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Canadian Auditing Standards

AASB Exposure Draft – Proposed Amendments to Canadian Auditing Standard (CAS) 570, Going Concern

Summary

Economic uncertainties in recent years have brought the topic of going concern to the forefront and led to demands for enhanced transparency on going concern. Conditions such as war and the global pandemic have also heightened risks, focusing attention on the challenges and issues pertaining to the auditor’s responsibilities and work related to management’s assessment of an entity’s ability to continue as a going concern, and the reporting thereof. Ongoing economic uncertainties and the recent turmoil in the financial sector have put a spotlight on the topic of going concern, further emphasizing the need for a more robust audit standard on going concern. 

The IAASB has now issued an Exposure Draft of International Standard on Auditing (ISA) 570 (Revised 202X), Going Concern, and the related conforming and consequential amendments. In addition, the IAASB’s Exposure Draft also includes an Explanatory Memorandum, which provides background to, and an explanation for, the proposed revisions to extant ISA 570 (Revised).

The AASB plans, subject to comments received following exposure, to adopt proposed ISA 570 (Revised 202X) and the proposed conforming and consequential amendments to other ISAs. The result would be revised respective Canadian Auditing Standards (CASs).

In light of the current landscape, input from interested and affected parties is crucial to ensure that proposed CAS 570 remains fit for purpose in the current and future macroeconomic and geopolitical environments.

Staff Contact(s)

Karen DeGiobbi, CPA, CA Director, Auditing and Assurance Standards Board

Phone number  +1 416 204 3337
Email address  [email protected]

Background

In September 2020, as part of its information gathering activities, the IAASB issued a Discussion Paper, “Fraud and Going Concern in an Audit of Financial Statements: Exploring the Differences Between Public Perceptions About the Role of the Auditor and the Auditor’s Responsibilities in a Financial Statement Audit”. The Discussion Paper considered additional information that could be communicated by the auditor, and the issues and challenges in applying extant ISA 570 (Revised), Going Concern, in light of the changing environment, jurisdictional developments and changing public expectations.

The AASB conducted extensive outreach to obtain the views of interested and affected parties in Canada on the matters discussed in the IAASB’s Discussion Paper. Consistent with the views expressed by many, the AASB expressed support for the IAASB in developing material to enhance the auditor’s ability to identify and assess going concern risks and in working with the International Accounting Standards Board to explore clarifications to “material uncertainty related to going concern”.

In addition, the AASB, in collaboration with the Association of Chartered Certified Accountants, the Chartered Professional Accountants of Canada, and Chartered Accountants Australia and New Zealand has released the report Closing the Expectation Gap in Audit – The Way Forward on Fraud and Going Concern: A Multi-stakeholder Approach. The report examines the auditor’s role in the areas of fraud and going concern and the related expectation gap and identifies recommendations to narrow this gap.

At its May 2021 meeting, the IAASB discussed the responses to the Discussion Paper and possible actions to address the issues that had been identified. The discussion informed the development of the IAASB’s project proposal to revise extant ISA 570 (Revised), which was approved in March 2022.