Canadian Auditing Standards

Identifying and Assessing the Risks of Material Misstatement

Summary

There are challenges involved in identifying and assessing audit risks for entities — in particular, those that vary in size and nature. Clearer or additional guidance is needed to help address these challenges.

Staff Contact(s)

Johanna Field, CPA, CA

Principal, Auditing and Assurance Standards Board

Project Status

  • Information gathering

    Completed prior to 2016

  • Approving project

    The IAASB approved the project in 2016

  • Consulting stakeholders

    The Exposure Draft was issued September 2018

    Video conference discussions held September 2018

    Field testing of the proposed standard by stakeholders done in September 2018

  • Deliberating feedback

    Feedback considered and an AASB response letter developed on the IAASB Exposure Draft

  • Final pronouncement

Meeting & event summaries


September 10, 2019

AASB Decision Summary – September 9-10, 2019 Meeting

The AASB provided input to the IAASB members from Canada on issues related to proposed ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement. The Board discussed:

  • changes to the proposed requirements for understanding components of internal control;
  • the proposed effective date; and
  • re-exposure considerations of the final revised ISA 315.

The IAASB expects to approve ISA 315 (Revised) in September 2019 and issue it in November 2019. The AASB plans to approve the Canadian equivalent standard shortly thereafter.

June 10, 2019

AASB Decision Summary — June 10-11, 2019

The AASB provided input to the IAASB members from Canada on issues related to proposed ISA 315 (Revised), Identifying and Assessing the Risk of Material Misstatement. The Board discussed the IAASB’s:

  • proposed approach to presenting the requirements and application material;
  • proposed changes to the requirements, application material, and appendices; and
  • proposed consequential amendments to ISA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing.

The Board will continue to discuss this project at future meetings.

March 4, 2019

AASB Decision Summary — March 4-5, 2019

The AASB provided input to the IAASB members from Canada on issues related to the responses received on the Exposure Draft of proposed ISA 315 (Revised), Identifying and Assessing the Risk of Material Misstatement. The Board discussed the IAASB’s proposed changes to:

  • understanding of the entity’s system of internal control;
  • individual components of internal control;
  • separate assessment of inherent and control risk; and
  • concepts of relevant assertions and significant classes of transactions, account balances and disclosures.

The Board will continue to discuss this project at future meetings.

October 15, 2018

AASB Decision Summary — October 15-16, 2018

The AASB reviewed comments received from Canadian stakeholders on the its Exposure Draft of proposed revisions to CAS 315, Identifying and Assessing the Risks of Material Misstatement. Issues respondents raised that the Board discussed included:

  • the enhancement and clarification of requirements related to the auditor’s identification of controls relevant to the audit; and
  • the separate assessment of inherent and control risk at the assertion level.

The Board discussed its draft response letter to the International Auditing and Assurance Standards Board’s (IAASB’s) Exposure Draft with the same title. It will review a final draft of the response before submission in early November 2018.

The AASB also unanimously approved the Canadian Exposure Draft Supplement to its Exposure Draft of proposed revisions to CAS 315. The Exposure Draft Supplement proposes conforming amendments to CAS 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards, and CAS 540. The Exposure Draft Supplement is expected to be issued in January 2019, with a response deadline of May 1, 2019.

July 10, 2018

AASB Decision Summary – July 10, 2018

The Board unanimously approved the Canadian exposure draft of revised CAS 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment and conforming amendments. The exposure draft is based on the International Auditing and Assurance Standards Board’s (IAASB’s) exposure draft of proposed revisions to International Standard on Auditing (ISA) 315, with no proposed Canadian amendments. The exposure draft is expected to be issued in early September 2018, with a comment deadline of November 2, 2018.

The Board also discussed the communication and outreach plan related to the exposure draft. English and French webinars will be conducted to build awareness of the exposure draft. The requirements will be field tested to better understand the practical implications of the proposed revisions. Staff will also be holding several video conferences in September to hear stakeholders’ views on the exposure draft.

