Eight points for audit committees to consider.
In response to the global impetus to improve audit transparency and generate enhanced auditor insight into key audit matters, the International Auditing and Assurance Standards Board (IAASB) recently (January 15) issued new International Standards on Auditing (ISAs). Following this lead, the Canadian Auditing and Assurance Standards Board (AASB) intends to adopt these standards as Canadian Auditing Standards (CASs), although they have tentatively deferred Canadian implementation to a later date than that required by the corresponding ISAs. This extension has allowed the AASB to issue an “Invitation to Comment,” with the goal of soliciting input on implementation issues from all Canadian audit stakeholders, including audit committees (ACs).
These standards move away from binary, pass/fail auditor reports and boilerplate language. Among several new components, a key new requirement is that they propose to require auditors to indicate what were, in their opinion, the key audit matters—the areas of most significant risk or judgment—and why they considered them so. The auditors must also discuss what they did in response to those risk areas. The intention, then, is to have a report tailored to each company’s specific circumstances, particularly with respect to the risk profile and the auditor’s understanding of and response to those risks.
Similar expanded reporting is already required in some European jurisdictions, such as the Netherlands and the UK—visit our “Expanded Auditor Reporting” reference page for additional information. Indeed, auditor reporting in the UK has in some instances gone further than the minimum requirements and included the auditor’s findings related to identified risks, to the delight of investors, who are keen for any added risk insight or information that can be gleaned from the audit. The US, on the other hand—while having issued an exposure draft some time ago—has no existing expanded auditor reporting requirement in place. While the PCAOB (Public Company Accounting Oversight Board) intends to issue a revised proposal later this year, final standards and their effective implementation date may not be known for another year, which means that their effective date would likely be after the effective date of the auditor reporting ISAs.
The AASB is proceeding carefully. Cognizant of the challenges inherent in Canadian implementation, they participated in the IAASB’s initial commenting process and the key Canadian concerns were taken into account. Now that the ISAs have been issued, rather than simply implement them on a parallel timeframe to other global jurisdictions, the AASB is initiating its own “Invitation to Comment” [PDF 132 KB] for 2015, encouraging all Canadian audit stakeholders—including corporate ACs and management executives—to have their say.
Sitting, as it is, in an unsettled international landscape, Canada faces some CAS implementation issues that ACs—as well as management executives—should consider seriously:
1. Knowledge is critical
2. The AASB will tentatively allow staged implementation of the new standards
3. The timing for Canada is extended, but still imminent
4. Many Canadian companies operate in both Canada and the US
5. Canadian ACs are not currently required to submit a risk report
6. The audit discussion environment will change
7. Fulfilling the requirements of the new standards will probably require more time and resources on the part of both the AC and auditors
8. The time to act is now
Some ACs and AC members may not have been following the audit reporting project closely, so this is the time to get up to speed and enter the loop. Once the commenting period has past—the deadline is October 30, 2015—no exposure draft will be issued, meaning the opportunity to provide your opinion will be past and the CASs will be imminently issued. It’s important that more than auditors and investors comment on these matters. Now is the time for the business community to speak up, help to ensure its opinion is heard and be part of a process that will affect it significantly and directly going forward.