September 2023
Greetings,
I have been quiet on the technical front for a bit. On one hand, it has been quiet from an implementation perspective however on the other hand there is actually a lot on the go. This month I am going to focus on technical to help get you up to speed on what is happening. Read on…
Going Concern (CAS 570) Exposure Draft Issued
This exposure draft was issued back in May 2023 and comments are now being deliberated (comment period only closed July 31, 2023). The going concern discussion is always an interesting one. Auditors are required to obtain sufficient appropriate audit evidence on the appropriateness of management’s use of the going concern basis of accounting, and to conclude whether a material uncertainty exists about the entity’s ability to continue as a going concern.
Several high-profile corporate failures in recent years have sparked a public debate about auditors’ responsibilities. This led to a project to revise CAS 570, Going Concern.
As quoted on the FRAS website, the objectives of the project are as follows:
- Emphasize the going concern aspects of the auditor’s understanding of the entity and its system of internal control in risk assessment.
- Enhance the auditor’s evaluation of the reasonableness of management’s assessment period.
- Consider extending the timeline for the assessment period to at least 12 months from the date of approval of the financial statements, or the date the auditor’s report is signed.
- Consider defining “material uncertainty related to going concern (MURGC)” in alignment with financial reporting frameworks and auditing standards.
- Emphasize the robust exercise of professional skepticism when performing procedures related to going concern.
- Strengthen communications with those charged with governance.
- Enhance the auditor’s communications with external parties, including regulators, when issues are identified relating to going concern.
- Enhance transparency in the auditor’s report
Audit Evidence (CAS 500) Exposure Draft Issued
This exposure draft was issued in November 2022 and comments have been deliberated for some time now. A lot has changed since the initial standard was issued in 2009…the growing use of technology in audit and enhancing audit quality and the questions raised about the reliability of underlying information and the impact of technology on audit evidence are what drove this project to move forward.
As quoted on the FRAS website, the objectives of the project are to:
- Explore issues relevant to audit evidence, including those arising from technology, professional skepticism, and the growing number of sources of information available to auditors.
- Identify and implement actions to address these issues, which may include revisions to CAS 500, or other actions, such as non-authoritative guidance.
Fraud (CAS 240) Exposure Draft Expected Shortly
The exposure draft for this standard has not been issued but is expected shortly as fraud is a serious concern that can have devastating consequences. Fraud is described in auditing standards as “an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.” In recent years, high-profile international corporate failures and significant accounting restatements have put a spotlight on participants in the financial reporting ecosystem who are involved in the preparation, approval, audit, analysis, and use of financial reports, particularly in the area of fraud. This has led to the CAS 240 fraud project.
As quoted on the FRAS Canada website, the objectives of the project are to:
- Clarify the role and responsibilities of the auditor for fraud in an audit of financial statements;
- Promote consistent behaviour and facilitate effective responses to identified risks of material misstatement due to fraud through strengthening CAS 240 to establish more robust requirements and clarify application material where necessary;
- Enhance CAS 240 to reinforce the importance, throughout the audit, of the appropriate exercise of professional skepticism in fraud-related audit procedures; and
- Enhance transparency on fraud-related procedures where appropriate, including strengthening communications with those charged with governance and the reporting requirements in CAS 240 and other relevant CASs.
ASNPO Contributions - Revenue Recognition Exposure Draft Issued
The exposure draft has been issued and the comment period closed at the end of this month. With this project, the AcSB wants to improve financial reporting by Not-for-Profit Organizations (NFPOs) by creating guidance that will result in financial statements that are less complex and more comparable for financial statement users. This project will affect Canadian NFPOs applying the standards in Part III of the CPA Canada Handbook – Accounting (the Handbook).
As quoted on the FRAS Canada project page, this project considers topics such as:
- The definition of restricted and unrestricted contributions;
- The timing of recognition of revenue from contributions;
- Specific types of contributions including endowments, capital asset contributions, and contributed materials and services; and
- Other related topics including presentation and disclosure.
- Exposure Draft July 2023. New Section 4411. Response deadline September 30 2023
LCE Standard Approved by the IAASB
And for the biggest news of all this month… the new auditing standard for less complex entities was approved. The standard is now officially out there. The big question is now, what do we do here in Canada?
The LCE standard is outside the “International Auditing Standards” and therefore we are not required to adopt this standard. The Auditing and Assurance Standards Board (AASB) is carefully addressing the way forward in Canada. Now that the standard has been approved, the final version is locked down and they know exactly what they are dealing with. I think the AASB is doing the right thing by taking their time and considering the impact. I am on the LCE Advisory Group and we have been talking about this for a long time.
When you read the LCE standard closely, there is not a lot of change from the existing CASs. Yes, it is easier to read than the existing standards as it follows the “flow” of an audit. And yes, there is explanatory information included. But in the end, many of the pain points that auditors face in auditing less complex entities (think preliminary analytics, unpredictability, design and implementation of control activities, journal entry testing) are all still there.
In my opinion, barely anything has changed, therefore does it make sense to adopt? And, if it is not adopted, how we we help SMPs be effective, do the right work, and efficient, do the right amount of work?
A very small firm may have audits that fit into the LCE standard but there are many audits, even in an SMP, that may be scoped out of the LCE standard. It is already challenging enough for SMPs to implement the standards, and the idea of having “two” sets of auditing standards makes it even more challenging. The coming days will be interesting… stay tuned.
[Free Webinar] CSQM 1 Implementation Blueprint
The message is getting out. CSQM 1 must be implemented. The September session had over 100 participants and the demand is still there… so I am offering yet another session for my free CSQM 1 Implementation Blueprint webinar.
Join me on October 19 @ 2 pm CDT (3 pm EDT)
where I will share my CSQM 1 Implementation Blueprint with you.
–> If you’re a compilation engagement-only firm looking to understand what the changes mean… This webinar is for you.
–> If you’re struggling to get started on your CSQM implementation plan… this webinar is for you.
–> If you an assurance services firm and maybe a bit late to the table on designing and implementing your system of quality management… this webinar is for you.
Many practitioners have some idea of what’s coming but haven’t yet started. The reality is a lot of firms are underestimating what needs to be done to meet the requirements.
We have coached +150 firms on implementation. In this webinar, we share our blueprint with you. You will walk away with massive clarity on CSQM 1 and confidence in your path forward.
And, since the session is live you will have a chance to ask any question that is on your mind.
Don’t forget, this session counts as free verifiable CPD. And… if you join in you will hear bonuses about CSQM 1 workshops that are for attendees only.
Lots on the go as we head into the last few months of the year. Stay tuned for updates… and remember I am always here to help you save time and achieve peace of mind. Reach out as needed.
Best regards,
Kirsten S. Albo, FCPA, FCA
President