Entrepreneurial CAs Presentation TUESDAY, FEBRUARY 16, 2010 ROYAL - - PowerPoint PPT Presentation

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

• pinion 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

• r 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

• f 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.

Appendix: Auditor’s Report Under CAS

• Auditor’s Report Under CAS:
• INDEPENDENT AUDITOR'S REPORT
• [Appropriate Addressee]
• We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as at December 31, 20X1, and

the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

• Management's 31 Responsibility for the Financial Statements
• Management is responsible for the preparation of these financial statements in accordance with XYZ Law of Jurisdiction X, and for such

internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

• Auditor's Responsibility
• Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with

Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

• An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The

procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose

• f expressing an opinion on the effectiveness of the entity's internal control. 32 An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the presentation of the financial statements.

• We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
• Opinion
• In our opinion, the financial statements of ABC Company for the year ended December 31, 20X1 are prepared, in all material respects, in

accordance with XYZ Law of Jurisdiction X.

• [Auditor's signature]
• [Date of the auditor's report]
• [Auditor's address]