2. ASSURANCE

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Pronouncements effective for audits of financial statements for periods ending on or after December 15, 2013
CAS 315 – Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
This standard replaces the existing CAS 315 and incorporates changes resulting from revisions to CAS 610. Changes include more guidance on when to apply CAS 610 and matters that the auditor needs to consider when making inquiries and obtaining understanding of internal audit function.

CAS 610 - Using the Work of Internal Auditors
This standard replaces the existing CAS 610. It establishes a strengthened judgment-based framework for use by the external auditor in deciding whether and, if so, to what extent, to use the work of the internal audit function.

In February 2013, the AASB approved changes to CAS 610. These changes deal with the auditor’s use of direct assistance from internal auditors and mirror the changes made by the IAASB in finalizing ISA 610, and are effective for periods ending on or after December 15, 2014.

Pronouncement effective for assurance reports covering periods ending on or after September 30, 2013
CSAE 3410 – Assurance Engagements on Greenhouse Gas Statements
This new standard deals with assurance engagements to report on an entity’s greenhouse gas statement, and was adopted from the ISAE 3410 issued by the IAASB.

Recently Issued Document for Comment
Auditor Review of Interim Financial Statements
This ED was issued by the AASB in November 2013 to replace Section 7050, Auditor Review of Interim Financial Statements, with Section 7060.

Main features of the ED:

Consistent with Section 7050, the focus of the auditor in conducting an interim review under Section 7060 is to assist the audit committee in discharging its responsibilities with respect to interim financial statements that are to be issued under the provisions of securities legislation. Accordingly, the auditor’s interim review report is a special purpose report provided only to the audit committee. The AASB is of the view that the focus on assisting the audit committee promotes high quality interim financial statements in a practical way.
Since the auditor is providing comments to the audit committee and not to the general public, the AASB is of the view that oral communication of the interim review report is sufficient, except in certain circumstances.
The following items, previously in guidance in Section 7050, are included as requirements in Section 7060:
1. written agreement of terms of engagement with both management and the audit committee;
2. inquiries relating to fraud, illegal acts, and non-compliance with provisions of laws and regulations;
3. procedures relating to going concern;
4. accumulation and evaluation of misstatements;
5. responses to discovery of a material misstatement subsequent to the issuance of the auditor’s interim review report; and
6. content and extent of documentation.
Additional new requirements were developed to improve the clarity of former Section 7050, as follows:
1. determination of materiality;
2. identification of the risks of material misstatement, and design and performance of procedures to address the identified risks (as opposed to obtaining an understanding of the entity and its environment sufficient to identify types of potential material misstatements);
3. the auditor’s response when he or she becomes aware of a misrepresentation (as opposed to an untrue statement of a material fact) in the interim management discussion and analysis;
4. the date of management representation; and
5. communication of the effect of accumulated misstatements to management and the audit committee in misstatements.
The AASB proposes to clarify that the auditor is required to express a modified conclusion if he or she concludes that any material modification is necessary for the interim financial statements to be in accordance with the applicable financial reporting framework

The proposed Section 7060 would be effective for reviews of interim financial statements for interim periods of fiscal years beginning on or after December 15, 2014. Comment period closed on January 15, 2014.

