In this Update: Less Complex Entities; Firm Risk Management; Understanding Financial Statements.
We are in the middle of summer and many of you are taking the opportunity to take some well-deserved time off. With that in mind, this month’s update is “summer-lite”. Only a few topics to reflect upon during this slower time of the year. Read on…
Less Complex Entities Discussion Paper
As mentioned in a previous update, the IAASB issued a discussion paper “Audits of Less Complex Entities: Exploring Possible Options to Address the Challenges in Applying the ISAs”. The discussion paper focuses on challenges that have been identified relating to applying the ISAs in the audits of less complex entities and possible actions that could be undertaken to address the identified challenges. Options include scalability of the current standards or even a new set of auditing standards. Because the AASB has committed to adopting the ISAs as CASs, Canadian standard setters are actively involved in this matter.
This is an important topic which may have a significant impact on the audits of small clients. Over the past few months I have participated in webinars, round table discussions and conference calls to provide input. I am preparing a formal response which will incorporate thoughts I have heard from many of you. Auditing small clients efficiently can be a challenge and there are many CASs that just do not make sense.
The IAASB is gathering as much input as they can and has issued a brief survey to obtain information directly from those practitioners who audit less complex entities. The survey has only 6 primary questions and 3 demographic questions so takes less than 5 minutes to complete. You don’t even have to read the discussion paper before taking the survey but I have included the link just in case you want to.
READ IAASB DISCUSSION PAPER HERE
Eight Steps to Establish a Firm Risk Management Program
Summer is a good time to think about monitoring, file inspections and updating your quality assurance manual. However risk management is more than just these things; it is important to establish a risk management “culture” in the firm. This becomes even more critical with the recently issued exposure draft Canadian Standards on Quality Management (see June update). IFAC published a thought-provoking article on this topic highlighting steps to establishing a risk management program along with the benefits it provides.
Understanding Reports on Financial Statements
As a practitioner you understand the differences between an audit, a review and a compilation. However there are many of your clients who may not clearly understand those differences, especially not-for-profit clients with volunteer Board members. CPA Canada issued a good publication to help clients learn about financial statements and the different levels of engagements you can provide. The publication succinctly outlines the concept of applicable financial reporting frameworks, explains the terms assurance and materiality and highlights differences between audits, reviews and compilations. This would be a good tool to provide to new Board members and other clients. One caution, the exposure draft on Compilation Engagements (see June update) most likely will change the Compilation Report in the near future.
In the above topics, I alluded to two important exposure drafts – Canadian Standard on Quality Management and Compilation Engagements. When issued these will have a big impact on your practice however for now, there are no updates but rest assured I will provide information as it is available. For now, enjoy the rest of summer and take advantage of the opportunity to catch up on matters. Whether it is monitoring, file efficiency reviews, file inspection or general consultation, I am here to assist as needed.
Kirsten S. Albo, FCPA, FCA
In this Update: Exposure Drafts (Quality Management & Others); Other Information (CAS 720); auditing Less Complex Entities
April 30. Another tax season is officially passed. Knowing how busy this month can be, I wanted to keep this update light. There has been a lot recent activity by the standard setters therefore this month’s updates includes topics I will cover in more detail in the coming months as matters become more relevant but they are important enough to bring to your attention today. Read on…
Exposure Drafts on Quality Management
An exposure draft Canadian Standards for Quality Management (CSQM 1) was issued April 5, 2019. CSQM 1, along with the new Engagement Quality Reviews (CSQM 2), will replace the existing CSQC 1. Why do you care? While there are many changes in the exposure draft which I will provide details on in the next update, the biggest change is CSQM 1 will apply to all assurance and related services including compilation engagements and agreed-upon procedures engagements. CSQC 1 never applied to these types of engagements as CSQM 1 will now. CPA Canada issued an Audit and Assurance Alert further detailing these exposure drafts and the reasons for the changes.
Other Exposure Drafts
The Audit and Assurance Board is still deliberating feedback on comments received on the Exposure Drafts for Compilation Engagements (CSRS 4200), Reporting on Controls at a Service Organization (CSAE 3416) and Identifying and Assessing the Risks of Material Misstatement (CAS 315). Exposure Drafts for Group Audits and Agreed-Upon Procedures Engagements are being drafted. Why do you care? It is important to keep up-to-date on standards. I will provide updates and the impact as these Exposure Drafts are released, re-exposed or become effective the Handbook.
Other Information (CAS 720)
As you turn your attention back to your audit engagements, it is a good time to remind yourself of the new reporting requirements related to Other Information (CAS 720). This topic is getting a lot of attention as it is not always clear what constitutes “other information”. CPA Canada issued further guidance on other information considerations as it is not always just a formal, glossy annual report put out by the organization. Why do you care? It is a subjective area which requires discussions with management and Those Charged with Governance.
Audits of Less Complex Entities (LCE)
The audit of Less Complex Entities has been a topic for discussion for both the IAASB and Canada’s AASB over the past several years; we are finally seeing results from those discussions. This past November, I participated in an outreach session hosted by the AASB to discuss the barriers to effective and efficient audits of less complex entities. I have heard many comments of the challenges faced by small to mid-sized practitioners and was able to pass these on to the AASB directly. The results of this session will be released in a Discussion Paper shortly.
In the meantime, the IAASB has released their Discussion Paper exploring how the IAASB and others could further support auditors working in increasingly evolving environments. The IAASB is asking for feedback on their paper and I plan to respond by the deadline of September 12, 2019. Why do you care? This is an important topic for practitioners who audit smaller (or less complex) clients and more efficient and effective engagements may be the final result of these discussions. It will be interesting to see what comes next.
Lots to think about in the coming months but for now, take a breathe. Rest assured there is time to deal with all of these matters in the coming months and I am here to assist you as needed. In the meantime, enjoy the upcoming weekend.
Kirsten S. Albo, FCPA, FCA