David Baker, B. Admin. - Financial Reporting and Assurance

David Baker, B. Admin.
Chartered Accountant
10 Blue Heron Court
Elmira, Ontario N3B 1S6
(519) 669-8308
[email protected]
March 10, 2011
Greg Shields, CA
Director, Auditing and Assurance Standards
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, Ontario
M5V 3H2
Dear Mr. Shields:
As I was unable to use the automatic submission alternative of your response form with
my email system, I am writing to provide my responses to the questions posed in your
form entitled “Review Engagements – Invitation to Comment”.
The questions in that form, and my related responses, are as follows:
1.
The attached Appendix notes how proposed ISRE 2400 (Revised) and the 8000
series differ regarding their approach to the “level of assurance associated with a
review.” Do you believe that it is important that the revised Canadian review
engagement standard mirror the existing standard by including an explicit reference
to the concept of “plausibility” as the basis for considering whether the practitioner
has performed enough work to support his or her conclusion? Please provide reasons
for your response.
My Response:
I not only believe that a reference to the concept of "plausibility" should continue to be
included in review standards, I believe that it should be clarified by tying that plausibility
to the notion of materiality. Since the 8000 series of standards were issued over twenty
years ago, I have been uncomfortable with the vague goal of a review being stated as the
plausibility of the financial statements. To a literal reader of the standards, plausible
statements would be merely those worthy of belief. Such a definition could result in a
wide divergence in the financial statement precision required by practitioners to allow an
unqualified review engagement report.
As practitioners have for many years been expected to determine a materiality amount on
which to base their report conclusion, in reality, the goal of a review engagement has been
to determine if it was plausible that the financial statements did not contain material
misstatements. While materiality is mentioned in the conclusion paragraph of the review
engagement report, I do not feel that the relationship between materiality and plausibility
is adequately described in the review standards of the current CICA Handbook.
I believe that the objective of a review engagement would be much more clear if the term
"plausibility" was replaced with the phrase "plausible that the financial statements are free
of material misstatements" in the relevant review standards.
2.
Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft,
do you believe that it would be appropriate for the AASB to adopt ISRE 2400
(Revised) to replace the 8000 series? Please provide reasons supporting your
response, including the types of amendments to ISRE 2400 (Revised) you consider
would be necessary for the standard to be appropriate for use in the Canadian
reporting context.
My Response:
While I believe that there are some benefits to having the review standards made more
consistent with the recently adopted international auditing standards, I have concerns over
the level of understanding required under ISRE 2400 paragraphs 43 and A79. Paragraph
A79 specifically requires the practitioner to consider the entity's "control environment"
and "related controls through which the entity’s accounting records and related
information is maintained from which the entity’s financial statements are derived". Such
an emphasis on controls seems to be too great for the level of assurance provided by a
review engagement. Even if the level of understanding required by ISRE 2400 of an
entity's controls is expected to be much lower than in an audit engagement, such vague
terms as those used in paragraph A79 may lead practitioners to prepare unneeded control
documentation and to perform unnecessary risk procedures to protect themselves during
practice inspections. Whether intended or not by standard setters, in my opinion, such
wording will increase the cost of a review engagement and push clients further toward
compilation engagements which might be performed by unlicensed accountants.
As a result, I do not support the adoption in Canada of ISRE 2400 (Revised). I feel that
consistent international auditing standards were appropriate to adopt due to the
international nature of public company investors. I believe that the vast majority of
review engagement report users are much more local, making the need for consistent
international review standards significantly less important.
In conclusion, I believe that any new review engagement standards to be used in Canada
should be developed by Canadians based on our historical expectations and identified
needs.
If you have any questions regarding my above responses, please do not hesitate to contact
me.
Yours truly,
David Baker, CA
Click here to submit
Review Engagements
INVITATION TO COMMENT
Comments are request by April 11, 2011
AASB welcomes comments on all aspects of the Invitation to Comment
This form is not intended to constrain your response. Each text box will accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior to submission.
