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Interactions between auditors and audit committees likely to change

Meeting

Posted on October 16, 2015

In recent months, there has been a lot of discussion and activity, both internationally and in Canada, regarding the upcoming changes to the auditor’s report. While the International Auditing and Assurance Standards Board (IAASB) issued new and revised auditor reporting standards, the Canadian Auditing and Assurance Standards Board (AASB) did not issue its own version, but instead issued an Invitation to Comment, requesting feedback from financial statement preparers, audit committee members, board directors, auditors and other financial statement users in an effort to understand the impact of new standards in Canada.

If history repeats itself, it’s a fair assumption that the AASB will issue audit reporting standards similar to those issued internationally. How, then, will this impact the communications and involvement of the audit committee and board directors with their independent auditor? And what does this mean for those more directly responsible for the preparation of financial statements?

It’s fair to say that the proposed changes will have a significant impact on both management and the audit committee. For starters, the introduction of key audit matters (KAMs) will significantly impact the interactions an auditor has with an entity’s management and audit committee. KAMs are considered to be of utmost importance to the audit, and the auditor will, under the proposals, be required to disclose and discuss these matters along with their audit response and findings from those audit procedures. The audit committee and/or board directors will likely want to discuss the identification of KAMs for reporting issuers with their auditor early in the audit process, and understand how the auditor will deal with them during the audit, as well as the outcome of the associated procedures. These discussions may need to take place early in the planning process and communications with the auditor may become more frequent as KAMs are identified and addressed.

While the introduction of KAMs is the most significant change to the auditor’s report under the proposals, other changes will impact how the auditor reports on the annual audit. For example:

Going concern: Increased auditor focus may heighten scrutiny of management’s process for assessing the entity’s ability to continue as a going concern as well as the relevance and completeness of related disclosures in the financial statements, particularly for “close calls.”
Other information: New requirements may result in discussions with the auditor as to which documents will fall within the scope of “other information.” In addition, auditors and financial statement preparers will need to evaluate timeframes for drafting and finalizing these documents and assess documents for consistency with financial statements to ensure they are factually correct and reasonable.

There are many proposed changes to assurance standards on the horizon. For further information and to keep up to date, I encourage you to visit the AASB’s Web site at www.frascanada.ca, and consider responding, through its Invitation to Comment, to the questions raised by the AASB on matters they have identified as being important to Canadian entities. This includes, for example, questions surrounding the effective date of the proposed changes and the nature of the entities that should fall within the scope of the proposals on key audit matters. Although reporting on KAMs would only be required for Canadian listed entities, the other proposals will impact all Canadian audited organizations. You may also visit Deloitte’s Centre for Corporate Governance to see more examples of the new report and other resources.

Julie Corden

Julie Corden, Partner | National Services
Julie Corden is a partner in Deloitte’s National Office and is their National Assurance Director. Her responsibilities as part of Deloitte’s National Office include leading a dedicated team of professionals in developing Deloitte’s methodology, guidance and tools related to various assurance matters and consulting with engagement teams in dealing with complex auditing issues.

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