Targeted Standards in the Canadian Auditing Standards (CAS) 500 Series

Targeted Standards in the ISA 500 Series

The AASB discussed issues related to the Targeted Standards in the ISA 500 Series project, which covers revisions to ISA 501, Audit Evidence – Specific Considerations for Selected Items (with a focus on inventory), and ISA 505, External Confirmations, and related conforming and consequential amendments.

Regarding proposed ISA 501, key issues discussed included:

• the proposed restructuring of ISA 501 to have the audit response driven by the different methods entities use to verify the existence and condition of inventory; and
• adding requirements and application material for circumstances when the auditor is unable to attend the entity’s full inventory count due to unforeseen circumstances to address the work effort on inventory movements between the entity’s inventory count date and the auditor’s alternative count date.

Regarding proposed ISA 505, key issues discussed included:

• when using negative confirmations, removing the ambiguity created by the location of the word “only” and restructuring the preconditions as a single set of conditions rather than nested conditional requirements; and
• clarifying the meaning of “analytical procedures that are not substantive analytical procedures” in application material, which describes other substantive procedures that auditors may perform in combination with negative confirmation requests.

Regarding proposed conforming and consequential amendments to ISA 330, The Auditor’s Responses to Assessed Risks, key issues discussed included:

• reordering proposed paragraphs 11 and 11A of ISA 330 for the auditor to determine whether to perform external confirmations on cash and cash equivalents before considering whether to perform external confirmations for other balances; and
• adding conditionality to paragraph 11 to consider whether to perform external confirmation procedures in circumstances other than those in paragraph 11A.

In December 2026, the IAASB plans to approve the exposure draft with the AASB’s planned approval in January 2027.

The AASB discussed the Targeted Standards in the ISA 500 Series project, which covers revisions to ISA 501, Audit Evidence Specific Considerations for Selected Items (with a focus on inventory) and ISA 505, External Confirmations.

Regarding proposed amendments to ISA 501, key issues discussed include:

• enhancing the application material to address the use of technologies in managing and auditing inventory and the use of an expert when management uses technology in inventory management, leveraging ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement;
• supporting attendance at inventory counts either physically or remotely, using technological tools, where appropriate, and encouraging the IAASB to clarify in application material when each approach would provide sufficient appropriate audit evidence; and
• clarifying the sufficiency and appropriateness of audit evidence obtained for inventory existence and condition in circumstances involving cycle counts or inventory held at multiple locations.

Regarding proposed amendments to ISA 505, key issues discussed include:

• clarification of the role of an “intermediary,” including establishing boundaries on its facilitation role and distinguishing between control and responsibility over the external conformation process;
• appropriateness of the verb “determine” to describe the auditor’s required work effort in the proposed requirement for the auditor to perform external confirmations on cash, cash equivalents, and accounts receivable;
• the IAASB’s proposals on professional skepticism; and
• the proposed removal of the “stand back” requirements.

The IAASB will continue to discuss issues related to ISA 501 and ISA 505 at its September Board meeting, with approval of the exposure draft anticipated in December 2026.

The AASB discussed several topics relevant to the IAASB’s ISA 500 Series project to revise ISA 501, Audit Evidence – Specific Considerations for Selected Items – Inventory existence and condition, and ISA 505, External Confirmations. The Board will share feedback from AASB members directly with the IAASB Project Team through an engagement opportunity alongside other jurisdictional standard setters. The IAASB Project Team is developing a project proposal, which is expected to be approved by the IAASB in March 2026.

The AASB discussed issues from the IAASB’s information-gathering and research activities in anticipation of a project to revise targeted standards in the ISA 500 Series. Key issues discussed included:

• the scope of standard-setting activities:
  • support for revising considerations in respect of the existence and condition of inventory in ISA 501, Audit Evidence – Specific Considerations for Selected Items and external confirmations in ISA 505, External Confirmations;
  • determination that no standard setting is warranted for the other topics in ISA 501 – litigation and claims, and segment information.
  • agreed that no revisions to ISA 530, Audit Sampling, are necessary, but encouraged the IAASB to develop non-authoritative materials as a way to address specific audit sampling challenges identified; and

• the IAASB’s draft project proposal, including:
  • the completeness of the proposed actions to address the key issues identified in the project; and
  • the project’s timeline, priorities, resources, output, and impact.

At its March 2026 meeting, the AASB will discuss the IAASB’s updated project proposal, which is anticipated for approval at the IAASB’s March meeting.

The AASB discussed preliminary issues identified in relation to ISA 501, Audit Evidence – Specific Considerations for Selected Items (covers the discrete topics of existence and condition of inventory, litigation and claims, and segment information) ISA 505, External Confirmations, and ISA 530, Audit Sampling. This is a new project for the IAASB that is currently at the information gathering stage. Key issues discussed included:

• the development of the IAASB’s project proposal;
• the common drivers for revisions to ISA 501, ISA 505, and ISA 530, being:
  • addressing the increased use of technology; and
  • clarifying or enhancing the auditor’s work effort;
• the completeness and relevance of issues identified during the information gathering stage;
• the key risks that need to be addressed in ISA 530 because of the increased use of technology-facilitated sampling tools; and
• the root causes of the challenges auditors face in sampling.