Name :
Dennis Medaglia, CA, Partner
Organization :
Collins Barrow Ottawa LLP
E-mail :
[email protected]
Phone : 613-768-7543
Providing comments to the AASB re: standards for review engagements in Canada
The AASB would appreciate receiving responses to the following questions, in addition to receiving a copy
of the response to the IAASB's Exposure Draft.
1.
The attached Appendix notes how proposed ISRE 2400 (Revised) and the 8000 series differ regarding
their approach to the “level of assurance associated with a review.” Do you believe that it is
important that the revised Canadian review engagement standard mirror the existing standard by
including an explicit reference to the concept of “plausibility” as the basis for considering whether the
practitioner has performed enough work to support his or her conclusion? Please provide reasons for
your response.
• Do clients understand what plausibility is? Do they understand what a review is? Do they think that we are performing an
audit?
o For the most part clients don’t understand the difference between a review and an audit or that an audit isn’t being
performed.
o Most review clients don’t likely read the review engagement report – more concerned with the numbers in the income
statement and balance sheet.
• Each practitioner may require a different level of work to satisfy the definition of plausibility to them.
• Plausibility is inconsistent, so a more prescriptive list is required to keep work consistent among practitioners.
2.
Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft, do you believe that
it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to replace the 8000 series? Please
provide reasons supporting your response, including the types of amendments to ISRE 2400 (Revised)
you consider would be necessary for the standard to be appropriate for use in the Canadian reporting
context.
• New standards should be stand alone.
o Leads to differences in level of work performed when required to crossover to CAS under certain circumstances.
o Some practitioners performing review engagements are not familiar with CAS and would be less likely to look for further
guidance in the CAS.
• Level of work required needs to be more clearly tied into the report.
• Existing standards leave a lot of room for interpretation which results in varied levels of work among practitioners and thereby
makes the concept of a review less useful to stakeholders.
o Standards are not prescriptive enough to keep work consistent among practitioners.
o Are we doing more work than our competitors putting us at a disadvantage business-wise?
New standards could bring firms, that have been doing less work than us, up to the standard we’ve already been following.
If we’ve been doing too much work, new standards could allow as to reduce our work by providing more prescriptive
requirements.
• Level of work needs to be consistent with the terminology in the report as it currently isn’t consistent.
• More definitive guidance on the use of materiality is required.
o Current guidance seems to suggest that it be calculated if something doesn’t seem plausible so that further procedures can
be planned.
o Terminology in the report suggests that it be the basis for all work – the words "material" and “materiality” are used in the
report so it should be calculated and used as a basis for work in all reviews.
• A risk assessment requirement would allow us to focus our work on the riskier areas and do less work on areas of low risk
Other relevant points:
• Stating that “…nothing has come to our attention…” doesn’t imply a responsibility to look.
• Reviews are becoming more predominant.
o Legislation is coming out that will allow certain NFPOs to have reviews performed instead of audits.
• Page 9 of the Invitation to Comment states that the new report specifies that if an audit had been done then we may have
uncovered material misstatement so that covers the accountants better from a liability standpoint. However, we did not see
this statement in the sample reports in the exposure draft.
o The suggested wording more clearly sets out the consequences of not having an audit to the users.
o Existing report only states that an audit has not been performed, but doesn’t state the consequence of that.
• Management’s responsibility and the practitioner's responsibility do bulk up the report, and we understand why it is
necessary, but it can be hard to understand , the latter paragraphs are the most meaningful, but again it is the concept of
negative assurance without a warning that had an audit been done. As a side bar one has to wonder why say a scope limitation,
for example the one used with NFPOs re donation revenue completeness sounds more severe than no audit at all. This is an
inconsistency in reporting since when specified audit procedures are done and reported, again a strong disclaimer is present,
so one would think that a non-audit engagement report would also have strong disclaimers and warnings.
