The Auditing and Assurance Standards Oversight Council (AASOC) discussed the activities of the Auditing and Assurance Standards Board (AASB) and related matters.
At this conference call, on December 18, 2019, AASOC received presentations on, and discussed the following:
- Chair’s Opening Remarks
- Approval of October AASOC Minutes
- AASB Due Process
- AASB Update
Chair’s Opening Remarks
AASOC Chair, Kevin Nye welcomed all attendees, including Carla-Marie Hait, the Canadian Securities Administrator’s (CSA) new representative on the Council. Mr. Nye noted that Cameron McInnis, the CSA’s outgoing member, is on the line as an observer. The Chair thanked Mr. McInnis for his valuable contributions to the Council and to the profession.
Mr. Nye informed AASOC that the UK Secretary of State for Business, Energy and Industrial Strategy commissioned Sir Donald Brydon, the outgoing Chair of the London Stock Exchange Group to an independent review into the quality and effectiveness of audit The report titled “Assess, Assure and Inform: Improving Audit Quality and Effectiveness: Independent Review into the Quality and Effectiveness of Audit” was published on December 18, 2019. The Council will receive an update on this report at its upcoming meeting in February 2020.
Lastly, Mr. Nye updated AASOC on the developments of the Independence Standing Committee. He noted that CPA Canada’s Council of Chief Executives will meet on December 19, 2019, to discuss this matter.
Approval of the October AASOC Minutes
Subject to some AASOC members’ comments, the Council approved the minutes of the meeting held on October 24-25, 2019. Mr. Nye requested that staff make the appropriate edits and recirculate the revised October minutes to Council members.
AASB Due Process
AASB Chair Ken Charbonneau directed AASOC’s attention to the meeting materials on the Board’s new Due Process Manual. He said that the purpose of this session is to update Council on the results of the Board’s development and approval of a new Due Process Manual. Council members will be asked to approve the Due Process Manual.
Mr. Charbonneau reminded AASOC members that this matter was discussed at the Council’s October 2019 meeting. He stated that the AASB has since approved its new Due Process Manual. The key changes made to the Manual since October are set out below:
Re-exposure Criteria
The AASB’s current due process procedures require the Board to undertake a two-step process to assess re-exposure:
- determine if the changes made to an exposure draft are significant; and
- require re-exposure if the changes are significant unless two-thirds of the Board’s members vote against re-exposure.
At its October meeting, the Board recommended that the re-exposure consideration be rewritten as a one-step process because the two steps were intertwined and difficult to separate. Eliminating step (a) would result in a more rigorous due process as re-exposure will be required to be considered in all cases, irrespective of the significance of the changes made to an exposure draft. He further noted that changing to a one-step process resulted in the need to make conforming amendments to the Board’s Statement of Operating Procedures.
Responding to Complaints
The AASB agreed that responding to complaints, previously a step in its due process checklists, should be included in the new Manual.
Other
The AASB agreed that the requirement to document dissenting votes in its meeting minutes should also be included in its Statement of Operating Procedures.
One AASOC member asked whether the Manual appropriately includes the due process relating to the AASB’s strategic and operating plans. Mr. Charbonneau responded that the Board’s approach is consistent with the due process manuals for the other standard-setting boards, including that the Due Process Manual focuses specifically on standard setting. One Council member asked about the Board’s considerations when selecting committee members. Mr. Charbonneau responded that committees are formed based on the Board’s input. It seeks stakeholders with expertise in the subject matter the Committee manages. The Board also considers gender, geography, and language preference in its selection of members.
AASOC concluded that the AASB followed due process with proper regard for the public interest in developing and approving the Due Process Manual, and the related consequential amendments in the Statement of Operating Procedures.
AASB Update
AASB Director, Eric Turner updated the AASOC on the AASB’s key activities since the Council’s October meeting.
