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Revised Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements (Proposed Amendments to the Appendix to CAS 501) [Completed]

Effective date:

The new Joint Policy Statement is effective for inquiry letters dated on or after December 1, 2016.

Included in the CPA Canada Handbook - Assurance:

April 2016

Last up­dated:

April 2016

Overview

Changes are required to the CPA Canada Handbook – Assurance material in order to deal with the various financial reporting frameworks (including IFRS) that may apply regarding contingencies related to litigation. The existing Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements (i.e., Appendix to Canadian Auditing Standards (CAS) 501, Audit Evidence — Specific Considerations for Selected Items) is based on the terminology and the accounting requirements in accounting standards for private enterprises in Part II of the CPA Canada Handbook – Accounting and pre-changeover accounting standards in Part V. For entities that adopt IFRS in Part I of that Handbook, the existing Joint Policy Statement is not compatible with IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

Fundamental proposed changes to the Joint Policy Statement include: (i) expanding the scope of the revised Statement to apply to in-house legal counsel who is acting in a legal capacity by performing a role that commonly would be performed by external legal counsel; (ii) providing a more detailed discussion on the legal concept of privilege; (iii) structuring the revised Statement to be accounting framework neutral so that it can be used regardless of the applicable financial reporting framework applied by management to evaluate the entity’s claims and possible claims; and (iv) updating guidance with respect to the timing of issuance of the inquiry and response letters.

The AASB proposes that the revised Joint Policy Statement will replace: (i) the existing Joint Policy Statement of the same name; and (ii) Assurance and Related Services Guideline, AuG-46, Communication with Law Firms under New Accounting and Auditing Standards (often known to lawyers as the “Interim Guidance”).

 

Other developments

April 2016

On April 1, 2016, the AASB released a Basis for Conclusions summarizing the process followed in developing this Statement and the conclusions reached by the AASB and the CBA Committee regarding significant comments received in response to its Exposure Draft.

July 2015

In July 2015, the AASB determined that it expects to approve the final revised Joint Policy Statement at its October 2015 meeting.

November 2014

On November 27, 2014, the AASB and Canadian Bar Association jointly issued an Exposure Draft, Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements.  A detailed overview of the significant changes in the proposed revised Joint Policy Statement is provided in Appendix I to the Exposure Draft.  Comments requested by April 6, 2015.

 

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