< Continuted from Part One

2.    ASSURANCE

Pronouncement Effective for Reviews of Interim Financial Statements for Interim Periods of Fiscal Years Beginning on or After December 15, 2014

Section 7060, Auditor Review of Interim Financial Statements

Focus of the new standard is consistent with that of Section 7050, which this standard replaces, 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.

Section 7060 contains new requirements with respect to:

• agreeing to terms of engagement with both management and the audit committee;
• inquiries relating to fraud, illegal acts, and non-compliance with provisions of laws and regulations;
• procedures relating to going concern;
• accumulation and evaluation of misstatements;
• responses to discovery of a material misstatement subsequent to the issuance of the auditor’s interim review report; and
• content and extent of documentation.
• determination of materiality;
• identification of the risks of material misstatement and design and performance of procedures to address the identified risks;
• the auditor’s response when he or she becomes aware of a misrepresentation in the interim management discussion and analysis;
• the date of management representation; and
• communication of the effect of accumulated misstatements to management and the audit committee in misstatements.

Pronouncement Effective for Reports Dated on or After April 1, 2016

CSRS 4460 - Reports on Supplementary Matters Arising from an Audit or a Review Engagement

The development of CSRS 4460 was undertaken by the AASB to address an increasing trend by various third parties, including regulators, to place responsibility on the practitioner to report on matters beyond the scope of the audit or review of an entity’s financial statements. Such matters are relevant to the third party, and may have come to the attention of the practitioner when performing the audit or review. These matters are referred to as “supplementary matters”.

This new Canadian Standard on Related Services deals with engagements to report on supplementary matters to a third party and sets out requirements related to:

•           accepting the engagement, including circumstances when acceptance is prohibited;

•           performing the engagement; and

•           reporting, including the content of the practitioner's report.

Revisions to Independence Standards

The revisions are based on the final report of the Independence Task Force (ITF) of CPA Canada’s Public Trust Committee. A number of changes have been made in order that the Rules be no less stringent than the requirements of the Code of Ethics for Professional Accountants (Code) issued by the International Ethics Standards Board for Accountants, unless it is determined that a particular provision is either not in the public interest or it is prohibited by law or regulation.

The changes take effect for assurance engagements in respect of reporting periods commencing after December 15, 2014.

Recently Issued Documents for Comment

Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements (“Statement”)

This ED was issued by the AASB and the Canadian Bar Association (CBA) in November 2014.

The new Statement will replace the existing Statement, with the same title, and Assurance and Related Services Guideline, AuG-46, Communication with Law Firms under New Accounting and Auditing Standards (often known to lawyers as the “Interim Guidance”).

Fundamental proposed changes include:

• expanding the scope of the revised Statement to apply to in-house legal counsel who is acting in a legal capacity by performing a role that commonly would be performed by external legal counsel;
• providing a more detailed discussion on the legal concept of privilege;
• structuring the revised Statement to be accounting framework neutral so that it can be used regardless of the applicable financial reporting framework applied by management to evaluate the entity’s claims and possible claims; and
• updating guidance with respect to the timing of issuance of the inquiry and response letters.

The ED proposes to amend the Canadian-only paragraph CA25a of CAS 501 to:

• remove wording that may incorrectly imply that the auditor and the entity’s legal counsel communicate directly, whereas the communication with respect to entity’s claims and possible claims is between management and the entity’s legal counsel,
• scope in the in-house legal counsel, and
• acknowledge terminology differences between the Statement and CAS 501.

The revised Statement is expected to be effective for inquiry letters dated on or after December 1, 2016.

Comment period ends on April 6, 2015.

Auditor’s Consent to the Use of the Auditor’s Report Included in a Business Acquisition Report

This ED was issued by the AASB in October 2014.  The AASB is proposing to replace section 7500, Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents with section 7170, Auditor’s Consent to the Use of the Auditor’s Report Included in a Business Acquisition Report. 

Section 7500 deals with the auditor's responsibilities when the auditor agrees to consent to the use of the auditor's report in connection with a designated document, including a business acquisition report.  Consent in connection with a business acquisition report is driven by the Canadian securities regulatory requirement. Consent in connection with documents that are currently within the scope of Section 7500 other than the business acquisition report is not driven by securities regulatory requirements. The AASB is of the view that the auditor’s consent in connection with such documents is similar in nature to the public accountant’s consent contemplated in Association, Section 5020. Accordingly, the AASB concluded that Section 7170 should focus solely on the auditor’s consent in connection with a business acquisition report.

When Section 7170 becomes effective, an auditor’s professional responsibilities in responding to requests to consent would be addressed by the following standards:

• Section 7170 – Consent in connection with a business acquisition report;
• Section 7150 – Consent in connection with an offering document; and
• Section 5020 – Consent in connection with documents other than an offering document or a business acquisition report.

