Update on Auditing and Assurance Standards

Transcription

1 Professional Development Course Update on Auditing and Assurance Standards COPYRIGHT Chartered Professional Accountants of British Columbia All rights reserved. No part of this publication/course material may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means (photocopying, electronic, mechanical, recording or otherwise) without the prior written permission of the copyright holder and publisher, applications for which shall be made to the Chartered Professional Accountants of British Columbia, West Hastings Street, Vancouver, BC, V6B 4N6. DISCLAIMER This course material deals with complex matters and may not apply to particular facts and circumstances. As well, the course material and references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. Although the course material has been carefully prepared, neither the Chartered Professional Accountants of British Columbia, the course author and/or firm, nor any persons involved in the preparation and/or instruction of the material accepts legal responsibility for its contents or for any consequence arising from its use. Fall 2017

2 Update on Auditing and Assurance Standards Darrell Jensen, FCPA, FCA, AASB Chair Eric Turner, CPA, CA, Director, Auditing and Agenda 1. Auditor reporting standards package 2. Standards now/soon to be effective 3. Projects in progress 4. Watch for 2 1

3 Auditor reporting package What we ll cover today International developments Key features How the AASB is supporting effective implementation What s next 3 Auditor Reporting - Introduction International standards moving away from binary, standardized pass/fail auditor s report Increase transparency of the audit and enhance the communicative value of the report New auditor s report more tailored to specific circumstances of the entity Significant change affecting audit committees, auditors, preparers and investors 4 2

4 Enhanced Reporting Internationally International Standards on Auditing (ISAs) adopted by more than 110 countries International Auditing and Board (IAASB) standards effective for periods ending on or after December 15, 2016 Some European jurisdictions have pre-2016 experience with positive results (e.g., Netherlands and U.K.) 5 U.S. developments PCAOB project began 2011 Standard issued June 2017, subject to U.S. Securities and Exchange Commission (SEC) approval New format effective December 2017 for all issuers PCAOB critical audit matter reporting Large accelerated filers June 2019 Other issuers December

5 June 2017 Handbook changes Most changes affect auditor s reports for all entities Published in the CPA Canada Handbook Assurance June 2017 Effective December 15, 2018 December with earlier application permitted 7 Overview of June 2017 update The final standards include Complete package of reporting standards Revised CAS dealing with other information Enhanced emphasis on disclosures Key Audit Matters (KAM) reporting o Where law or regulation requires o Auditor decides to communicate KAM as part of the audit 8 4

6 Handbook Pre and Post Auditor Reporting Pre auditor reporting Frozen as at May 31 No further updates to standards Can be used for engagements before effective date Post auditor reporting All auditor reporting changes All subsequent changes to standards 9 Auditor s report under current CASs For periods ending on or before December 31, 2017 INDEPENDENT AUDITOR'S REPORT To the Shareholders of ABC Company Report on the Financial Statements We have audited the accompanying financial statements of ABC Company (the Company), which comprise the statement of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20X1, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 10 5

7 New auditor s report Effective for periods on or after December 31, 2018 INDEPENDENT AUDITOR'S REPORT To the Shareholders of ABC Company Opinion We have audited the financial statements of ABC Company (the Company), which comprise the statement of financial position as at December 31, 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20X1, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Auditor s opinion moved from end of auditor s report to very beginning Explicit statement about the auditor s independence in accordance with relevant ethical requirements Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 11 New auditor s report Effective for periods on or after December 31, 2018 Impairment of goodwill and other intangible assets Goodwill is tested for impairment at least on an annual basis. Other intangible assets are tested for impairment when a triggering event has been identified that indicated the carrying amount may not be recoverable. The valuation of goodwill and other intangible assets is significant to our audit because the balance of goodwill of $3,830,806 and other intangibles of $2,010,286 as at December 31, 20X1 are material to the financial statements. Disclosures about goodwill and other intangible assets are included in Notes 13 and 14 respectively. Management s assessment process is complex, judgmental and is based on assumptions, specifically in relation to revenue growth, which are affected by future market or economic conditions. Our audit procedures included, amongst others, using a valuation expert to assist us in evaluating the assumptions and methodologies used by management, in particular those relating to discount rates. We also focused on the adequacy of the disclosures about the assumptions to which the outcome of the impairment test is most sensitive, that is, those that will have the most significant effect on the determination of the recoverable amount. Description of each KAM: Why the matter was considered to be of most significance in the audit Reference to the related disclosures How the matter was addressed in the audit NOTE: No separate opinion or conclusion 12 6