June 12, 2018

AASB Decision Summary – June 11-12, 2018

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including whether:

  • the exposure draft should include a requirement for the auditor to consider whether all significant classes of transactions, account balances and disclosures, and their relevant assertions, have been identified (referred to as the “stand-back” requirement);
  • proposed conforming amendments are appropriate and complete; and
  • the proposed exposure period and planned effective date of the final standard are appropriate.

The IAASB expects to approve an exposure draft of revised ISA 315 in June 2018. The Board anticipates approving a Canadian exposure draft shortly thereafter. The Board also discussed items to include in the highlights summary that will accompany the exposure draft in Canada, the possible implementation risks associated with the revision of this standard, and the communication and outreach plan related to the exposure draft.

March 6, 2018

AASB Decision Summary – March 5-6, 2018

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • the inclusion of introductory paragraphs;
  • the definition of inherent risk factors; and
  • requirements related to identifying and assessing the risks of material misstatement, including a separate assessment of inherent and control risks.

The IAASB expects to approve an exposure draft of revised ISA 315 in June 2018. The Board anticipates approving a Canadian exposure draft shortly thereafter.

December 5, 2017

AASB Decision Summary – December 4-5, 2017

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • changes to key definitions such as “qualitative inherent risk factors” and “significant class of transactions, account balance or disclosure”;
  • requirements related to understanding each component of internal controls; and
  • requirements to identify and assess the risks of material misstatement, including inherent and control risks.

October 18, 2017

AASB Decision Summary – October 16-18, 2017

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • proposed definitions for “internal controls” and “controls”;
  • proposed changes relating to enhancing the auditor’s considerations of IT, in particular, as related to identifying and understanding general IT controls; and
  • the requirement to obtain an understanding of the entity and its environment and the applicable financial reporting framework.

September 15, 2017

AASB Decision Summary – September 14-15, 2017

The Board provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • new and revised definitions for terms such as “internal controls”, “controls” and “significant risk”;
  • proposed changes to the definitions of the five components of internal controls; and
  • identification and assessment of the risk of material misstatement, in particular the separation of the requirements relating to the assessment of inherent risk and the assessment of control risk.

March 7, 2017

AASB Decision Summary – March 6-7, 2017

The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • how to identify internal controls relevant to the audit;
  • whether there should be a separate or combined assessment of inherent and control risks; and
  • the working definition of significant risks.

November 29, 2016

AASB Decision Summary – November 28-29, 2016

The AASB provided input to the CPA Canada nominee on the IAASB on issues related to the IAASB’s project to amend ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • identifying significant accounts and inherent risks;
  • classes of risks and terminology to describe them;
  • use of qualitative factors in identification and assessment of inherent risks;
  • exploration of including a “spectrum of risk”; and
  • understanding how internal controls impact the risk assessment.

September 13, 2016

AASB Decision Summary – September 12-13, 2016

The AASB discussed issues related to the IAASB’s project to amend ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, including:

  • the components of internal control relevant to the audit;
  • assessment of the risk of material misstatement; and
  • whether risks should be assessed on a “spectrum of risk”.

The AASB strongly supports this project and intends to setup an advisory group to assist staff and the AASB identify Canadian issues.

June 14, 2016

AASB Decision Summary – June 13-14, 2016

The AASB provided input to the CPA Canada nominee on the IAASB regarding issues related to the IAASB’s early-stage initiative to consider revisions to ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment, including:

  • the possible objectives to be set out in the project proposal;
  • considering what drives risk;
  • identification of controls relevant to the audit;
  • how a walkthrough might be considered within the standard; and
  • the relationship between ISA 240, The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements, and ISA 330, The Auditor’s Responses to Assessed Risks, with the proposed project.

