Amendments to IAS 1 and the Impact on the CASs: Disclosure of Material Accounting Policy Information

The Auditing and Assurance Standards Board (AASB) developed this publication to address how the International Accounting Standards Board’s (IASB) narrow-scope amendments to International Accounting Standard (IAS) 1, Presentation of Financial Statements affect the Canadian Auditing Standards (CASs) and Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements. This publication does not amend or override the CASs, the texts of which alone are authoritative. Reading this publication is not a substitute for reading the CASs.

Narrow-scope Amendments to IAS 1

The narrow-scope amendments to IAS 1 require entities to disclose their material accounting policy information, instead of significant accounting policies. The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. The IASB has provided guidance on how to apply the concept of materiality to accounting policy disclosures.

What’s Changing in the CASs

Although the CASs are framework-neutral, they take into account developments in financial reporting frameworks, such as the IFRS Accounting Standards. Recognizing that the CASs are framework-neutral and refer only to specific financial reporting frameworks by example, the amendments to IAS 1 do not impact the CASs’ principles-based requirements. 

However, several illustrative auditor reports throughout the CASs assume that, as part of the fact pattern for the illustrations, the entity’s management prepares the financial statements in accordance with IFRS Accounting Standards. Refer to the illustrative auditor reports included in the appendices of the following standards:¹

• CAS 510, Initial Audit Engagement – Opening Balances;
• CAS 570, Going Concern;
• CAS 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors);
• CAS 700, Forming an Opinion and Reporting on Financial Statements;
• CAS 705, Modifications to the Opinion in the Independent Auditor’s Report;
• CAS 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report;
• CAS 710, Comparative Information – Corresponding Figures and Comparative Financial Statements; and
• CAS 720, The Auditor’s Responsibilities Relating to Other Information.

When the entity’s management prepares the financial statements in accordance with the IFRS Accounting Standards, including the amendments to IAS 1, the change to the illustrations of the independent auditor’s reports on financial statements is as follows:

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of ABC Company [or Other Appropriate Addressee] 

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including material accounting policy information a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20X1, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

In addition to these illustrations, there is an example of an audit engagement letter in Appendix 1 of CAS 210, Agreeing the Terms of Audit Engagements, which assumes an audit engagement of general purpose financial statements prepared in accordance with IFRS Accounting Standards. Similarly, there is an illustrative practitioner’s review engagement report in Appendix 2 of CSRE 2400, Engagements to Review Historical Financial Statements.

The AASB updated these illustrations to align relevant wording with the amendments to IAS 1. These updates were included in the mid-December 2022 CPA Canada Handbook – Assurance release.

Disclosures in the Financial Statements Impacted by the Change to IAS 1

The auditor’s responsibilities

When management prepares the entity’s financial statements accordance with IFRS Accounting Standards, the auditor will need to evaluate the appropriateness of management’s disclosures, including how management has addressed the effect the amendments to IAS 1 have on the entity’s disclosures about accounting policies. This includes understanding how the amendments affect the entity’s financial reporting process (i.e., what management may need to change to implement the amendments and the nature and extent of change in disclosures about the entity’s accounting policies) and the related impact on the auditor’s report.

Various CASs contain requirements that are relevant to the auditor’s work on disclosures in the financial statements. If the applicable financial reporting framework is IFRS Accounting Standards, these requirements include the entity’s disclosure of material accounting policy information as required in accordance with the amendments to IAS 1. CASs relevant to the auditor’s identification and assessment of risks of material misstatement related to disclosures in the financial statements, the auditor’s responses to assessed risks, evaluating information in disclosures, communicating significant findings from the audit, and reporting, may include:

• CAS 260, Communication with Those Charged with Governance; 
• CAS 315, Identifying and Assessing the Risks of Material Misstatement;
• CAS 330, The Auditor’s Responses to Assessed Risks;
• CAS 450, Evaluation of Misstatements Identified during the Audit;
• CAS 700; and
• CAS 705.

Other aspects of the audit engagement that may be impacted include:

• agreeing the terms of the audit engagement, including the audit engagement letter; and
• communicating deficiencies in internal control to and requesting written representations from management and, where appropriate, those charged with governance.

About this Publication

The AASB acknowledges that this publication is based on Amendments to IAS 1 and the Impact on the ISAs: Disclosure of Material Accounting Policy Information, issued by the International Auditing and Assurance Standards Board, published by the International Federation of Accountants (IFAC) in December 2022 and is used with permission of IFAC.

¹ Material that links to the CPA Canada Handbook is available to subscribers only.