Section 7500 is drafted in the context of an auditor providing consent to a client of the auditor in connection with a designated document prepared by that client. For a business acquisition report, the auditor provides consent to the acquirer of a business to the use of the auditor’s report on the audited financial statements of that acquired business. Therefore, the extant requirements and guidance in Section 7500 have been significantly redrafted to capture the nuances necessary to deal with consent in connection with a business acquisition report.  Section 7170 requires the auditor to request written representations from appropriate parties relating to intervening period events, providing flexibility in terms of whether the representation is requested from management of the acquired business or the acquirer and matters to be included in the written representations. Consistent with Section 7150, proposed Section 7170 permits the auditor’s consent in connection with a business acquisition report to be provided either orally or in writing.

Comment period ends on January 30, 2015.

Current Status of Documents Previously Issued for Comment

This exposure draft was issued by the IAASB in May 2014, aiming to clarify expectations of auditors when auditing financial statement disclosures.  The proposals include new guidance on considerations relevant to disclosures—from when the auditor plans the audit and assesses the risks of material misstatement, to when the auditor evaluates misstatements and forms an opinion on the financial statements.

The proposed changes are as follows:

• To clarify that the definition of financial statements in the ISAs includes all disclosures.
• To highlight that it is beneficial for auditors to agree with management their responsibilities relating to the preparation of disclosures, as well as providing access to information necessary for audit purposes.
• To add emphasis for auditors to consider disclosures when assessing the risk of misstatement arising from fraud.
• To encourage auditors to discuss matters relating to disclosures and the financial statements early in the audit process.
• To focus auditors on the planning considerations related to disclosures earlier in the audit process.
• To assist auditors with more effectively and consistently identifying and assessing the risks of material misstatement in disclosures.
• To clarify that the nature of potential misstatements in disclosures is also relevant to the design of audit procedures to address the risks of material misstatement.
• To assist auditors with more effectively responding to the risks of material misstatement in disclosures.
• To clarify that misstatements in disclosures are accumulated, and the effect of uncorrected misstatements, both individually and in aggregate, are to be considered in light of the financial statements as a whole.
• To provide guidance for the audit procedures when evaluating the presentation of the financial statements, including whether fair presentation has been achieved (if applicable).

The AASB issued a related Canadian exposure draft in June 2014 and proposes no Canadian amendments to the proposed revised ISAs.

The IAASB is proposing that the effective date for the revised ISAs be aligned with the effective date for the revisions arising from the auditor reporting project and the project to revise ISA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements. The revised ISAs are expected to be effective approximately 12 to 15 months after the issuance of the revised ISAs, the new and revised ISAs resulting from the auditor reporting and ISA 720 projects as final standards. The revised CASs would have the same effective date as the revised ISAs.

Comment period ended on August 15, 2014 relating to the AASB’s exposure draft and on September 11, 2014 relating to the IAASB’s exposure draft.  Currently in deliberations.

This ED was issued by the IAASB in July 2013, with a goal of improving the auditor’s report on audited financial statements. 

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).

IAASB plans to release the new and revised standards in January 2015.

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. 

Based on comments received, the AASB plans to issue a re-exposure draft, which is expected to be approved in Q1 of 2015.

This re-exposure draft, issued by the IAASB in April 2014, proposes revisions to ISA 720, The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements.  The AASB approved a related Canadian re-exposure draft, which was issued in May 2014.

Proposed ISA 720 (Revised) deals with the auditor’s responsibilities relating to other information included in an entity’s annual report, as defined in the standard. The scope is expanded to include a combination of documents that accompany the audited financial statements, as opposed to being limited to a document that contains the audited financial statements.   However, the scope is narrowed to limit it to a document, or combination of documents, that meets the definition of an annual report.

The AASB is proposing to include a Canadian-only application and other explanatory paragraph. CAS 720 (Revised) would state that in Canada, the Management Discussion and Analysis (MD&A) issued under the provisions of Canadian securities legislation would normally be considered to be within the scope of CAS 720. If an entity issues an annual report, the annual report would also be within the scope of CAS 720 if it meets the definition set out in the standard.

Comment period closed on July 4, 2014 relating to the AASB’s re-exposure draft and on July 18, 2014 relating to the IAASB’s re-exposure draft.  Currently in deliberations.  Final Handbook material is expected in Q2 of 2015.

This ED was issued by the AASB in June 2014.  AASB proposes to adopt International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, as Canadian Standard on Assurance Engagements (CSAE) 3000, Attestation Engagements Other than Audits or Reviews of Historical Financial Information and issue a new CSAE 3001, Direct Engagements.

These standards will replace:

• Standards for assurance engagements other than audits of financial statements and other historical financial information, Section 5025;
• Quality control procedures for assurance engagements other than audits of financial statements and other historical financial information, Section 5030;
• Use of specialists in assurance engagements other than audits of financial statements and other historical financial information, Section 5049;
• Using the work of internal audit in assurance engagements other than audits of financial statements and other historical financial information, Section 5050; and
• General review standards, Section 8100.

Comment period closed on November 3, 2014.

Questions?

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. 12 was issued in April 2014.  Click here to access the guide.

Audit & Assurance Alerts

These alerts are issued by CPA Canada to raise awareness about challenging aspects of assurance standards.

The following alert has recently been issued:

• CSRS 4460 – A New Standard for Reports on Supplementary Matters: Are You Ready?

Click here to access this alert.

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