2015 Update on Standards for Audits, Reviews, Compilations and Engagements to Prepare Financial Statements

Transcription

1 2015 Update on Standards for Audits, Reviews, Compilations and Engagements to Prepare Financial Statements Mike Glynn, CPA, CGMA Session Objectives Discuss current issues with respect to: Audits Reviews Compilations Engagements to Prepare Financial Statements Slide 2

2 Auditing Standards Board Work Plan The ASB s current work plan for includes a number of projects which should serve to enhance audit quality, including: Monitoring whether the clarified SASs are being consistently understood and implemented in a way that achieves the ASB s goals in revising and redrafting them. For example, the ASB will look at the group audit standard to see if additional guidance is needed. Determining whether revisions to GAAS are needed with respect to auditing disclosures and, if so, developing such revisions. Working with the AICPA PRB and IAASB to improve audit quality through enhancements, including implementation material, to the quality control standards.

3 Enhancing Audit Quality LONG TERM Transform Practice Monitoring NEAR TERM Strengthen Existing Peer Review Process Revisit Professional Standards Create Additional Guidance, Tools, Learning and Resources Reinforce Professional Ethics Regulator Engagement Competence & Due Care Standards (Audit and Quality Control) Guidance, Tools, Learning & Resources CPAs COMMITMENT TO QUALITY Monitoring & Enforcement Current Initiatives Competence & due care Peer review changes address low volume auditors Audit & quality control standards SQCS 8 practice aid now free on aicpa.org EQCR guidance added to A&A guides Financial reporting Guidance, tools, learning and resources Mandatory AQC membership Practice monitoring & enforcement Reviewer performance exposure draft Considering revisions to peer review report Engagement and firm tracking Technical expert pool

4 Applicability of U.S. Auditing Standards (U.S. GAAS vs. PCAOB Standards) Applicability of U.S. Auditing Standards (U.S. GAAS vs. PCAOB Standards) PCAOB establishes standards for entities as defined by the Sarbanes- Oxley Act. All other audits are to be performed in accordance with U.S. GAAS. If the audit is to be performed in accordance with PCAOB standards, auditor must follow both sets of standards.

5 Applicability of U.S. Auditing Standards (U.S. GAAS vs. PCAOB Standards) When following both sets of standards, use PCAOB report with reference to both sets of standards: We conducted our audits in accordance with the [auditing] standards of the Public Company Accounting Oversight Board and in accordance with auditing standards generally accepted in the United States of America The Auditor s Consideration of an Entity s Ability to Continue as a Going Concern

6 Going Concern Current Status U.S. GAAP Requires an evaluation for the period of one year after the date the financial statements are issued (or available to be issued) Requires an evaluation every reporting period including interims Requires certain disclosures with respect to close calls Requires an explicit statement in the notes when there is substantial doubt and additional disclosures when substantial doubt is not alleviated Effective for calendar 2016 engagements earlier application is permitted. Going Concern Current Status How will the ASB deal with the new accounting and auditing standards A significant difference between AU-C 570 and the FASB standard is the period of time related to the going concern assessment. The FASB standard will require an assessment for a period of a year from the date the financial statements are issued (or become available to be issued). AU-C 570 requires such evaluation for a reasonable period of time, which is defined as a period of time not to exceed one year beyond the date of the financial statements being audited.

7 Going Concern Current Status An Interpretation to AU-C 570 explains that the auditor s assessment of management s going concern evaluation would be for the same period of time as required by the applicable financial reporting framework (when the framework mandates a period). ASB will revise AU-C section 570 after the IAASB standard is issued (and perhaps the PCAOB standard) so as to avoid revising multiple times. Auditor Reporting

8 Enhancing the communicative value and relevance of the auditor s report through proposed revisions to Generally Accepted Auditing Standards. This would include revisions to the going concern standard and other information outside the basic financial statements. IAASB Auditor Reporting Standards Finalized September 2014 Opinion section mandated first New section to address Key Audit Matters for audits of listed entities New section to address Going Concern New section to address Other Information when such information is presented with the audited financial statements separate project to revise ISA 720 Other proposed improvements to enhance transparency and clarify responsibilities Partner s name Ethics standards followed

