Entrepreneurial CAs Presentation TUESDAY, FEBRUARY 16, 2010 ROYAL GLENORA CLUB - EDMONTON
Overview of Topics � Application of CAS � Canadian Standards on Quality Control � The New Auditor’s Report � Other Major Differences Between CAS and GAAS
Application of CAS � The Canadian Auditing and Assurance Standards Board (AASB) is adopting International Standards on Auditing (ISAs) as Canadian Auditing Standards (CASs) for the audits of financial statements. � Once effective, the CASs will constitute Canadian generally accepted auditing standards (GAAS) for financial statement audits. � The CASs will apply for audits of financial statements for periods ending on or after December 14, 2010.
Application of CAS � Bear in mind that most of the differences between Canadian and international standards have largely been resolved over the past few years. � There will be still be differences with respect to the wording and as a result of the new numbering of CASs to be consistent with what is being done internationally. � For example, report qualifications will be referred to as report modifications.
Application of CAS � Under the new CAS, there will be a new auditor’s report. The most significant differences will be for group audits, estimates, related party transactions, confirmations, use of experts and going concern. � The CICA Handbook now consists of two parts. Part I consists of the new CSQC 1 and CASs. Part II consists of the current generally accepted auditing standards (GAAS).
Canadian Standards on Quality Control � The Auditing and Assurance Standards Board is also adopting International Standards for Quality Control (ISQC 1), as Canadian Standards for Quality Control (CSQC 1), which will apply to all firms performing assurance engagements. � CSQC 1 comes into effect for all firms that provide assurance services on December 15, 2009. � CSQC 1 is very similar to GSF-QC with the following two differences.
Canadian Standards on Quality Control � GSF-QC provides that the engagement quality control review is to be completed prior to issuance of the auditor’s report. � CSQC 1 provides that the engagement quality review is to be completed on or before the date of the auditor’s report.
Canadian Standards on Quality Control � Notice that this difference applies only to the audits of financial statements and other historical financial information. � Engagement quality control reviews still must be completed prior to the issuance of the report for reviews and other assurance engagements. � The second difference deals with the monitor.
Canadian Standards on Quality Control � Under GSF-QC.101, “an inspection of an engagement would be undertaken by individuals who, whenever possible, were not involved in performing the engagement or acting as an engagement quality control reviewer for it.” � This means the same individual could be part of the engagement team or act as engagement quality control reviewer and complete the inspection.
Canadian Standards on Quality Control � Under CSQC 1.48(c), “those performing the engagement or the engagement quality control review are not involved in inspecting the engagement.” � This means that self-monitoring will not be permitted. � If an engagement file quality review has been completed, a third qualified person will be required to complete the inspection.
Canadian Standards on Quality Control � If an engagement file quality review has not been completed, a second qualified person will be required to complete the inspection. � This change affects all assurance engagements, not just audits.
CAS 700 – Forming An Opinion And Reporting On Financial Statements � See new audit report � The auditor's report shall be signed. � The auditor's report shall be dated no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor's opinion on the financial statements, including evidence that: � (a) All the statements that comprise the financial statements, including the related notes, have been prepared; and � (b) Those with the recognized authority have asserted that they have taken responsibility for those financial statements.
CAS 700 – Forming An Opinion And Reporting On Financial Statements � This is the date of substantial completion; however, there is an international exposure draft that proposes using the date when management or the board approves the financial statements. � Paragraph 5400.35 currently states that the “auditor's standard report should disclose the place of issue.” � Under the new report, a firm can name the location in the jurisdiction where the auditor practices.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Audit Documentation – CAS 230 � CAS 230 sets out a period of 60 days after the date of the auditor’s report before the file is “frozen”. Section 5145 sets out a period of 45 days from the date the report is released.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Communicating Deficiencies In Internal Control – CAS 265 � CAS 265 requires an auditor to communicate all internal control deficiencies noted during the audit. � This is broader than Section 5141 which requires an auditor to communicate material weaknesses in internal control.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures – CAS 540 � CAS 540 contains more detailed and rigorous requirements than Section 5305, AUDIT OF ACCOUNTING ESTIMATES. � This Section introduces risk assessment procedures which is not present in the current standards. This is consistent with application of the audit risk model.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � It also requires the auditor to understand the processes used by management to make accounting estimates. � As well, the auditor is expected to review the outcome of accounting estimates made in the prior period financial statements. � If an auditor has determined that an accounting estimate gives rise to a significant risk, the auditor will need to assess how management has assessed the effect of estimation uncertainty. � This means an auditor must evaluate whether the significant assumptions made by management provide a reasonable basis for the accounting estimate, i.e. if management has considered alternative assumptions or outcomes, why were these rejected?
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Related Parties – CAS 550 � Section 6010, AUDIT OF RELATED PARTY TRANSACTIONS, applies a risk-based approach for auditing related party transactions. � CAS 550 is procedures based in that it requires an auditor to perform specific procedures to verify the completeness of related party transactions that are provided to the auditor by the client. � Although Section 6010 suggests similar procedures, they are not required.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Going Concern – CAS 570 � There is no GAAS equivalent to CAS 570. Under this Section, the auditor will need to evaluate the appropriateness of management’s use of the going concern assumption in preparing the entity’s financial statements and to reach a conclusion as to whether there is material uncertainty with respect to the entity’s ability to continue as a going concern.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Audits of Group Financial Statements – CAS 600 � There is no GAAS equivalent to CAS 600. � Under this Section, the group audit team will be required to establish an overall group audit strategy and develop a group audit plan that will be reviewed and approved by the group audit partner. � CAS 600 provides more extensive and explicit requirements on the consolidation process, subsequent events, communications with component auditors and communications with management and the body responsible for oversight and governance.
OTHER MAJOR DIFFERENCES BETWEEN CAS AND GAAS � Using The Work Of An Auditor’s Expert – CAS 620 � CAS 620 is more restricted than Section 5040, USE OF SPECIALISTS IN ASSURANCE ENGAGEMENTS. � It deals only with the use of the work of the auditor’s expert whereas Section 5040 deals with using the work of an expert, regardless of who has done the work. � However, CAS 620 has more explicit requirements on matters such as gaining an understanding of the expert’s field of expertise and on providing direction and communication to the expert.
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