This summary of decisions of the Auditing and Assurance Standards Board (AASB) has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on projects and other matters, which might change after further deliberations by the AASB. Decisions to publish exposure draft and Handbook material are final only after a formal voting process.
Canadian Standards on Quality Management
Quality Management – Conforming Amendments
The AASB discussed a letter received from one of its stakeholders regarding Canadian Standard on Quality Management (CSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. The standard is effective for audits and reviews of financial statements and other assurance engagements as of December 15, 2022.
The stakeholder asked the AASB to consider deferring the effective date, citing several reasons.
The AASB acknowledged and understood the implementation challenges its stakeholder raised. After a thorough discussion, however, the Board concluded that deferring the effective date of CSQM 1 would not be in the public interest. The Board and staff will continue to engage with and support those responsible for developing standards implementation guidance, tools, and training to explore what more can be done to support the implementation of CSQM 1.
Canadian Auditing Standards (CASs)
Audit Evidence
The AASB discussed the International Auditing and Assurance Standards Board’s (IAASB) proposed revisions to International Standard on Auditing (ISA) 500, Audit Evidence. Key issues discussed included:
- the objectives of the standard;
- the definition for audit evidence;
- the addition of general information technology control examples in the standard;
- the inclusion of a diagram on ISA 500 in the explanatory memorandum to the exposure draft; and
- the conforming amendments related to ISA 500.
Fraud
The AASB discussed issues related to the IAASB’s project to revise ISA 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements. Key issues discussed included:
- the introductory paragraphs of the standard;
- the need for specialized skills;
- identifying and assessing the risks of material misstatement due to fraud;
- the presumption of fraud risk in revenue recognition;
- clarifying the requirements and application material in ISA 240 related to the approach to testing journal entries; and
- communicating with those charged with governance.
Going Concern
The AASB discussed issues related to the IAASB’s project to revise ISA 570, Going Concern. Key issues discussed included:
- the timeline over which the going concern assessment is made; and
- transparency about going concern in the auditor’s report.
Joint Policy Statement with Auditors and Actuaries
The AASB approved an exposure draft of a revised “Joint Policy Statement Concerning Communications between Actuaries Involved in the Preparation of Financial Statements and Auditors” appended to CAS 500, Audit Evidence. The Board expects to issue the exposure draft in June 2022, with a comment deadline of September 19, 2022.
Listed Entity and Public Interest Entity
The AASB discussed issues related to the IAASB’s narrow-scope maintenance of standards project on listed entity and public interest entity. The project addresses the IAASB’s actions with respect to recent revisions to the International Ethics Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards). The revisions result from the IESBA project on the definitions of listed entity and public interest entity. Key issues discussed included:
- the IAASB’s proposed revisions to ISA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, and ISA 260 (Revised), Communication with Those Charged with Governance;
- the content of the IAASB’s draft exposure draft, including the proposed approach to revisions, along with the alternative approach set out in the draft explanatory memorandum; and
- the IAASB’s approach to possible revisions to International Standard on Review Engagements (ISRE) 2400 (Revised), Engagements to Review Historical Financial Statements.
The AASB also discussed Canadian implications of the IAASB’s project. Canadian practitioners are required to follow Codes of Professional Conduct set by provincial accounting bodies. The Canadian Codes are different from the IESBA Code. They do not use the term “public interest entity” or require the auditor to publicly disclose when differential independence requirements applicable to certain entities have been applied on an audit. Key Canadian issues discussed included:
- whether the AASB should propose Canadian amendments in adopting the IAASB’s proposed revisions to ISA 700 (Revised) and ISA 260 (Revised);
- whether there are any implications to Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements, which is not adopted from ISRE 2400 (Revised); and
- the content and timing of a Canadian exposure draft.
The IAASB expects to approve an exposure draft at its June 2022 meeting. The AASB would then approve a Canadian exposure draft shortly after.
Other Canadian Standards
Audits of Less Complex Entities
The AASB discussed issues related to the IAASB’s project to develop a standard for audits of less complex entities (LCE). Key issues discussed included:
- the Authority of the standard, including:
- whether the IAASB should describe what an LCE is, rather than setting out characteristics of entities that would not use the standard;
- whether the IAASB should require or encourage jurisdictions to establish quantitative thresholds (i.e., size tests to determine if an entity is an LCE);
- how requirements in the draft LCE standard could be rewritten to be more principles-based, and whether such changes would result in increased efficiencies in an LCE audit;
- the IAASB’s approach to including essential explanatory material in the LCE standard; and
- whether the IAASB has addressed the significant concerns and barriers to having a separate standard that provides reasonable assurance that several respondents to the IAASB’s Exposure Draft raised.
The AASB also discussed next steps in Canada, including additional research on Canadian issues that staff proposes to undertake.
Compilations of Future-oriented Financial Information (FOFI)
The AASB discussed issues related to developing a new Canadian standard on compilations of FOFI. This new standard will replace Assurance and Related Services Guideline (AuG) 16, Compilation of a Financial Forecast or Projection. Key issues discussed included:
- whether the new standard should clarify the AuG-16 definitions of “forecast” and “projection”;
- whether the new standard’s scope should include budgets and pro forma financial information; and
- what requirements and guidance might be needed in the new standard to guide the practitioner to compile FOFI that is not misleading.
Sustainability
The AASB discussed issues related to the IAASB’s approach to developing a standard for assurance on environmental, social and governance (ESG)/sustainability reporting. The IAASB proposed a phased approach to standard setting that includes:
- an immediate standard-setting action on an overarching ESG/sustainability assurance standard that addresses the conduct of an assurance engagement in its entirety and that leverages in its development existing sustainability/Extended External Reporting standards and guidance, as well as material from the ISAs; and
- future standard-setting actions on specific aspects of ESG/sustainability assurance, types of information (e.g., scenario analysis, forward-looking information), and the integration of ESG/sustainability information in the financial statements.
Key issues discussed included:
- whether the AASB supports the development of an overarching standard on ESG/sustainability assurance as an immediate standard-setting action;
- how to design and frame the overarching standard, including its relationship with International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. The IAASB proposed three options: green-field approach, stand-alone approach, or ISAE 3000+ approach; and
- the critical areas in engagement performance that present challenges to practitioners that the IAASB plans to address as part of the immediate standard-setting action.
The IAASB expects to present an outline of the requirements for an overarching ESG/sustainability assurance standard at its meeting in September 2022.