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New Auditor Reporting (Amendments to CAS 700, CAS 705, CAS 706, CAS 260 and CAS 570 and new CAS 701) [Completed]

Effective date:

The new and revised auditor reporting standards will be effective for audits of financial statements for periods ending on or after December 15, 2018.

Included in the CPA Canada Handbook – Assurance:

June 2017

Next steps: 

The AASB is currently monitoring PCAOB activities and next steps are to be determined.

Last up­dated:

May 2018

Overview

Users of audited financial statements are asking auditors to provide more information in their reports about significant matters in the financial statements, as well as about the conduct of the audit. The IAASB and the AASB believe that a quality audit should be accompanied by an informative auditor’s report that delivers value to the entity’s stakeholders. The IAASB undertook, and, in January 2015, completed a project to revise its auditor reporting standards.

Revisions that the IAASB made to its auditor reporting standards (e.g., ISA 700, Forming an Opinion and Reporting on Financial Statements) will be reflected in the equivalent Canadian Auditing Standards (CAS) with limited Canadian-specific amendments, if any are necessary.

In April 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:

  • deferring the effective date for application by one year; and
  • 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 the CPA Canada Handbook update in mid-2017.

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.

In June 2017, the Public Company Accounting Oversight Board (PCAOB) adopted a new auditing standard to enhance the relevance and usefulness of the auditor's report by providing additional and important information to investors. A fact sheet is available on the PCAOB's website.

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.

For a comparison of auditor reporting standards between the PCAOB and IAASB and an example of an auditor’s unqualified report, see Appendix A and B in the US publication, PCAOB Reproposes Changes to the Auditor’s Report.

Also, two new publications comparing the IAASB and PCAOB standards have been developed by the IAASB’s Auditor Reporting Implementation Working Group. These publications will assist users in understanding the key similarities and differences between the IAASB and PCAOB requirements.

The PCAOB published staff guidance that describes changes to the auditor's report that become effective for audits for fiscal years ending on or after December 15, 2017. The guidance addresses key changes to the auditor's report required this year, such as the form of the auditor's report, disclosure of auditor tenure, a statement on auditor independence, and a required explanatory paragraph on Internal Control Over Financial Reporting (ICFR) in certain circumstances. The guidance also provides a high-level overview of the requirements regarding Critical Audit Matters (CAMs).

 

Other developments

December 2017

On December 4, 2017, the PCAOB published staff guidance that describes changes to the auditor's report that become effective for audits for fiscal years ending on or after December 15, 2017.

August 2017

On August 1, 2017, the IAASB welcomed the adoption by the PCAOB of a new auditing standard to enhance auditor’s reports by providing additional, relevant information to users, including critical audit matters.

June 2017

On June 15, 2017, the AASB released Basis for Conclusions – New and Revised Auditor Reporting Standards, which summarizes the process followed in developing new and revised auditor reporting standards and the conclusions reached by the AASB.

On June 1, 2017, the PCAOB adopted a new auditing standard to enhance the relevance and usefulness of the auditor's report by providing additional and important information to investors.

April 2017

In April 2017, the PCAOB announced that it plans to adopt a final standard on the Auditor’s Reporting Model in the second quarter. The PCAOB had previously planned to adopt the standard in the first quarter.

November 2016

On November 30, 2016, the IAASB released the publication, Auditor Reporting: Frequently Asked Questions, which has been prepared by the Auditor Reporting Implementation Working Group, and provides guidance to address areas where there are common differences in interpretation of the IAASB’s new and revised Auditor Reporting standards and ISA 720 (Revised), which are effective for periods ending on or after December 15, 2016.

On November 14, 2016, the AASB provided an update on the progress towards adopting new international standards. They are still considering whether key audit matter reporting should be required for audits of other listed entities. They intend to conduct research on this topic with a view to making a decision within 18 months of the date when this reporting becomes effective for Toronto Stock Exchange listed entities. They currently do not anticipate making the CASs effective prior to periods ending on or after December 15, 2018.

