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AASB Operating Plan – 2017-2018

May 19, 2017

On May 19, 2017, the Auditing and Assurance Standards Board (AASB) released its Operating Plan where it sets out its objectives and planned activities along with other initiatives to be undertaken in 2017-2018.

The AASB's 2017-2018 Operating Plan is based on the vision, mission and strategic objectives set out in the 2016-2021 Strategic Plan. Appendix 1 outlines key assumptions made in developing this Plan.

The AASB 2016-2017 Annual Report includes details of their performance in relation to the goals set out in the 2016-2017 Operating Plan.

Review the Operating Plan on the AASB's Web site.

Reporting on Controls at a Service Organization — Bridging the Gap Between Canadian and Revised U.S. Standards

May 18, 2017

On May 18, 2017, the Auditing and Assurance Standards Board (AASB) released a bulletin that will assist stakeholders during the period while the Canadian and U.S. standards on reporting on controls at a service organization are not aligned.

The Bulletin explains changes made to the U.S. standards and highlights key differences between the Canadian and revised U.S. standards, as well as implications for:

  • service audits conducted in accordance with multiple standards (i.e., Canadian and U.S.) or with the revised U.S standards;
  • service audits previously conducted in accordance with the Canadian standard that will be conducted in accordance with the revised U.S. standards; and
  • the issuance or use of a service auditor’s report conducted in accordance with the Canadian standard only, if any.

Review the Bulletin on the AASB's website.

Message from the Chair – New Auditor Reporting and Other Standards Issued

May 18, 2017

On May 18, 2017, the Auditing and Assurance Standards Board (AASB) released a message from the AASB Chair, Darrell Jensen, on what factors the AASB considered when approving these new standards, as well as how they are supporting effective implementation.

The new auditor’s report represents a step change in the information content of the report. It better describes what an audit is and what an auditor does, including an ability to provide further transparency in the reporting of key audit matters.

A significant component of the auditor reporting ISAs is a requirement that auditors of listed entities communicate key audit matters — those matters that, in the auditor’s judgment, were of most significance in the audit.

Canadian stakeholders made it clear in a variety of interactions that changes to auditor reporting standards need to recognize that the Canadian and U.S. capital markets are closely integrated. They emphasized that if key audit matter reporting requirements and the entities to which they would apply, are significantly different between Canada and the U.S. this could create confusion in the marketplace and potentially affect comparability of information across the North American capital markets.

The U.S. Public Company Accounting Oversight Board has not finalized its auditor reporting standards, including with respect to a key audit matter reporting concept. As a result, the AASB believes that it is not appropriate at this time to mandate key audit matter reporting for listed entities in Canada.

The final CASs, as adopted, do not contain a key audit matter reporting requirement at this time. They do allow for law or regulation to require reporting of key audit matters and for the auditor to decide to do so.

While there are other differences between the CASs and U.S. reporting standards, the AASB understands, based upon discussions with stakeholders, such differences do not create the same sensitivities as key audit matter reporting.

The AASB will continue to monitor developments in the U.S. and post-implementation studies in other jurisdictions in considering future expansion of key audit matter reporting to other entities.

Review the message from the Chair on the AASB's website.

AASB unanimously approved new and revised CASs relating to auditor reporting, KAM only communicated when required by law or regulation or if the auditor decides to do so

May 15, 2017

At its meeting on April 11, 2017, the AASB unanimously approved new and revised CASs relating to auditor reporting, and the auditor’s responsibilities relating to other information. The Board also unanimously approved related conforming amendments to other standards, and amendments to address disclosures in the audit of financial statements.

The Board concluded that changes made in finalizing the standards were significantly different from the proposals in the Exposure Drafts and Invitations to Comment. The significant differences from the proposals are: (i) deferring the effective date for application by one year; and (ii) amending the scope of reporting of key audit matters so that such matters are communicated in the auditor’s report only when required by law or regulation or the auditor decides to do so.

Since these changes were made in response to feedback received, the Board unanimously decided not to re-expose the CASs. The new and revised standards will be effective for audits of financial statements for periods ending on or after December 15, 2018 and are expected to be included in a Handbook update in mid-2017.

Review the executive summary on the AASB's Web site.

AASB Exposure Draft – Auditing Accounting Estimates and Related Disclosures

May 09, 2017

On May 9, 2017, the Auditing and Assurance Standards Board (AASB) issued an Exposure Draft that proposes to adopt, with appropriate Canadian amendments if any, proposed amendments to ISA 540, and other conforming amendments. Stakeholders are encouraged to submit their comments by July 7, 2017.

This Exposure Draft consists of:

  • proposed changes;
  • a link to the IAASB’s Exposure Draft, including its Explanatory Memorandum;
  • a description of the AASB’s process for adopting ISAs;
  • a discussion of proposed significant Canadian amendments;
  • a proposed effective date; and
  • key changes to CAS 540 proposed in the Exposure Draft

Review the exposure draft on the AASB's Website.