Click here to submit
PRIVATE AND CONFIDENTIAL
Via email to [email protected]
April 7, 2011
Mr. Greg Shields, CA
Director, Auditing and Assurance Standards
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto (Ontario) M5V 3H2
Re: Invitation to Comment - Review Engagements
Dear Mr. Shields:
The BHD Group has reviewed the above invitation to comment and is pleased to provide the following
comments to the Auditing and Assurance Standards Board (AASB) for its consideration.
The BHD Group is comprised of eleven medium-sized accounting firms, listed in the attached Appendix, from
across Canada.
Our responses to the Invitation to Comment are as follows:
Do you believe that it is important that the revised Canadian review engagement standard mirror the
existing Canadian standard by including an explicit reference to the concept of "plausibility" as the basis
for considering whether the practitioner has performed enough work to support his or her conclusion?
Please provide reasons for your response.
We strongly prefer keeping "plausibility". We believe that this could be easily achieved by amending
the ISRE 2400 proposed objectives as follows:
"The practitioner’s objectives in conducting a review of ~inancial statements are:
(a)
To conclude, through performing primarily inquiry and analytical procedures, and evaluating the su~iciency
and plausibility, cpprcpr~.,qtenc~c of evidence obtained, whether anything has come to the practitioner’s
attention that causes the practitioner to believe the financial statements are not prepared, in all material
respects, in accordance with an appficable financial reporting framework; and (Ref: Para. All)"
BHDTM
Mr. Greg Shields, CA
Director, Auditing and Assurance Standards
-2-
April 7, 2011
Notwithstanding our comment above, we do not believe that an explicit reference to plausibility is
absolutely essential. However, if it is not retained, we believe that retiring plausibility needs to be
carefully managed. In particular:
We agree with the observation in the preamble to the ITC that plausibility is well-understood. We
believe users recognize, understand and appreciate the extent and value of a review
engagement because there is a common understanding of plausibility. As a profession, we must
be comfortable that users can recognize, understand and appreciate the value without
plausibility. We could not support a change without extensive and appropriate user involvement
on this matter.
As practitioners, we comfortably use plausibility in every review engagement to determine when
we have done enough work. The ISRE prescribes a process for a review engagement rather
than an outcome (i.e. plausible result). We believe that the lack of a defined reference point (like
plausibility) on when to stop will affect the cost (for conservative practitioners), the quality (for
less conservative practitioners), the value to users (increased uncertainty) and the reputation of
the profession in Canada (for, at best, visibly muddying something that didn’t need fixing).
Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft, do you believe
that it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to replace the 8000 series?
Please provide reasons supporting your response, including the types of amendments to ISRE 2400
(Revised) you consider would be necessary for the standard to be appropriate for use in the Canadian
reporting context.
We recognize that something needs to be done with the HB 8000 series, at the very least to fix the
"broken" integration with audit standards. There are very many features of ISRE 2400 (Revised) that
would be valuable and useful additions to our formal review engagement guidance. However, as we
have noted in the attached copy of our response to the IAASB on the proposal, we have a number of
reservations with ISRE 2400 and do not believe it should be adopted as proposed.
We would like to take this opportunity to applaud the AASB for the clarity format of our new auditing
standards. We hope that, whatever is decided for review engagements, that clarity will persist.
We offer one last Canadian comment on review engagements. The IAASB proposes a transition date of
December 2013 for ISRE 2400 (Revised). As the relevance of our existing Handbook rapidly diminishes, the
broken links in the 8000 series become more apparent. Practice may already be diverging in the vacuum.
We believe that earlier is better for a resolution.
BHDTM
Mr. Greg Shields, CA
Director, Auditing and Assurance Standards
-3-
April 7, 2011
In summary, we believe that ISRE 2400 (Revised) as proposed would significantly alter our review
engagements. We have no doubt that some of the changes are overdue improvements. We are concerned
that, on balance, the proposed procedures will increase costs. Where cost increases result in more preparers
convincing more users to accept lower assurance engagements the net result may not be beneficial. The
proposed changes are very visible to clients; any changes need to be managed in a way that maintains or
enhances our professional credibility and relevance.