International Standard on Related Services (ISRS) 4400, Agreed-Upon Procedures
Mr. Turner reminded AASOC that this is an international standards project managed by the International Auditing and Assurance Standards Board (IAASB). The IAASB approved a revised agreed-upon procedures standard at its December 2019 meeting. He noted the new standard will be effective for engagements for which the terms of the engagements are agreed on or after December 31, 2021.
Mr. Charbonneau informed AASOC that Mr. Turner was the project’s task-force leader on the IAASB. He congratulated Mr. Turner on effectively managing this project on the international level.
One AASOC member noted that the Public Interest Oversight Board publishes a list of public interest issues on its website for each of the IAASB’s projects, which could be helpful for Council members.
Audits of Less Complex Entities
After receiving Canadian stakeholders’ feedback through comment letters and roundtables about audits of less complex entities (LCE), the AASB submitted a response letter to the IAASB’s LCE Discussion Paper in September 2019. The IAASB is analyzing the responses and will likely publish a Feedback Statement in early January 2020. Mr. Turner said that the IAASB will publish a project proposal in June 2020.
In response to a question, Mr. Turner informed AASOC of the AASB’s view that issues of complexity can appear in any organization whether it is large or small. The Board supports that in any organization there are complex and less complex areas. It agrees that the IAASB’s standard on LCEs needs to be scalable and adjustable to deal with the complexity of different areas of a business.
One AASOC member noted that the International Forum of Independent Audit Regulators’ response to the IAASB indicated that the definition of LCEs should not apply to listed entities, irrespective of their size or complexity. Mr. Turner noted that the IAASB has not yet taken a position on the definition of an LCE.
Another AASOC member expressed concern about publishing a separate standard for LCEs. Mr. Turner responded that the IAASB received mixed views from stakeholders on whether there should be a separate standard LCEs and the IAASB is considering this and other options to address audits of LCEs.
Extended External Reporting Assurance
Mr. Turner stated that the IAASB is working toward developing non-authoritative guidance for extended external reporting (EER) assurance. EER consists of many different forms of reporting, including, but not limited to, integrated reporting, sustainability reporting, and non-financial reporting.
The IAASB expects to issue a document for comment in February 2020, with a 120-day comment period. The AASB intends to issue a response letter to the IAASB’s document in June 2020, once feedback from stakeholders has been gathered.
In response to a question, Mr. Turner said that staff does not plan to translate the IAASB’s document for comment because the document is non-authoritative in nature and the AASB has not decided whether it will issue the resulting guidance in Canada. The Board will establish an advisory group for EER and work with its members to develop an appropriate plan. The Board plans to consider translation if and when it decides to issue EER non-authoritative guidance in Canada.
Mr. Nye encouraged the AASB to revisit its decision regarding translation given the importance of EER in business today. He asked the Board to consider providing the French community with an executive summary of the non-authoritative guidance.
One AASOC member asked about the expertise of the EER Advisory Group’s members. Mr. Charbonneau said that the AASB is keen on obtaining the expertise of users and preparers for this Group, two areas that were specifically highlighted in the Board’s public call for this Group.
International Standard on Auditing (ISA) 315 Identifying and Assessing Risks of Material Misstatements
The AASB has approved the final standard. This standard will be brought to AASOC for approval at its February 2020 meeting.
AASB Annual Plan 2020-2021
Mr. Turner said that the AASB reviewed a first draft of the its 2020-2021 Annual Plan. The Board will review a second draft of the 2020-2021 Annual Plan in January 2020.
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The Auditing and Assurance Standards Oversight Council (AASOC) is an independent, volunteer body established by the Canadian Institute of Chartered Accountants (now Chartered Professional Accountants of Canada) in 2000. It serves the public interest by overseeing and providing input on the activities of the Auditing and Assurance Standards Board (AASB), which sets standards for assurance and related service engagements. Reporting to the public and consisting of prominent leaders from business and regulators, AASOC’s responsibilities include appointing AASB members, providing input on strategic priorities and evaluating the performance of the AASB.