PCAOB sees some improvement in audit quality

May 04, 2017

On May 4, 2017, the Public Company Accounting Oversight Board (PCAOB) posted to its website remarks by Board Member Jeanette M. Franzel entitled, "Innovative & Robust Audit Profession to Serve Investors and the Public Interest," delivered at the 16th Annual Financial Reporting Conference at Baruch College in New York.

The PCAOB has been encouraging more firms to use audit quality indicators, such as the ones it proposed in 2015. The indicators are still not required by the PCAOB, but the board has been monitoring the use of the indicators by firms, audit committees, other audit regulators and academic researchers. The PCAOB staff is incorporating information from the indicators within its inspection program, analyzing various detailed measures as part of the inspections process for the large firms.

Franzel noted that some firms are actively using their own metrics to help them manage quality across their audit practices and for individual engagements. Some large firms are also publishing firm-level metrics in annual reports. The PCAOB hopes to publish a report later this year with observations from its remediation and root cause programs, including a discussion of the potential benefits of using audit quality indicators within a firm's system of quality control.

Review our publication on demystifying audit quality indicators.

Franzel also discussed the increasing use of technology by audit firms, including artificial intelligence, data analytics and distributed ledger technology such as blockchain.

“These potentially disruptive changes will present challenges and threats across the auditing profession, including the need for significant investments in technology, new management and technical skills, and even new firm business and organizational models,” she said. “Of course, these developments will present new corresponding risks to audit quality. And throughout the course of these technological changes, we cannot forget that our focus should remain on the critical role of auditors to provide assurance over management’s financial reporting and related controls for the protection of investors. If managed and implemented properly, these developments have the potential to enhance the value of the audit process and increase audit quality.”

Review our Audit Value Survey published by our U.S. firm.

Review the speech by Jeanette M. Franzel on the PCAOB's website.

SEC's Chief Accountant: Watch Out for Audit Committee Overload

Apr 28, 2017

On April 28, 2017, the Securities and Exchange Commission (SEC) released a speech on enhancing audit committee effectiveness by SEC Chief Accountant Wes Bricker, where he raised the topic of audit committee overload.

In his speech, Mr. Bricker said that the onus is on the board to address it. Recent surveys indicate that some audit committees are finding it difficult to perform its core responsibilities while covering other major risks on its agenda.

Review the speech on the SEC's website.

AICPA issues new Technical Practice Aids

Apr 27, 2017

On April 27, 2017, the American Institute of CPAs (AICPA) issued five new Q&As related to its Technical Practice Aids on internal controls.

Specifically, the following Q&As have been added to TIS Section 8200:

  • .17, “Obtaining an Understanding of Business Processes Relevant to Financial Reporting and Communication.”
  • .18, “Obtaining an Understanding of Internal Control Relevant to the Audit.”
  • .19, “Obtaining an Understanding of the Controls Relevant to the Audit.”
  • .20, “Control Activities That Are Always Relevant to the Audit.”
  • .21, “Control Activities That May Be Relevant to the Audit.”

Review the recently issued technical questions and answers page on the AICPA’s Web site.

AICPA issues framework related to cybersecurity risk management

Apr 26, 2017

On April 26, 2017, the American Institute of CPAs (AICPA) issued a framework related to cybersecurity risk management.

The purpose of the framework is to “enable all organizations — in industries worldwide — to take a proactive and agile approach to cybersecurity risk management and to communicate on those activities with stakeholders.”

Review the press release and system and organization controls for cybersecurity page on the AICPA’s Web site. In addition, see Deloitte’s cybersecurity risk management examination discussion.

Technology and the Audit of Today and Tomorrow

Apr 25, 2017

On April 25, 2017, the Public Company Accounting Oversight Board (PCAOB) posted to its website remarks by Board Member Steven B. Harris entitled, "Technology and the Audit of Today and Tomorrow," delivered on April 20, 2017, at the 2017 PCAOB annual meeting with the auditing section of the American Accounting Association.

This event is held annually to exchange ideas, stimulate research, and provide information about the PCAOB for the academic community to use with their students.

In his speech, Mr. Harris mentions that the use of these technological tools and methods raise certain challenges. For example, it is important that the data being used is reliable, complete and accurate. That is true for general ledger data, other financial and operating data, and data from outside the company. Data security and quality control over these tools, whether developed in-house or by vendors, are also factors for firms to consider. And ensuring consistency of approaches across group audits may become difficult if such tools are not readily available to, or used by, affiliate offices.

Lastly, auditors should take care that they are not over relying on data analytics. As powerful as these tools are, or are expected to become, they nonetheless are not substitutes for the auditor's knowledge, judgment, and exercise of professional skepticism.

Some too are concerned that auditors will use these tools to provide additional insight to management about their operations and processes rather than to improve audit quality and investor protection. This is not surprising as a majority of articles note that through new tools for extracting, compiling, and analyzing big data, the auditor is able to provide meaningful value-added services to management.

He is particularly interested in how these new predictive tools will benefit investors and how much of what the auditor learns from these new tools will be made available to investors in a transparent way so as to enable them to make a more informed investment decision.

Review the remarks on the PCOAB's website.

Correction list for hyphenation

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