Current Status of Documents Previously Issued for Comment

Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs)
	This ED was issued by the IAASB in July 2013, with a goal of improving the auditor’s report on audited financial statements. This ED is the culmination of the IAASB’s deliberations on the topic of auditor reporting, which were informed by international research, public consultation (including the responses to the IAASB’s June 2012 Invitation to Comment: Improving the Auditor’s Report), and stakeholder outreach. Key enhancements are identified as follows: Prominent placement of the auditor’s opinion and other entity-specific information in the auditor’s report. Auditor reporting on “Key Audit Matters”, required for audits of financial statements of listed entities. Key audit matters are those matters that, in the auditor’s judgment, were of most significance in the audit of the current period financial statements. Auditor reporting on going concern, including a conclusion on the appropriateness of management’s use of the going concern basis of accounting in preparing the financial statements and a statement as to whether a material uncertainty that may cast significant doubt on the entity’s ability to continue as a going concern has been identified. Auditor reporting on other information (to be finalized as part of the separate project to revise ISA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements). An explicit statement that the auditor is independent of the entity and has fulfilled the auditor’s other relevant ethical responsibilities, with disclosure of the source(s) of those requirements. Disclosure of the name of the engagement partner, required for audits of financial statements of listed entities, unless, in rare circumstances, such disclosure is reasonably expected to lead to a significant security threat to the individual. Improved description of the responsibilities of the auditor and key features of the audit (together with provision for certain components of this description to be relocated to an appendix to the auditor’s report, or for reference to be made to such description on the website of an appropriate authority). An illustration of the proposed auditor’s report for a listed entity is included in the ‘At a Glance’ summary of the ED. Comment period for this ED closed on November 22, 2013. Proposed standards are expected to be finalized in 2014.
Reports on Supplementary Matters Arising from an Audit or a Review Engagement
	This ED was issued by the AASB in August 2013, with a goal of issuing a new Canadian Standard for Related Services (CSRS) 4460, Reports on Supplementary Matters Arising from an Audit or a Review Engagement. The new CSRS would require the public accountant to perform some additional procedures to support the public accountant’s report under this standard. Comment period closed on November 29, 2013. The proposed CSRS 4460 would be effective for public accountants’ reports dated on or after April 1, 2015. AuG-4 and AuG-13 will be withdrawn.
Engagements to Review Historical Financial Statements
	This ED was issued by the AASB in June 2013, with the objective of issuing a new Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements, which will replace Sections 8200 and 8500, as well as Assurance and Related Services Guidelines AuG-20 and AuG-47. Proposed CSRE 2400 would be effective for reviews of historical financial statements for periods ending on or after December 14, 2015. Comment period closed on December 11, 2013.
The Auditor’s Responsibilities Relating to Other Information in Documents Containing or Accompanying Audited Financial Statements and the Auditor’s Report Thereon
	Comment period for this exposure draft issued by the IAASB closed on March 14, 2013. Currently in deliberations. The IAASB is expected to finalize the revised standard in 2014.
Independence Standards
	Comment period for this ED prepared by the Independence Task Force (ITF) of the Public Trust Committee of the CICA in February 2013, closed on May 31, 2013. Currently in deliberations, with the goal of the Rule and Council Interpretations being recommended for adoption for assurance engagements commencing after December 15, 2014. One of the more significant changes proposed by the ITF is to eliminate the reporting issuer threshold currently in place which allows for the more restrictive independence requirements to be applied only to audits of reporting issuers with either market capitalization or total assets in excess of $10 million. The ED proposes eliminating this threshold exemption for fiscal years commencing after December 15, 2018, which would provide an appropriate period of time for entities to obtain alternative service providers for such services as accounting and tax assistance, if required. During the transitional period, the proposals would require the firm to inform the audit committee of the entity of any relationships and conditions that exist that would not be permitted if the more stringent non-threshold independence requirements were to apply.
A Framework for Audit Quality
	Comment period for this consultation paper issued by the IAASB closed on May 15, 2013. The objectives of the framework are to: Raise awareness of the key elements of audit quality, Encourage key stakeholders to explore ways to improve audit quality and Facilitate greater dialogue between key stakeholders on the topic.
Enhancing Audit Quality (EAQ)
	Conclusions and recommendations report has been issued in May 2013 by CPAB and CICA. Among the recommendations, the EAQ report called for specific steps that audit committees and audit firms should take to enhance audit quality. These included performing a comprehensive review of the external audit firm at least once every five years; conducting annual assessments of the external audit firm; and providing increased transparency to audit committees on the CPAB’s inspections. CPA Canada is now launching projects to address two of the recommendations. Working with a group of experienced audit committees (through the Institute of Corporate Directors), CPA Canada will further develop guidance on the annual assessment of audit firms, based on the initial guidance provided in the EAQ final report. CPA Canada will also develop new guidance and tools to assist audit committees when undertaking a periodic comprehensive review of an audit firm, including guidance on the preparation and content of the audit committee’s public report on the review. The third project is being addressed by CPAB who, with audit firm and audit committee representatives, has developed a protocol for increasing the information made available to audit committees. In November 2013, CPAB issued a consultation paper titled “Protocol for Audit Firm Communication of CPAB Inspection Findings with Audit Committees” (“Protocol”). Under this draft Protocol audit firms will provide Audit Committees of all reporting issuers with a copy of CPAB’s public report on an annual basis. In addition, in the event that CPAB has inspected the audit file of a reporting issuer, the audit firm will provide the Audit Committee with the following information: (a) a description of the focus areas selected for inspection by CPAB, (b) an indication of whether or not there are any significant inspection findings, and (c) any significant inspection findings as reported by CPAB per CPAB’s Engagement Findings Report (“EFR”) including a description of actions taken by the firm in response to the findings and CPAB’s disposition. The objective of sharing inspection findings is to provide Audit Committees with relevant information regarding CPAB’s inspection findings to support them in their role in overseeing and evaluating the external auditor. This Protocol is a voluntary Protocol which has been developed to respond to the demand from Audit Committees for additional information about CPAB’s inspection findings. CPAB’s expectation is that all participating firms will share inspection findings as contemplated by this Protocol. This Protocol will be effective after the conclusion of CPAB’s consultation process. It is anticipated that the Protocol will be effective for inspections of audit files commencing on or after March 31, 2014. Comment period ends on January 24, 2014. Click here to access the Protocol.

Reporting Implications of New Auditing and Accounting Standards
This guide is published by CPA Canada, and has been developed by the Task Force on Audit Reporting Implications of the New Canadian Auditing Standards. The purpose of this guide is to promote consistency in the form and content of practitioners’ reports by providing guidance with respect to commonly occurring circumstances. Issue No. 11 was issued in January 2014. Click here to access the guide.

Auditing and Assurance Standards Practice Notes
Auditing and assurance practice notes issued by the AASB may include:

Canadian Auditing Practice Notes (CAPNs);
Canadian Review Engagement Practice Notes (CREPNs);
Canadian Assurance Engagement Practice Notes (CAEPNs); and
Canadian Related Services Practice Notes (CRSPNs).

Practice Notes are non-authoritative material. They are not part of the Canadian Standards on Quality Control, Canadian Auditing Standards, or Other Canadian Standards issued by the Auditing and Assurance Standards Board in the CICA Handbook – Assurance. Practice Notes do not impose additional requirements on practitioners beyond those included in the standards, nor do they change the practitioner's responsibility to comply with all standards relevant to an audit, assurance or related services engagement.

Practice Notes provide practical assistance to practitioners, and may be of use to firms in developing their training programs and internal guidance.
To access practice notes, click here.

ACRONYMS USED
AASB – Auditing and Assurance Standards Board
AcSB – Accounting Standards Board
GAAP – Generally Accepted Accounting Standards
IAASB – International Auditing and Assurance Standards Board
IASB – International Accounting Standards Board
IFRIC – International Financial Reporting Interpretations Committee
CICA – Canadian Institute of Chartered Accountants
CMA – Certified Management Accountants
CPA – Chartered Professional Accountants
CPAB – Canadian Public Accountability Board
CSA – Canadian Securities Administrators
PSAB – Public Sector Accounting Board

Technical Bulletin - January 2014 - Part 2

2. ASSURANCE

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