincial bodies will have resolved the independence issue by the time the AUP standard becomes effective for engagements on or after January 1, 2022.
When questioned on re-exposure of International Auditing and Assurance Standards Board (IAASB) standards, AASB Director Eric Turner noted that if the IAASB decided to re-expose a standard, the AASB would automatically also re-expose its standard. However, if the IAASB decided not to re-expose a standard, the Board would need to consider if there are any Canadian amendments specific to that standard that may need to be re-exposed. The re-exposure consideration is limited only to potential Canadian amendments. With respect to the AUP standard, Mr. Turner noted that the Board followed its process of examining whether new or updated Canadian amendments made in finalizing the standards required re-exposure and concluded that re-exposure was not necessary.
AASOC concluded that the AASB followed due process with proper regard for the public interest in developing and approving CSRS 4400, Agreed-Upon Procedures, and the related consequential amendments.
Conforming Amendments to Canadian Standards (IESBA Code)
Mr. Turner informed AASOC that the AASB undertook an unusual project that relates to conforming amendments that the Board made to its standards as a result of changes made to the International Ethics Standards Board for Accountants’ (IESBA) Code of Ethics. Since the IAASB agreed to make amendments to International standards that the AASB has adopted, the AASB is required to consider whether to make equivalent changes to Canadian standards.
Mr. Turner noted that the AASB agreed that the proposed revisions were administrative in nature (wording, etc.) and not controversial. The proposed revisions did not change practitioners’ work effort or activities. Accordingly, the Board issued its Exposure Draft showing no significant changes to standards. The Board approved the revisions unanimously at its May 12, 2020 meeting.
Following a discussion, AASOC concluded that the AASB followed due process with proper regard for the public interest in developing and approving revisions to Canadian standards as a result of IAASB conforming amendments to International standards as a result of the revised IESBA Code.
AASB Due Process Manual
Mr. Charbonneau reminded AASOC that it had approved the AASB’s Due Process Manual (the Manual) December 2019. However, he noted that since the approval. the Board had made two revisions to the Manual. The Board is now seeking AASOC’s approval of those revisions.
Mr. Turner noted that in March 2020, AASB staff identified two circumstances that were not previously addressed in the Manual. The first relates to the voting process in a specific circumstance when the Board decides not to issue an exposure draft. The second deals with the rare circumstance when the IAASB decides to re-expose a standard but the AASB decides not to re-expose it. The Board decided to address these two circumstances in its Manual to ensure there was a rigorous process around these items.
AASOC reviewed and provided input on the revisions made to the Manual.
AASOC concluded that the AASB followed due process with proper regard for the public interest in developing and approving the revisions to its Due Process Manual.
AASB Update
Mr. Turner briefed AASOC on some of the AASB’s activities since March 2020. The Board has met five times since then, two of which were two-day meetings and the remaining were Zoom calls.
Audits of Less Complex Entities (LCEs)
Mr. Turner reminded the AASOC that Audits of LCEs is a key initiative for the AASB. Understanding the challenges affecting small and medium-sized practitioners and considering how to make the standards scalable for their use is one of the AASB’s key activities.
He noted that the IAASB is considering two work streams for this project:
- The development of a separate standard focusing on LCEs: This would follow other countries that are developing a separate standard for auditing LCEs. The IAASB proposes to develop such a standard on a global basis to promote consistency in application.
- Revising the International Standards on Auditing (ISAs) to help practitioners deal with issues related to complexity, understandability, scalability, and proportionality: This will be done by developing principles and guidelines that govern the writing of standards, which would provide a framework for the future revision of standards.
At its June meeting, the IAASB sought input from its members to allow it to proceed with the development of a separate standard. It also set out principles to abide by in development of this standard. The AASB had a robust discussion of these principles and did not support IAASB’s direction for this project. The Board does not endorse a separate standard as the preferred solution. It believes that the most effective and timely solution to address the key issues respondents identified in the IAASB’s Discussion Paper is to make limited revisions to the ISAs or develop non-authoritative guidance.
An AASOC member asked if the development of a separate standard impacts Canada differently because it has a large number of smaller entities. Mr. Turner responded that unlike the ISAs, each jurisdiction will need to decide whether to adopt this separate standard. He added that the separate standard will not be applicable to listed entities and highlighted that the AASB is keen to ensure that the Canadian Auditing Standards are scalable for entities, irrespective of their size. Mr. Charbonneau commented that the Board approaches this from the perspective that complexity cannot be defined at an entity level, but rather it is related to a particular area of a business’ operations or its financial statements. For complex areas, the Board wants to ensure the development of robust standards. However, within that same entity, there are fewer complex areas where a scalable model could be adopted.