The AASB strongly supports the IAASB commencing a project to revise ISA 315 (Revised). Reflecting the importance of the project to a broad range of Canadian practitioners, the AASB decided that an advisory group would be established to assist staff and the AASB by providing Canadian insights on issues raised during the project.

News


January 31, 2019

Document for Comment

Exposure Draft Supplement – Identifying and Assessing the Risks of Material Misstatement – Proposed Conforming Amendments to CAS 540 and CAS 200

The AASB issued a supplement to the September 2018 Exposure Draft, “Identifying and Assessing the Risks of Material Misstatement” (ED-CAS 315), to explain and illustrate the proposed conforming amendments to revised CAS 540, and paragraph A42 of CAS 200, arising from ED-CAS 315. Read the Exposure Draft Supplement for full details.

November 22, 2018

News

AASB Response – Identifying and Assessing the Risks of Material Misstatement

The Board submitted a comment letter responding to the IAASB’s Exposure Draft, Proposed International Standard on Auditing 315 (Revised), Identifying and Assessing the Risks of Material Misstatement. Read the Board’s response for full details.

September 19, 2018

News

In Brief Podcast — Exposure Draft of a Proposed Revised Standard on Identifying and Assessing the Risks of Material Misstatement

September 19, 2018. Listen to AASB staff give a brief explanation of this exposure draft and why Canadian stakeholders should get involved and influence the development of this standard for them.

September 7, 2018

News

AASB Exposure Draft – Identifying and Assessing the Risks of Material Misstatement

September 7, 2018. The AASB issued an Exposure Draft proposing the adoption of ISA 315 (Revised), with appropriate Canadian amendments, if any. Stakeholders are invited to comment until November 2, 2018.

August 28, 2018

News

In Brief: A plain and simple overview of the AASB’s Exposure Draft on Identifying and Assessing the Risks of Material Misstatement

August 28, 2018. The Board plans to issue an exposure draft proposing the adoption of ISA 315 (Revised), with appropriate Canadian amendments, if any. This In Brief provides an overview of that exposure draft and ways you can provide input.

August 20, 2018

News

Webinar – ISA 315 Exposure Draft Key Revisions Explained

August 20, 2018. Listen to this 60-minute IAASB webinar to understand how the proposed revisions to ISA 315 (Revised) aim to enhance the auditor’s procedures in identifying and assessing the risks of material misstatement, ultimately improving audit quality. Webinar available in English only.

August 3, 2018

News

Video Conference Discussions – Stakeholders’ Views Sought on the Proposed Revisions to CAS 315

August 3, 2018. Participate in a video conference taking place this September to provide your views on the soon-to-be-released Exposure Draft, “Identifying and Assessing the Risks of Material Misstatement”. The AASB wants your feedback!

July 26, 2018

News

Webinar – AASB Exposure Draft: Risks of Material Misstatement

July 26, 2018. Tune into this webinar on September 11, 2018 (English) and September 19, 2018 (French) to learn about the AASB’s planned exposure draft of revisions to CAS 315 and how you can provide input to the AASB.

July 23, 2018

News

Approved! Exposure Draft of a Proposed Revised Standard on Identifying and Assessing the Risks of Material Misstatement

July 23, 2018. The AASB unanimously approved a Canadian exposure draft of revised CAS 315. The exposure draft is based on the IAASB’s exposure draft of proposed changes to ISA 315, with no proposed Canadian amendments. Set to be issued September 7, 2018, comments will be due November 2, 2018. To support you in providing feedback, we are doing extensive outreach and will be issuing numerous plain language resources. Stay tuned for more!

July 17, 2018

News

IAASB Exposure Draft – Identifying and Assessing the Risks of Material Misstatement (Proposed amendments to ISA 315)

July 17, 2018. The International Auditing and Assurance Standards Board (IAASB) issued an Exposure Draft proposing changes to ISA 315 that could drive more consistent and effective identification and assessment of the risks of material misstatement. Stakeholders are invited to comment by November 2, 2018.

Disclaimer

This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.