October 2016

In October 2016, the AASB staff updated this project to advise that the final CPA Canada Handbook material is expected to be issued in Q2/2017.

July 2016

On July 1, 2016, the PCAOB posted to its website an updated standard-setting agenda that outlines milestones on various standard-setting projects. This includes its Auditor Reporting Model project, in respect of which on May 11, 2016 the Board issued for public comment a reproposed auditor reporting standard. The reproposal would retain the pass/fail model in the existing auditor's report, but would update the form and content of the report to make it more relevant and informative to investors and other financial statement users. In particular, the auditor's report would include a description of "critical audit matters," which would provide audit-specific information about especially challenging, subjective, or complex aspects of the audit. In addition, the reproposal includes other improvements, primarily intended to clarify the auditor's role and responsibilities in the audit of financial statements and to make the auditor's report easier to read. The comment period on the reproposed standard and related amendments to PCAOB standards ends on August 15, 2016. For further information refer to the PCAOB’s rulemaking docket.

May 2016

On May 23, 2016, the IAASB welcomes the release by the US PCAOB of its re-proposed auditing standard, "The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion." The PCAOB’s reproposal would require auditors conducting audits under PCAOB standards to provide information on critical audit matters (CAM) in the auditor’s report, in addition to other enhancements.

New in this reproposal is the requirement that the auditor also discuss how the CAM was addressed in the audit. This discussion should utilize language that will make the information useful to investors, which means that descriptions of audit procedures should not be overly technical, but should convey how and why the procedure helped the auditor become comfortable with the critical matter. This project is intended to provide information to investors in order to decrease the information asymmetry between auditors and investors.

December 2015

In December 2015, the AASB staff updated this project to advise that these final Canadian standards are expected to be issued in Q3/2016.

June 2015

On June 15, 2015, the AASB issued an Invitation to Comment, Implementation Considerations for New Auditor Reporting Standards, which seeks input from Canadian stakeholders on proposed effective dates and other considerations.  Comments requested by October 30, 2015.

April 2015

On April 22, 2015, a publication, Auditor Reporting – Illustrative Key Audit Matters, prepared by the IAASB’s Auditor Reporting Implementation Working Group, was published. The publication is intended to illustrate how the concept of Key Audit Matters may be applied in practice in accordance with the new ISA 701.

On April 15, 2015, the AASB’s Chair, Cathy MacGregor, explained why the AASB plans to issue an invitation to comment and an exposure draft addressing specific proposed Canadian amendments to the international standards. Cathy MacGregor provided an update on the AASB’s adoption of ISAs as CASs dealing with auditor reporting. This relates to two projects: (i) reporting on audited financial statements – new and revised auditor reporting standards and related conforming amendments; and (ii) the auditor’s responsibilities relating to other information (ISA 720).

January 2015

On January 30, 2015, the IAASB issued (i) Auditor Reporting – Key Audit Matters, a publication prepared by the Auditor Reporting Implementation Working Group which is intended to assist in understanding key aspects of Key Audit Matters as set out in the new ISA 701; and (ii) Auditor Reporting on Going Concern, a publication also prepared by the Auditor Reporting Implementation Working Group which provides an overview of how the new auditor’s report will address going concern as set out in ISA 570 (Revised).

On January 15, 2015 the IAASB issued a Press Release and its new and revised auditor reporting standards together with: (i) a staff-prepared Basis for Conclusions document which provides the background for, and a summary of, the rationale for the IAASB’s conclusions ; and (ii) a staff-prepared At a Glance summary of the new and revised ISAs.  

September 2013

On September 30, 2013, the AASB issued for comment an Exposure Draft, Reporting on Audited Financial Statements, which is similar to that of the IAASB.  Comments requested by November 1, 2013.

July 2013

On July 25, 2013, the IAASB issued for comment an Exposure Draft, Reporting on Audited Financial Statements: Proposed New and Revised International Standards on Auditing (ISAs). The proposals respond to calls from investors, analysts, and other users of audited financial statements in the wake of the global financial crisis for the auditor to provide more relevant information in the auditor’s report.  Comments requested by November 22, 2013.

 

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