Technical Bulletin - October 2013 - Part 2

« Continued from Part 1

2. ASSURANCE

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 Documents for Comment

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 has been drafted using the international standard ISRE 2400, Engagements to Review Historical Financial Statements, revised by the IAASB in September 2012, as its base and has been amended primarily to:

• reflect good practices related to matters that the AASB believes are already being widely applied by Canadian practitioners;  
• clarify, when necessary, assurance concepts, principles, or other matters related to the performance of review engagements in the Canadian environment to make the CSRE self-standing (i.e., so that practitioners performing these engagements would need to refer to CASs only in rare circumstances); and
• reflect the approach that a practitioner would follow in performing a review engagement in the Canadian environment.

The proposed amendments include:

• added requirements, and supporting application and other explanatory material;
• use of wording that may be more familiar to Canadian stakeholders; and
• changes to the order of certain paragraphs.

Currently, Section 8100, General Review Standards, covers all review engagements except auditor reviews of interim financial statements in the circumstances described in Section 7050, Auditor Review of Interim Financial Statements, and reviews of future-oriented financial statements. The standards covering specific types of review engagements (Sections 8200 and 8500 and Section 8600, Reviews of Compliance With Agreements and Regulations) each state: “It is important that this Section be read in conjunction with Section 8100.”

Proposed CSRE 2400 covers reviews of historical financial statements, including other historical financial information. Matters within the scope of Section 8600 would not be covered by CSRE 2400. However, Section 8600 needs to be read in conjunction with Section 8100. Therefore, the AASB is proposing to retain Sections 8100 and 8600. However, Section 8100 would be amended so that reviews of historical financial statements and other historical financial information would no longer be within its scope. This construct would be temporary as the AASB has two projects underway that would eventually revise or replace Sections 8100 and 8600.

Key differences between proposed CSRE 2400 and ISRE 2400 are summarized in the ED. Refer to the following link for the full text of the ED:

http://www.frascanada.ca/assurance-and-related-services-standards/documents-for-comment/item74902.pdf

AASB’s 2011 Invitation to Comment on the IAASB’s ED of proposed ISRE 2400 (Revised) included a comparison of key aspects of proposed ISRE 2400 (Revised) and the 8000 Series. Refer to the following link for the full text of the 2011 Invitation to Comment:  

http://www.frascanada.ca/assurance-and-related-services-standards/documents-for-comment/item47907.pdf

Proposed CSRE 2400 would be effective for reviews of historical financial statements for periods ending on or after December 14, 2015.

Comment period ends on December 11, 2013.

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. 

The primary beneficiaries of the changes are expected to be investors, analysts and other users of the auditor’s report and the 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).

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 ends on November 22, 2013.  Proposed standards are expected to be finalized in 2014.

At a Glance publication providing an overview of the proposal is accessible through:

https://www.ifac.org/publications-resources/glance-exposure-draft-reporting-audited-financial-statements-proposed-new-and

The complete exposure draft and other related documents are available through:

https://www.ifac.org/publications-resources/reporting-audited-financial-statements-proposed-new-and-revised-international

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.    

In the past few years, there has been an increasing trend by various third parties, including regulators, to place responsibility on the public accountant to report on matters beyond the scope of the audit or review of the financial statements. This trend applies to audits of a wide range of entities including school boards, municipalities, not-for-profit organizations and financial institutions. Such reporting responsibilities may include completing a questionnaire or reporting instances of non-compliance with regulations or funding arrangements. There are also requests for the public accountant to report separately on detailed schedules of information underlying financial statement items without performing an audit or a review with respect to these detailed schedules.

The terminology “supplementary matters arising from an audit or review engagement” is proposed since the term “derivative report” is often misunderstood. Further, derivative reporting is based on the premise that no procedures in addition to those carried out in the normal course of the assurance engagement would be performed. The new CSRS would require the public accountant to perform some additional procedures to support the public accountant’s report under this standard. 

It is in the public interest that public accountants accept and perform these engagements in a consistent manner. Further, any communication issued by a public accountant should have an appropriate basis, and be drafted in a way that clearly communicates the extent of the public accountant’s association with the supplementary matter. The proposed standard is intended to achieve those objectives.

Comment period ends 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. 

Current Status of Documents Previously Issued for Comment

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. 10 was issued in June 2013. 

This guide can be accessed through:

http://www.frascanada.ca/canadian-auditing-standards/resources/reference-material/item50999.pdf

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.

The following practice notes have been published

To access practice notes, refer to:

http://www.frascanada.ca/canadian-auditing-standards/resources/practice-notes/item71515.aspx

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

Collins Barrow regularly publishes Technical Bulletin for the general interest of its clients and friends to highlight the continually changing accounting and assurance standards, and the interpretations thereof, in Canada. Since this is not intended to be a complete reproduction or summarization of the standard or document reviewed, we recommend that you refer to the original document(s) discussed in this Bulletin and/or discuss the matter with your professional advisor before acting upon any of the matters discussed herein.