Council members discussed the benefits and drawbacks of revising the ISAs as well as the development of a separate standard.
Extended External Reporting (EER)
In March 2020, the IAASB issued its Consultation Paper, “Extended External Reporting (EER) Assurance.” It takes into account many different forms of reporting including, but not limited to, integrated reporting, sustainability reporting, and other reporting by entities about financial and non-financial matters, including environmental, social, and governance matters related to an entity’s activities. The comment period deadline is July 13, 2020. Mr. Turner noted that this is an extensive document, and the AASB is currently evaluating the material and developing a response.
In response to a question raised by an AASOC member, Mr. Turner said that although sustainability and other forms of reporting are not pervasive in Canada, they are common in Europe.
An AASOC member noted that the AASB could benefit from discussing sustainability and other forms of reporting with a public sector expert as this sector has been dealing with such reporting matters and how to audit them for many years.
Group Audits
Mr. Turner informed AASOC that the IAASB issued its Exposure Draft on Group Audits (ISA 600) in April 2020. The AASB issued the Canadian equivalent Exposure Draft in May 2020. Due to limitations arising from COVID-19, the Board revisited its approach to gathering Canadian stakeholder input in the coming months. This input will be used to inform the Board’s response to the IAASB’s Exposure Draft.
AASB Draft Strategic Plan
Mr. Charbonneau informed the AASOC that the purpose of this session is to provide members with an update on the Board’s Draft Strategic Plan.
He reminded members that, at its May 22, 2020, meeting, AASOC was made aware that the AASB has agreed to extend the comment period of its Draft Strategic Plan. This will allow the AASB time to further consider the implications of COVID-19 on the Plan.
Mr. Charbonneau noted that the AASB is working toward a January 2021 issuance of the draft Plan for comment, anticipating to finalize the Plan by July 2021—one quarter later than the original timing. The revised consultation start date recognizes stakeholders’ evolving needs and priorities during this time.
AASB 2019-2020 Performance Review
Mr. Charbonneau provided some background to the AASB’s 2019-2020 Performance Review, including the due process steps performed to date. These steps included discussions with the AASOC Performance Review Committee and with the Council during the year. Mr. Charbonneau noted that the Board met most targets established in the 2019-2020 Annual Plan. He explained the background, the reasons, and actions the Board took to address delayed activities.
Bruce West, Chair of the Performance Review Committee, informed AASOC that the Committee met three times over the past year, with two meetings dedicated to reviewing the AASB’s performance for the year ended March 31, 2020. Committee members agreed that the Board achieved its 2019-2020 work-plan objectives and is on track to meet its 2016-2021 Strategic Plan objectives.
AASOC endorsed the Committee’s conclusion and agreed that the AASB’s 2019-2020 Performance Review provided a basis for the Council to assess the Board’s performance for the year ended March 31, 2020. AASOC approved the AASB 2019-2020 Performance Review.
International Ethics Standards Board for Accountants (IESBA) Update
Mr. Nye introduced Richard Fleck, IESBA Deputy Chair, who provided the Council with an update on the Board’s activities.
Mr. Fleck reviewed IESBA’s 2019-2023 Strategy and Work Plan with AASOC, including a discussion on the IESBA’s activities related to non-assurance services, fees, group audit engagements, and technology.
In response to a question, Mr. Fleck noted that in many cases, small to medium-sized entities cannot apply a similar standard as larger, more complex entities because this leads to additional costs that cannot be passed on to clients.
Following a question-answer period, Mr. Nye thanked Mr. Fleck for updating AASOC.
The Auditing and Assurance Standards Oversight Council (AASOC) is an independent, volunteer body established by the Canadian Institute of Chartered Accountants (now Chartered Professional Accountants of Canada) in 2002. It serves the public interest by overseeing and providing input on the activities of the Auditing and Assurance Standards Board (AASB), which sets standards for assurance and related service engagements. Reporting to the public and consisting of prominent leaders from business and regulators, AASOC’s responsibilities include appointing AASB members, providing input on strategic priorities and evaluating the performance of the AASB.