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: Summary of Upcoming Changes; Support for SMP; Common Technology Mistakes
For many, the focus for the month of June has been completing year end engagements and getting tax returns out the door. Now time to take a breathe and think forward to the next few months; as there are many upcoming changes that will have an impact on your practice, this month’s update focuses on a summary of those changes and resources to support you getting ready for them. Read on…
Summary of upcoming changes
Below are some of the current projects the standard setters are addressing. This is not a comprehensive list but rather the key ones that I think are important to small and mid-sized firms. Within each section I have provided the link to the Financial Reporting and Assurance Standards Canada (FRAS) site which includes further details and a listing of all active and completed projects.
|Standard||Status and Impact|
|CAS 315: Identifying and Assessing Risks of Material Misstatements||Exposure draft issued September 2018 and feedback being considered. Impact: Significant changes to audit approach and documentation.|
|CAS 540: Auditing Accounting Estimates||Final Handbook material issued and standards in effect for periods on or after December 15, 2019. Impact: Minimal impact unless complicated estimates in your clients financial statements.|
|CAS 700 et al: Auditor Reporting||Final Handbook material issued and standards in effect for periods on or after December 15, 2018. Impact: Now issue new auditor’s report.|
|Audits of Less Complex Entities||Discussion paper issued June 2019; response deadline August 14, 2019. Impact: Not sure on this but goal is scalability for small audits so that not as onerous as is today.|
|Quality Management||Exposure draft issued April 2019 and feedback being considered. Impact: New QAM required to address changes and compilations could now be covered by these standards.|
|CSRS 4200: Compilation Engagements||Exposure draft issued September 2018 and feedback being considered. Impact: Significant changes including documentation, accounting framework and report.|
|Public Sector Auditing Standards||Exposure draft for guidance on performance audits currently being developed. Impact: Significant changes but only if you do compliance reporting.|
|CSAE 3000/3001 et al: Assurance on Compliance with Agreements, Statutes and Regulations||Final Handbook material issued and standards in effect for periods on or after April 1, 2019. Impact: New auditor’s reports for special engagements such as compliance, public sector compensation and other government required reporting.|
|Agriculture||Exposure draft issued July 2018 and feedback being considered. Impact: Significant changes for farming clients.|
|Contributions – Revenue Recognition and Related Matters||Public outreach since January 2016 and is continuing. Impact: Not sure since a long way away from being finalized.|
I am happy to discuss any of the changes above further with you if you have additional questions.
Resource Roundup: Implementation Support for Small- and Mid-Sized Practices
Keeping up to date with standards poses unique challenges for small- to mid-sized practices (SMPs), especially as the changes are coming fast and furious (see topic above). Canadian Standards are basically now driven by what is happening with International Standards. I am here to help keep up to date on standards and will provide you updates as the changes are announced. The International Federation of Accountants (IFAC) is another great sources of information and tools. To support SMPs, IFAC has developed extensive implementation support for international standards and offers an extensive suite of material. The link below is to a nice summary of available information.
12 Common Technology Mistakes You Should Avoid
Not only can it be difficult keeping up with standards, keeping up with technology creates its own challenges. A recent article in the Journal of Accountancy addressed several questions such as could your company survive a data breach or could your company withstand a server crash? The author identified 12 common technology mistakes and offers recommendations for avoiding them. I found the article very interesting and more importantly, very practical.
I hope you had a nice long weekend and were able to take advantage of the beautiful weather we had. While the summer months typically slow down, it is also a good time to ensure you are prepared for the next few months. This is a good time to undertake such activities such as planning, completing file reviews and monitoring. I have recently joined the CPA Canada PEG Task Force Committee. Over the past few years I have had conversations with many of you about the PEG and now have the opportunity to bring those views forward. Stay tuned in for future updates. I am here to support you as needed, feel free to contact me at any time.
Kirsten S. Albo, FCPA, FCA