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 held on March 25, 2020, AASOC received presentations on, and discussed the following:
- Chair’s Opening Remarks
- Approval of February AASOC Minutes
- AASB Due Process
- AASB Draft Strategic Plan
Chair’s Opening Remarks
AASOC Chair, Kevin Nye welcomed all attendees to the meeting. He reminded the Council that because of the COVID-19 pandemic, the June meeting will be hosted virtually.
He informed AASOC that today’s agenda mainly encompasses the AASB’s due process approvals and an update of the Board’s draft Strategic Plan.
Carol Paradine, CEO of the Canadian Public Accountability Board (CPAB), provided AASOC with a brief update on the implications of COVID-19 on audit. She said that the global pandemic is significantly affecting Canadian reporting issuers and their auditors. CPAB has identified some important areas for auditors to consider, including the following:
- Inventory counts – the closure of non-essential businesses can make the auditor’s observation of a year-end inventory count impossible.
- Going concern – the pandemic will have significant effects on the viability of many businesses.
- Remote working – auditors will need to maintain professional skepticism given the nature and extent of their interactions with clients will change in remote audits. In additional, auditors will need to consider how they will evaluate the quality of electronic audit evidence.
Ms. Paradine said that CPAB is working to provide support to auditors on these issues.
Approval of February AASOC Minutes
Subject to some edits, AASOC approved the minutes of the meeting held on February 3-4, 2020.
AASB Due Process
AuG-6 and AuG-16 Future-oriented Financial Information
AASB Director Eric Turner said that in January 2020 the AASB was informed of the Accounting Standards Board’s (AcSB) decision to withdraw Part V (which includes Section 4250, Future-Oriented Financial Information) from the CPA Canada Handbook – Accounting. He reminded the Council that Part V of the Handbook consists of the collection of Pre-Changeover Accounting Standards. The AcSB agreed that the content of Section 4250 will remain in the CPA Canada Standards and Guidance Collection because this complementary guidance helps entities in the measurement, presentation, and disclosure of future-oriented financial information.
In response to the AcSB’s actions, the AASB developed amendments to Auditing Guidance (AuG) 6, Examination of a Financial Forecast or Projection Included in a Prospectus or Other Public Document, and AuG-16, Compilation of a Financial Forecast or Projection. The Board agreed to add wording in a box at the beginning of AuG-6 and AuG-16 explaining that Section 4250 is non-authoritative. The boxed text will alert readers to adapt the Guidelines as necessary in their circumstances. The Board concluded that exposure of the amendments to the Guidelines was not warranted because the amendments are in response to changes in accounting standards, which is consistent with the Board’s Due Process Manual.
One AASOC member expressed concern that Section 4250 was removed from the Handbook noting that stakeholders are interested in future-oriented financial information. Stakeholders demand quality financial reporting that is transparent, comparable, and reliable. Removing future-oriented financial information from the Handbook jeopardizes the relevance of financial information. Members agreed that the Board should continue to seek future-oriented financial information, especially given the importance to stakeholders.
Mr. Nye said that removal of Section 4250 is outside the AASB’s privy as it is the AcSB’s responsibility. Further, the purpose of Section 4250 is not to address the type of future-oriented financial information contained in continuous disclosure documents and other materials published by reporting issuers.
Another AASOC member noted that securities regulations do not contain specific requirements to use Section 4250 for future-oriented financial information.
In response to a question, Mr. Turner said that the AASB did not make any changes to the Guidelines in AuG-6 and AuG-16. The Board simply added a notice to alert stakeholders of the changes in the Part V of the Handbook related to Section 4250.
AASOC concluded that the AASB followed due process with proper regard for the public interest in developing and approving the amendments to AuG-6 and AuG-16.
AASB 2020-2021 Annual Plan
Bruce West, Chair of the Performance Review Committee, reminded the AASOC that the Committee’s mandate is to assess the AASB’s performance with respect to completing its Annual Plan. The Committee also assesses the development of the Board’s Strategic Plan to determine if the it has followed due process and considered public interest.
Mr. West informed AASOC that the Committee met on November 27, 2019, January 28, 2020, and March 12, 2020 to carry out its duties. At its January 28, meeting, the Committee performed its final review of the Board’s 2020-2021 Annual Plan, which will be presented to the Council today for approval.
AASB Chair Ken Charbonneau informed AASOC that the AASB’s Annual Plan was developed before the it was aware of the uncertainties created by the global COVID-19 pandemic and its effects in Canada. The Board plans to proceed with its Annual Plan as presented and is currently evaluating its activities to ensure that the Board is adapting and is sensitive to its stakeholders’ developing needs and priorities during this exceptional time.
In response to a question, Mr. Charbonneau said that the AASB will examine its timelines and processes, given the recently changing environment. He added that the International Auditing and Assurance Standards Board (IAASB) is also facing uncertainties on how COVID-19 affects its agenda.
Mr. Charbonneau said that the AASB will inform its stakeholders of potential changes to the Annual Plan on its webpage, where the document will be published.
AASOC concluded that the AASB followed due process with proper regard for the public interest in developing and approving its 2020-2021 Annual Plan.
AASB Draft Strategic Plan
Mr. West said that at the its March 12, 2020, meeting, the Performance Review Committee had a thorough discussion of the AASB’s draft Strategic Plan, focusing on the following:
- the process for developing the environmental themes and the strategic direction statements;
- stakeholder engagement related to the Strategic Plan;
- the logic behind moving from a five-year plan to a four-year plan; and
- the structure and flow of the document.
Mr. Charbonneau informed AASOC that the AASB reviewed the draft Strategic Plan at its March 9-10, 2020, meeting. The Board provided comments on the description of environment themes and some objectives. He added that the Board supported the overall content and format.
In response to a question on the audit of less complex entities (LCE), Mr. Charbonneau said that the AASB supports the view that in any organization there are complex and less complex areas. The Board agrees that the IAASB’s standards should be scalable and adjustable to deal with the complexity of different areas of a business. The IAASB is currently examining the responses to its recent Consultation Paper on the audit of LCEs and exploring the way forward.
One AASOC member asked if the COVID-19 crisis will affect the publication and content of the Strategic Plan. Mr. Charbonneau reminded the Council that the AcSB and the Public Sector Accounting Standard Board are also working on new strategic plans for the period beginning April 2021. He added that the Chairs and Directors of the three Canadian standard-setting Boards will meet today to consider the next steps for the strategic plans in light of the pandemic.
Mr. Charbonneau advised the AASOC that he will keep the Council informed on the developments of the Board’s draft Strategic Plan.
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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.