8 New auditor s report Effective for periods on or after December 31, 2018 Other Information Other Information is financial and non-financial information in the Company s annual reporting which Is provided in addition to the financial statements and the auditor s report. Management is responsible for the other information. The other information comprises the Company s annual report for the year ended December 31, 20X1, which includes the financial statements and the auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. Separate section when an entity prepares other information such as an annual report containing the entity's financial statements and auditor s report thereon If, based on the work we have performed, we conclude that there is a material misstatement of the other information we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company's financial reporting process. Enhanced description of management's responsibilities for assessing entity s ability to continue as going concern 13 New auditor s report Effective for periods on or after December 31, 2018 Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Enhanced section for auditor s responsibilities Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 14 7

9 New auditor s report Effective for periods on or after December 31, 2018 Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. The engagement partner on the audit resulting in this independent auditor's report is [name]. New description of the auditor s responsibilities to conclude on the appropriateness of management use of the going concern basis of accounting New description of the auditor s responsibilities regarding communication with TCWG New disclosure requirements for the name of the engagement partner for listed entities 15 KAM Decision Making Framework Matters communicated with those charged with governance (TCWG) Matters requiring significant auditor attention KAM: Matters of most significance in the audit 16 8

10 Focus: Key Audit Matters Canadian approach to KAM Recognition of close integration of Canadian and U.S. markets Final Canadian Auditing Standards (CASs) = no KAM requirement at this time Exception: law or regulation requirements 17 Implementation support Early draft of the standard provided to CPA provincial bodies for education material development Working with CPA Canada and others on implementation guidance See

11 What s next? Exploring the implications of U.S. developments Scope of KAM and timing Combined reports and other issues Post-implementation study Working with other standard setters 19 Standards coming up. Now in effect Standards for Assurance Engagements Use of Practitioner s Communication or Name Soon to be effective Review Engagements 20 10

12 Standards for Assurance Engagements CSAE 3000 and CSAE 3001 Effective Date Who is Affected What You Should Know Reports dated on or after June 30, 2017 Practitioners who perform assurance engagements other than financial statement audits, reviews & compilations Comprehensive standards Attestation vs. direct engagements CSAE 3000 adopted from ISAE 3000 CSAE 3001 Canadian standard (no International equivalent) Role of the standards (i.e., umbrella) 21 Standards for Assurance Engagements Worked with CPA Canada on implementation guidance Audit and Assurance Alert: CSAE 3000 and CSAE

13 Association - Use of the Practitioner's Communication or Name Effective Date Who is Affected What You Should Know Practitioner s consent provided on or after June 1, 2017 Practitioners who provide services to clients Requirements relating to use of the practitioner's communication or name in connection with accompanying information translated practitioner's communication or information on which the practitioner reported inappropriate use of the practitioner's communication or name 23 Association - Use of the Practitioner's Communication or Name Worked with CPA Canada on implementation guidance Audit and Assurance Alert: Canadian Standard on Association FAQ for Management: Canadian Standard on Association 24 12

14 Review Engagements Effective Date Who is Affected What You Should Know Reviews of financial statements for periods ending on or after December 14, Earlier application not permitted Practitioners who perform reviews of financial statements CSRE 2400 based on ISRE 2400 CSRE 2400 more detailed and comprehensive than Review Engagements More detailed requirements Areas where risks likely to arise v plausibility Discussion of materiality Work effort re controls/accounting records Report more transparent and ties in to audit reporting model 26 13

15 Review Engagements Worked with CPA Canada on implementation guidance Review Engagement Practitioner Client Briefing Guide to Review Engagements Audit and Assurance Alert: CSRE 2400 Audit and Assurance Alert: Comparison between CSRE 2400 and the 8000 series 27 Projects in Progress - Canadian Compliance Reporting Compilation Engagements Public Sector Auditing Standards 28 14

16 Compliance Reporting AASB Re-exposure Draft Will replace Special Reporting sections in Handbook Sections 5800, 5815 and standards attestation compliance reporting engagements (CSAE 3530) and direct compliance reporting engagements (CSAE 3531) Focus on how the practitioner applies standards for assurance engagements (CSAE 3000 and CSAE 3001) to compliance reporting engagements 29 Compliance Reporting What s changing Expanded requirements around performance AASB believes that the new requirements reflects current practice Reasonable/limited assurance versus audit/review Expanded reporting 30 15

17 Compliance Reporting Timeline Reviewing comments received Approval by year-end Proposed effective date reports dated on or after April 1, Compilation Engagements Project to revise Section 9200 Task Force Consultation Paper Roundtables with stakeholders face-to-face and virtual 32 16

18 Compilation Engagements Discussing key issues raised Scope of the revised standard Acceptance Performance Reporting Quality Control 33 Compilation Engagements Timeline Survey Fall 2017 Continue to discuss issues and draft revised standard ED expected Fall

19 Public Sector Auditing Standards Public Sector Auditing Sections in the Handbook 5 sections related to compliance reporting and value-for-money audits Special circumstances that may apply to the audits of public sector entities undertaken by legislative and other external auditors 35 Public Sector Auditing Standards ED of Auditing Guideline addressing reporting on compliance with specified authorities for transactions coming to the auditor s notice during the audit of financial statements Will replace part of PS Section 5300 ED issued August 2017 Response deadline November 28,

20 Public Sector Auditing Standards Phase II underway Guidance on applying CSAE 3001, Direct Engagements, to performance audits in the public sector Started discussion issues ED later in Projects in Progress - International Audit of Accounting Estimates Audit Risk Quality Control Group Audits Agreed-upon Procedures 38 19

21 Audit of Accounting Estimates Revisions to ISA 540 Establishes more robust requirements and appropriately detailed guidance to foster audit quality Drive auditors to perform appropriate procedures in relation to accounting estimates and related disclosures Emphasize the importance of the appropriate application of professional skepticism Scalable regardless of the size or sector of the business or audit firm 39 Audit of Accounting Estimates Applies to all estimates - complex or simple Depreciation Inventory obsolescence Allowance for doubtful accounts Warranty obligations Estimated costs arising from litigation Expected credit losses Employee pension liabilities Financial instruments 40 20

22 Audit of Accounting Estimates Timeline Reviewing ED responses IAASB expected to approval final standard in March 2018 AASB would approve final revised CAS 540 shortly after Effective date to be determined (usually 18 months after approval) 41 Audit Risk Revisions to ISA 315 Establish more robust requirements and appropriately detailed guidance Drive auditors to perform appropriate risk assessment procedures in accordance with the size and nature of the entity Enhance auditor s approach to understanding the entity and risk assessment activities in light of the changing environment Modify organization and structure of ISA

23 Audit Risk Issues being debated Identifying significant accounts and inherent risks Classes of risks and terminology to describe them Use of qualitative factors in identification and assessment of inherent risks Exploring including a spectrum of risk Understanding how internal controls impact the risk assessment How to identify internal controls relevant to the audit Whether there should be a separate or combined assessment of inherent and control risks 43 Audit Risk Timeline IAASB expected to approve ED in June 2018 AASB would approve Canadian ED shortly after 44 22

24 Quality Control Revisions to ISQC 1 and ISA 220 Quality Management Approach to quality control Firm assesses its risks to quality and identifies appropriate responses Proposes prescribed quality objectives, risks and responses applicable to all firms Separate standard for EQC review 45 Quality Control Timeline IAASB consulting with key stakeholder groups IAASB expected to approve ED in September 2018 AASB would approve Canadian ED shortly after 46 23

25 Quality Control Canadian considerations CSQC 1 has a narrower scope than ISQC 1 does not apply to related services engagements AASB conducting research into what other jurisdictions do and implications in Canada if scope were expanded Proposed changes, if any, would be included in Canadian ED in fall Group Audits Revisions to ISA 600 Strengthen auditor s approach to planning and performing the group audit Clarify interaction of ISA 600 and other ISAs Issues driving the project Complex group structures Cultural and language barriers Differences in laws and regulation Involvement of component auditors 48 24

26 Group Audits Timeline Early stages IAASB not expected to issue an ED until Agreed-upon Procedures Revisions to ISRS 4400 Better reflect practice in engagements undertaken Explain the role of professional judgment Clarify independence requirements Clearer terminology in describing procedures and reporting factual findings Non-financial information within the scope of the standard Clarify the standard in relation to the use of a practitioner s expert Clarify report restrictions 50 25

27 Agreed-upon Procedures Timeline IAASB approved project proposal in September 2017 AASB will undertake project to replace Section 9100 and possibly Section 9110 with the revised IAASB standard 51 Watch For Scalability of audit standards Working with IAASB and others on means of making standards more workable for SMPs Data analytics Engaging with IAASB and others as standards evolve to recognize DA Relevance of audit initiative Can audit be expanded beyond financial statements to KPI etc? 52 26

28 Watch For Road map Guidance to assist practitioners in knowing which standard to use when reporting on information other than financial statements In Brief publications To keep stakeholders informed of key activities Consultations Increased efforts to obtain input from stakeholders 53 Questions? 54 27

29 Stay Up-to-Date Website 55 Stay Up-to-Date updates Tailor your subscription 56 28

30 For more information, visit Contact Eric Turner, CPA, CA Director, Auditing and Phone: +1 (416)