We appreciate the opportunity to provide input to the Auditing and Assurance Standards Board and hope you
find our comments useful.
Yours truly,
Robert St-Aubin, FCA
President
Encl. BHD response to the IAASB on ISRE 2400 (Revised), Engagements to Review
Historical Financial Statements
BHDTM
Appendix
BHD Association of Chartered Accountants
Member Firms:
Benoit, McGraw & Paulin
Tracadie, New Brunswick
Buchanan Barry LLP
Calgary, Alberta
Choquette Corriveau
Quebec, Quebec
D&H Group LLP
Vancouver, British Columbia
Demers Beaulne
Montreal, Quebec
Hilborn Ellis Grant LLP
Toronto, Ontario
Hyatt Lassaline LLP
Windsor, Ontario
Marcil, Lavallee
Ottawa, Ontario
Millard, Deslauriers, Shoemaker LLP
Toronto, Ontario
Nadeau, Picard & Associ~s
Grand Falls and Edmunston, New Brunswick
PKBW Group
Winnipeg, Manitoba
Thomson Jaspar & Associates
Saskatoon, Saskatchewan
Website - www.bhdca.com
BHDTM
Annie Smargiassi, CA
Conseillère des CA, Normes, produits et services professionnels
Ordre des comptables agréés du Québec
680, rue Sherbrooke Ouest, 18e étage Montréal (Québec) H3A 2S3
Tél. : 514 982.4658
Sans frais : 1 800 363.4688, poste 4658
Téléc. : 514 843.8375
Courriel : [email protected]
Montréal, le 11 avril 2011
Greg Shields, CA
Directeur, Normes d’audit et de certification
L’Institut Canadien des Comptables Agréés
277, rue Wellington Ouest
Toronto (Ontario) M5V 3H2
Monsieur,
Vous trouverez ci-joint les commentaires du Comité d’étude des exposés-sondages de l’Ordre
des comptables agréés du Québec concernant l’Appel à commentaires « Missions d’examen »,
préparé par le Conseil Canadien des normes d’audit et de certification.
Nous vous serions reconnaissants de nous faire parvenir une copie de la traduction anglaise de
nos commentaires.
Veuillez noter que le Comité a également fourni des commentaires directement à l’IAASB en
réponse à l’exposé-sondage « ISRE 2400 (révisé), Missions d’examen d’états financiers
historiques ». Vous trouverez également en annexe les commentaires qui lui ont été formulés.
Veuillez prendre note que ni l’Ordre des comptables agréés du Québec, ni quelque personne
que ce soit ayant participé à la préparation des commentaires ne peuvent être tenus
responsables relativement à son utilisation et ils ne sont tenus à aucune garantie de quelque
nature que ce soit découlant de ces commentaires, comme décrit dans le déni de responsabilité
joint à la présente.
Veuillez agréer, Monsieur Shields, l’expression de mes sentiments distingués.
La secrétaire du Comité d’étude des exposés-sondages,
Annie Smargiassi, CA
p. j.
Déni de responsabilité et commentaires;
Commentaires à l’IAASB en réponse à l’exposé-sondage « ISRE 2400 (révisée),
Missions d’examen d’états financiers historiques »
DÉNI DE RESPONSABILITÉ
Les documents préparés par le Comité d’étude des exposés-sondages de l’Ordre des
comptables agréés du Québec (Ordre) ci-après appelés les «commentaires», sont fournis selon
les conditions décrites dans la présente, pour faire connaître leur opinion sur des énoncés de
principes, des documents de consultation, des exposés-sondages préliminaires ainsi que des
exposés-sondages publiés par le Conseil des normes comptables, le Conseil des normes d’audit
et de certification, le Conseil sur la comptabilité dans le secteur public, le Conseil sur la gestion
des risques et la gouvernances et d’autres organismes.
Les commentaires fournis par ce comité ne doivent pas être utilisés comme substitut à des
missions confiées à des professionnels spécialisés. Il est important de noter que les lois, les
normes et les règles sur lesquelles sont émis les commentaires peuvent changer en tout temps
et que, dans certains cas, les commentaires écrits peuvent être sujets à controverse.
Ni l’Ordre, ni quelque personne que ce soit ayant participé à la préparation des commentaires ne
peuvent être tenus responsables relativement à l’utilisation de ces commentaires et ils ne sont
tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires. Les
commentaires donnés ne lient pas, par ailleurs, les membres du Comité d’étude des exposéssondages, l’Ordre ou, de façon plus particulière, le Bureau du syndic de l’Ordre.
La personne qui se réfère ou utilise ces commentaires assume l’entière responsabilité de sa
démarche ainsi que tous les risques liés à l’utilisation de ceux-ci. Elle consent à exonérer
l’Ordre à l’égard de toute demande en dommages-intérêts qui pourrait être intentée par suite de
toute décision qu’elle aurait pu prendre en fonction de ces commentaires. Elle reconnaît
également avoir accepté de ne pas faire état de ces commentaires reçus via le comité dans les
avis exprimés ou les positions prises.
COMMENTAIRES DU COMITÉ D’ÉTUDE DES EXPOSÉS-SONDAGES DE L’ORDRE DES
COMPTABLES AGRÉÉS DU QUÉBEC RELATIFS À L’APPEL À COMMENTAIRES « MISSIONS
D’EXAMEN »
MANDAT DU COMITÉ
Le Comité d'étude des exposés-sondages de l'Ordre des comptables agréés du Québec a comme
mandat notamment de recueillir et de canaliser le point de vue des praticiens exerçant en cabinet et
de membres œuvrant dans les affaires, dans les services gouvernementaux, dans l'industrie et dans
l'enseignement ainsi que le point de vue d’autres personnes concernées œuvrant dans des domaines
d’expertise connexes.
Pour chaque exposé-sondage ou autre document étudié, les membres du Comité mettent leurs
analyses en commun. Les commentaires ci-dessous reflètent les points de vue exprimés et, sauf
indication contraire, ces commentaires ont fait l'objet d'un consensus parmi les membres du Comité.
Les commentaires formulés par le Comité ne font l'objet d'aucune sanction de l'Ordre. Ils n'engagent
pas la responsabilité de celui-ci.
COMMENTAIRES GÉNÉRAUX DESTINÉS AU CNAC
Les membres sont d’avis que la norme révisée ISRE 2400 est bien écrite dans son ensemble et
qu’elle reflète bien ce à quoi s’attendent les utilisateurs des états financiers auxquels est joint un
rapport de mission d’examen. L’ISRE propose les meilleures pratiques d’examen actuellement en
vigueur au Canada.
Par contre, tel qu’expliqué de façon détaillée dans les commentaires qui suivent, la terminologie
utilisée pour décrire les résultats des travaux d’examen dans la norme proposée et dans les exemples
de rapports est problématique et pourrait brouiller la distinction entre un examen et un audit.
Ils tiennent à indiquer que certaines exigences du projet de norme internationale, qui ne sont pas
précisées dans les exigences canadiennes actuelles, mais qui faisaient partie des travaux d’examen
dans la plupart des cas, nécessiteront de la documentation additionnelle et occasionneront
probablement des coûts supplémentaires pour certains professionnels en exercice. Ils sont d’avis que
ces coûts supplémentaires sont nécessaires et justifiés.
COMMENTAIRES SPÉCIFIQUES DESTINÉS AU CNAC
1. Le projet de norme ISRE 2400 (révisée) diffère de la série 8000 en ce qui concerne la façon d’aborder
le « niveau d’assurance associé à une mission d’examen ». Selon vous, est-il important que la
norme canadienne de missions d’examen révisée corresponde à la norme canadienne actuelle en
posant explicitement la notion de « plausibilité » comme base pour déterminer si le professionnel en
exercice a réalisé suffisamment de travaux pour étayer sa conclusion? Veuillez indiquer pourquoi.
Oui, les membres croient qu’il est important que la norme canadienne de missions d’examen corresponde à
la norme canadienne actuelle en posant explicitement la notion de « plausibilité » comme base pour
déterminer si le professionnel en exercice a réalisé suffisamment de travaux pour étayer sa conclusion.
Ils sont d’avis que la notion de « plausibilité » est au cœur de la mission d’examen, que c’est cet aspect qui
la différencie de la mission d’audit au Canada et que cette notion est bien comprise par le milieu des
affaires. Ils indiquent que la notion, telle qu’expliquée dans le paragraphe .05 de la norme 8100, pourrait
être incluse dans des commentaires explicatifs afférents aux objectifs d’une norme canadienne basée sur la
norme ISRE révisée.
Ils aimeraient obtenir des informations qui leur permettraient de distinguer la notion de « niveau d’assurance
minimum » prévue dans le projet de norme ISRE 2400 (révisée) par rapport à la notion actuelle de
« plausibilité » du chapitre 8100.
2. Dans l’hypothèse où la norme ISRE 2400 (révisée) serait approuvée telle que proposée dans
l’exposé-sondage, croyez-vous qu’il serait approprié que le CNAC adopte la norme ISRE 2400
(révisée) en remplacement de la série 8000? Veuillez indiquer pourquoi ainsi que les types de
modifications qu’il serait, à votre avis, nécessaire d’apporter à la norme ISRE 2400 (révisée) afin de
la rendre appropriée au contexte canadien.
Les membres croient que des modifications importantes devraient être apportées à la norme ISRE 2400
(révisée) avant que le CNAC l’adopte en remplacement de la série 8000. Par contre, ils sont favorables au
projet de norme ISRE 2400 dans son ensemble, car elle précise plusieurs aspects de la mission d’examen
qui doivent être pris en considération et qui n’étaient pas prévus dans la série 8000. Ces améliorations par
rapport aux normes actuellement en vigueur favoriseront une meilleure uniformité dans la pratique
entourant les missions d’examen au Canada.
La principale problématique entourant le projet de norme ISRE 2400 (révisée) est l’utilisation de l’expression
« éléments probants ». En sus des explications indiquées en réponse à la question 3 de l’exposé-sondage
de l’IAASB, les membres souhaitent indiquer au CNAC que cette expression à laquelle on associe le
synonyme « preuve » dans les dictionnaires de langue française pourrait causer des problèmes du point de
vue légal.
En effet, dans certains documents de référence de l’École du Barreau du Québec, on indique que « la
preuve doit répondre à certaines exigences. Elle doit être de la meilleure qualité possible, elle doit satisfaire
au fardeau et au poids de la preuve requise de chacune des parties, elle doit être pertinente et recevable.
Cette preuve émanera d’un témoignage ou de pièces… La preuve offerte doit être la plus parfaite et
complète possible; la règle de la meilleure preuve vise la fiabilité de la preuve offerte. Pour être
recevable…, la preuve doit être fiable. Elle doit être, à cette fin, de la meilleure qualité possible, soit
véridique ».
1
Or, les travaux d’examen constitués normalement de demandes d’informations et de procédés analytiques
ne vont pas aussi loin, et le professionnel en exercice, n’ira pas comme dans le cadre d’une mission d’audit
jusqu’à prouver la véracité des éléments qu’il aura obtenu par ses procédés d’examen.
De plus, le paragraphe .06 de la norme 8100, indique que « L'expert-comptable n'est pas tenu de recueillir
des éléments probants de source interne ou externe à l'appui de ces informations… Par conséquent,
l'examen effectué par l'expert-comptable ne comporte normalement pas certaines des procédures qui sont
habituellement appliquées lors d'un audit, comme l'inspection, l'observation des procédures du client, la
demande de confirmations auprès de tiers et l'examen de documents. Toutefois, lorsque l'expert-comptable
décide d'avoir recours à des procédures supplémentaires qui peuvent aussi être appliquées lors d'un audit
(lorsque, par exemple, il a des raisons de douter de la plausibilité des informations obtenues ou lorsque la
mise en œuvre de ces procédures lui facilite l'obtention d'informations), la mission d'examen n'en devient
pas pour autant une mission d'audit. »
Les membres souhaitent, comme ils l’ont indiqué à l’IAASB, que l’expression « élément probant » ne soit
pas utilisée dans la norme canadienne révisée sur les missions d’examen.
En sus des améliorations proposées à l’IAASB, les membres aimeraient que la norme canadienne révisée
sur les missions d’examen face précisément référence au contexte déontologique canadien au lieu de faire
référence au code de déontologie de l’IFAC et que l’examen du respect de dispositions contractuelles ou
réglementaires actuellement contenues dans le chapitre 8600 soit également inclus dans le projet de
modification des normes canadiennes de la série 8000.
1
Collection de droit 2010\2011, Volume 2 Preuve et procédure, Éditions Yvon Blais, École du
Barreau du Québec
demersbeaulne
Demors Beaulne, S.£N.C.R.L/LLP
1100, boulevard Ren~-L~vesque Ouest, 20e ~tage
Montr#al (Qu#bec) Canada H3B 4N4
t 514.878.9631 f 514.874.0319
www.demersbeautne.com
Le 11 avril 2011
Monsieur Greg Shields, CA
Directeur, Normes d’audit et de certification
L’Institut Canadien des Comptables Agr66s
277, rue Wellington Ouest
Toronto (Ontario) M5V 3H2
Objet : Appel & commentaires - Missions d’examen
Monsieur,
I1 nous fait plaisir de vous faire parvenir nos commentaires concernant l’Appel h commentaires Mission d’examen.
Notre cabinet compte une vingtaine d’associ6(e)s et nous ~euvrons principalement aupr~s des petites et
moyennes entreprises (PME). Nous sommes 6galement inscrits au Conseil canadien sur la reddition de
comptes (CCRC).
Question 1
L "annexe ci-jointe explique en quoi le projet de norme ISRE 2400 (rgvisge) diffOre de la sgrie 8000 en
ce qui concerne la fafon d’aborder le ,,niveau d’assurance associg it une mission d’examen,,. Selon
vous, est-il important que la norme canadienne de missions d’examen rgvisge corresponde it la norme
canadienne actuelle en posant explicitement la notion de ,,plausibilitg,, comme base pour dgterminer
sile professionnel en exercice a rgalisg suffisamment de travaux pour gtayer sa conclusion? Veuillez
indiquer pourquoi.
Oui.
Bien que la notion de plausibilit6 soit relativement implicite dans l’ensemble du texte de la norme
ISRE 2400, nous croyons que le concept de la plausibilit6 gagnerait h ~tre expos~ plus clairement,
puisqu’il ’agit lh d’un concept primordial afin d’etre en mesure de distinguer un audit d’un examen.
...2
Nos partenaires canadiens et internationaux
Our Canadian and International Affiliates
Monsieur Greg Shields, CA
Directeur, Normes d’audit et de certification
L’Institut Canadien des Comptables Agr66s
-2-
Le 11 avril 2011
A cet effet, des ajustements mineurs h I’ISRE 2400 seraient, selon nous, suffisants.
Par exemple, le texte d6crivant les objectifs d’une mission d’examen au paragraphe 14 a) pourrait ~tre
modifi6 de la fa~on suivante ