The Auditing and Assurance Standards Oversight Council (AASOC) discussed the activities of the Auditing and Assurance Standards Board (AASB) and related matters.
At its virtual meeting held on September 30, 2020, AASOC received presentations on, and discussed the following:
- Chair’s Opening Remarks
- Approval of June 2020 AASOC Minutes
- AASB Update
- Quality Management Presentation
- Audit Quality Roundtable Update
- Presentation on Wirecard Fraud
- Fraud and Going Concern Presentation
- Monitoring Group Update
- Nominating and Governance Committee Update
- Independence Standing Committee Update
Chair’s Opening Remarks
AASOC Chair, Kevin Nye welcomed all attendees to the meeting.
Approval of June 2020 AASOC Minutes
Following some amendments, AASOC requested recirculating the revised June 22-23, 2020, minutes to members for an offline review.
AASB Update
AASB Chair Ken Charbonneau briefed AASOC on some of the AASB’s activities since July 2020. Following the Council’s June 22-23, 2020, meeting, the AASB met four times over Zoom. One meeting was held on consecutive half-days, and the rest were half-day meetings.
Extended External Reporting
Mr. Charbonneau reminded AASOC that the Extended External Reporting (EER) project encompasses various forms of reporting, including, but not limited to, sustainability reporting, and other reporting by entities about environmental, social, and governance matters. In March 2020, the International Auditing and Assurance Standards Board (IAASB) issued draft guidance related to EER, to which the AASB submitted a response letter on July 13, 2020. In September 2020, the AASB discussed the issues raised by the IAASB’s EER Task Force’s review of the response letters received. The AASB agreed with many of the Task Force’s suggestions and recommendations. The AASB was pleased to see the adoption of many of the comments in its response letter by the IAASB. The IAASB expects to finalize the EER project in 2021.
In 2019, the AASB established the Extended External Reporting Assurance Advisory Group, a group consisting of preparers, practitioners, users, and an academic who all have EER experience. The Group’s experience and the insight were valuable to the AASB in drafting a strong response letter, which was well-received.
Mr. Charbonneau informed AASOC that there is an expanding need for reliable, high-quality information that is beyond historical financial information. He noted that on September 11, 2020, the International Federation of Accountants (IFAC) called for creating an International Sustainability Standards Board alongside the International Accounting Standards Board. On its website, IFAC wrote, “The proposed Board would address the urgent and growing demand from investors, policy makers, and regulators for a reporting system that delivers consistent, comparable, reliable and assurable information relevant to enterprise value creation, sustainability development and evolving stakeholder expectations.”
Group Audits
Mr. Charbonneau noted that the AASB successfully recruited 11 audit teams across Canada, to test out the proposals featured in the Exposure Draft, “Special Considerations – Audits of Group Financial Statements (including the Work of the Component Auditors),” on an audit file. The Board is currently finalizing its response letter to the IAASB using the feedback received from the test audit teams.
AASOC members commended the AASB on this approach for obtaining stakeholder feedback.
In response to a question, Mr. Charbonneau said that the AASB received strong evidence-based feedback by having audit teams apply the proposed standard to an actual audit file. A similar approach was used with Canadian Auditing Standard (CAS) 540, Auditing Accounting Estimates and Related Disclosures. Although this model is time-consuming for staff, the Board continues to refine it and anticipates using it on future projects because of the useful evidence it yields.
In response to another question on International Standard on Auditing (ISA) 600, Mr. Charbonneau noted that this standard is supported by all of the other standards in the Handbook. Therefore, it is critical that the IAASB invest a significant amount of time developing its foundational standards prior to taking on this project.
AASB 2020-2021 Annual Plan
AASOC received a status update on the AASB’s activities for its 2020-2021 Annual Plan. The Council was also briefed on activities delayed by the COVID-19 pandemic.
In response to a question, Mr. Charbonneau said that many materials have been developed by CPA Canada and other organizations to address the pandemic’s impact on the audit. The AASB has specifically chosen to support CPA Canada in developing a COVID-19 webpage that serves as a hub of information and resources for practitioners, preparers, and users. The AASB has also co-developed webinars with CPA Canada and Canadian Public Accountability Board (CPAB) on going concern, and internal controls in a COVID environment.
Quality Management Presentation
AASB Director Eric Turner reminded AASOC that the IAASB issued its Exposure Draft, “Quality Management at the Firm and Engagement Level, Including Engagement Quality Reviews” (which includes ISQM 1, ISQM 2, and ISA 220), in February 2019. The AASB issued its Exposure Draft, “Quality Management at the Firm and Engagement Level, Including Engagement Quality Review,” in April 2019. The Board proposed adopting of all three standards with appropriate amendments made to relevant ethical requirements as Canada does not apply the International Code of Ethics for Professional Accountants (IESBA Code). Mr. Turner noted that further stakeholder outreach in summer 2020 shows support for adopting International Standard on Quality Management (ISQM) 1 as Canadian Standard on Quality Management (CSQM) 1 with no change in scope.
In September 2020, the IAASB will approve the final Quality Management standards (ISQM 1, ISQM 2, and ISA 220) and conforming amendments to ISAs. The AASB plans on approving the respective Canadian standards in January 2021.
Audit Quality Roundtable Update
Carol Paradine, CEO of the CPAB and Karen Stothers, Senior Advisor Regulation Sector at the Office of the Superintendent of Financial Institutions (OSFI) briefed AASOC on the Audit Quality Roundtable initiative, which CPAB and OSFI co-hosted.
Participants shared their perspectives on issues ranging from audit risk for critical management estimates to challenges in year-end audits of banks and insurers in the COVID-19 environment. The roundtable stressed the importance of continuous improvement and proactivity in delivering high-quality audits.
Following discussions, participants agreed that they would continue to coordinate efforts to address short- and long-term priorities to advance public confidence in the integrity of Canadian financial reporting.
Presentation on Wirecard Fraud
Mr. Nye briefed AASOC on the Wirecard scandal. Wirecard is headquartered in Munich, Germany. The Council discussed nature of the company, the basics of the fraud, and the impact of yet another accounting scandal on the wider audit and assurance ecosystem.
As part of its discussion, AASOC touched on the issues related to the expectations gap and the auditor’s role in detecting material fraud.
AASOC requested updates from staff on developments related to this topic at future meetings.
Fraud and Going Concern Presentation
Mr. Turner noted that the auditor’s role in relation to fraud and going concern in financial statement audits continues to receive heightened public attention. He reminded AASOC that some work has been done internationally related to this topic. The Association of Chartered Certified Accountants issued a report in May 2019 titled “Closing the Expectation Gap in Audit.” Meanwhile, Sir Donald Brydon’s independent review into the quality and effectiveness of the audit was issued in December 2019.
The IAASB issued a Discussion Paper on September 15, 2020, seeking input on whether ISAs related to fraud and going concern need to be updated to reflect the rapidly evolving external reporting landscape. The AASB staff are currently setting up outreach sessions to explore the ideas in the IAASB’s Discussion Paper. In November 2020, the Board will meet with users, preparers, audit committee members, regulators, and other stakeholders to receive feedback on specific questions asked in the Discussion Paper. Stakeholder feedback will inform the Board’s response to the Discussion Paper.
Monitoring Group Update
Stephenie Fox, Vice-President Standards, FRAS Canada, provided AASOC with an update on the Monitoring Group’s (MG) developments. In July 2020, the MG issued a report titled “Strengthening the International Audit and Ethics Standard-Setting System.” In addition to proposals related to the purpose, structure, and process of standard setting, the report makes recommendations on public interest oversight, funding, and transition.
AASOC requested that staff update Council members in future meetings on how the MG Report’s proposals affect the Canadian standard-setting Boards.
Nominating and Governance Committee Update
Donna Bovolaneas, Chair of AASOC’s Nominating and Governance Committee, informed the Council that the Committee met on August 28, 2020, to discuss the upcoming AASB Chair vacancy. The Committee reviewed and approved a press release and a description of the position, publishing them on the FRAS Canada website on September 14, 2020.
AASOC members reviewed the published press release and the description. Ms. Bovolaneas asked them to provide her with offline feedback on the desired experiences and attributes of the incoming AASB Chair.
Independence Standing Committee Update
Ms. Fox informed AASOC that the Independence Standing Committee (ISC) has not yet been set up. The Public Trust Committee is currently in the process of recruiting the ISC Chair. The recruitment of members, for which the Council has a role, will take place when a Chair is identified.
*****************************************************************************
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 2002. 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.