9 Final Standards IAASB Standards: Amendments to: - ISA 700 (Revised) Forming an Opinion and Reporting on Financial Statements - ISA 705 (Revised) Modifications to the Opinion in the Independent Auditor s Report - ISA 706 (Revised) Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor s Report - ISA 260 (Revised) Communication with Those Charged with Governance - ISA 570 (Revised) Going Concern Created a new section ISA 701 Communicating Key Audit Matters in the Independent Auditor s Report Illustrative Report INDEPENDENT AUDITOR S REPORT To the Shareholders of ABC Company [or Other Appropriate Addressee] 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.

10 Illustrative Report In our opinion, the accompanying financial statements present fairly, in all material respects, (or give a true and fair view of) the financial position of the Company as at December 31, 20X1, and (of) 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 International Standards on Auditing (ISAs). 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 [jurisdiction], 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. Illustrative Report Key Audit Matters [Not Required for a Non-Listed Company May be Included at the Auditor s Discretion] Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. [Description of each key audit matter in accordance with ISA 701.]

11 Illustrative Report 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. Illustrative Report Those charged with governance are responsible for overseeing the Company s financial reporting process. 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 ISAs 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.

12 Illustrative Report A further description of the auditor s responsibilities for the audit of the financial is located at [Organization s] website at: [website link].this description forms part of our auditor s report. [Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for the particular jurisdiction] [Auditor Address] [Date] Additional Information Additional information is available on the IFAC website at:

13 Proposed Changes to Attestation Standards Reminder: Three Types of Attestation Engagements Level of Assurance Historical Financial Other Report information Reasonable Audit (SAS) Examination (SSAE) Opinion Limited Review (SSARS) Review (SSAE) Conclusion None Compilation (SSARS) Agreed Upon Procedures (SSAE) Statement of procedures

14 Clarified Attestation Standards New structure (objective is to eliminate repetition) Common Concepts, Levels of Service, Subject-Specific Chapter 1: Concepts common to all attestation engagements Chapter 2: Examinations Chapter 3: Reviews Chapter 4: Agreed-upon Procedures Each level-of-service chapter addresses a specific level of service and builds on the common concepts chapter 27 Clarified Attestation Standards Subject-specific chapters: - Chapter 5:Forecasts and Projections - Chapter 6: Pro Forma Financial Information - Chapter 7: Compliance Attestation - Chapter 8: Reports on Controls at Service Organizations - Each chapter builds on common concepts and level of service chapters

15 Key Changes Requires a written assertion from responsible party. Requires a letter of representation for examinations and reviews. Expands need to obtain understanding of the development of subject matter to assess risks. Expands requirements to obtain an engagement letter. Moves guidance for reporting on internal controls in an integrated audit to SASs. Retains guidance for MDA examinations as is. Effective Dates All the general and subject-matter specific chapters will be issued as a single SSAE with a single effective date. That date has not been determined yet.

16 Summary ASB is now focused on a Clarity Project for the attestation standards (SSAEs). Four exposure drafts have been issued Three revise attestation standards One moves guidance from attest standards to SASs None have been issued as a final standard Stay tuned! SSARS No. 21

17 Statement on Standards for Accounting and Review Services - SSARS No. 21 Effective for engagements on financial statements for periods ending on or after December 15, 2015 Early implementation is permitted 33 SSARS No. 21 Supersedes all existing AR sections except for AR Section 120, Compilation of Pro Forma Financial Information, which is expected to be exposed for public comment in clarified format in 2015 along with a proposed standard on assembly/compilation of prospective financial information. Prospective financial information is currently codified in Attest Standards 34

18 Significant Changes to Standards for Financial Statement Preparers Submission of Financial Statements AR section 80 applies when an accountant is engaged to report on compiled financial statements or submits financial statements to the client or to third parties. Submission is defined as prepare and present Determining Whether Financial Statements Have Been Prepared by the Accountant Cloud computing and other applications have made it difficult to determine who (or what) has prepared the financial statements: - The accountant? - Management? - The computer application?

19 Submission of Financial Statements AR-C section 80 applies when an accountant is engaged to perform a compilation service. SSARS 21 - Format SSARS No. 21 is formatted into four separate sections: Section 60, General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services Section 70, Preparation of Financial Statements Section 80, Compilation Engagements Section 90, Review of Financial Statements These sections will be codified with the prefix AR- C to denote them from the extant AR sections. 38

20 Section 70 Preparation of Financial Statements Intended to be short and easy to apply Only 22 requirement paragraphs and 19 application paragraphs Applies when the accountant is engaged to prepare f/s but not engaged to perform an audit, review, or compilation on those f/s Does not apply when the accountant has been engaged to merely assist in preparing financial statements or when the accountant prepares financial statements as a by-product of another engagement Section 70 Preparation of Financial Statements Does not require the accountant to consider whether he or she is independent Requires an engagement letter signed by both the accountant and management/those charged with governance Can be applied to f/s with or without disclosures

21 Section 70 Preparation of Financial Statements If the financial statements omit substantially all disclosures disclose the omission in the financial statements If the financial statements contain a known framework departure disclose in the financial statements May be on the face of the financial statements or in a note Do not prepare financial statements if omission of disclosures or other known framework departures are done to mislead users Section 70 Preparation of Financial Statements Report is not required even if financial statements are expected to be used by a third party Requires a legend on each page of the f/s stating that no assurance is being provided If management refuses or cannot include the legend, the accountant could issue a disclaimer report, perform a compilation engagement, or resign. Ensures that users are able to readily identify that the accountant is providing no assurance with respect to the financial statements. Software vendors are expected to include in their software

22 Section 70 Preparation of Financial Statements If the accountant is unable to include a statement on each page of the financial statements, the accountant is required to Issue a either a disclaimer that makes clear that no assurance is provided on the financial statements or Perform a compilation engagement in accordance with section 80 of SSARS No. 21. Section 70 Preparation of Financial Statements When preparing financial statements in accordance with a special purpose framework/ocboa, the accountant is required to include a description of the financial reporting framework on the face of the financial statements or in a note to the financial statements.

23 Section 80, Compilation Engagements Intended to be short and easy to apply Only 38 requirement paragraphs and 43 application paragraphs Applies when the accountant is engaged to perform a compilation engagement Other than the applicability, the compilation literature is largely unchanged from SSARS No. 19 Section 80, Compilation Engagements Retains the independence requirements from the SSARS 19. Requires an engagement letter signed by both the accountant and management/those charged with governance Can be applied to financial statements with or without disclosures.

24 Section 80, Compilation Engagements Primary difference from SSARS No. 19 is in the reporting requirements Report is always required. Report is shortened to differentiate from audit and review (assurance) reporting Management use only financial statements are be covered by the preparation standard Compilation and Preparation SSARSs Results in a bright line between accounting services and reporting services. Accountant no longer has to be concerned about whether the financial statements would be used internally or by third parties.

25 Section 90, Review of Financial Statements Is primarily a clarity redraft of SSARS No. 19 with respect to review engagements. The SSARSs review literature is converged with the requirements of AU-C section 930, Interim Financial Information Results in consistency between limited assurance engagements. 49 Helpful Information and Resources

26 Helpful Information and Resources Authoritative standards for non-issuers (SASs, SSARSs, SSAEs, SQCSs) as of June 1 are available at ges/default.aspx Helpful Information and Resources AICPA Accounting and Auditing Technical Hotline (877) techinquiry@aicpa.org lhotline.aspx

27 Center for Plain English Accounting AICPA PCPS national A&A resource center for firms aicpa.org/cpea Services: Written responses to written technical inquiries Monthly how to A&A reports Webcasts Alerts Content for firm newsletters Questions?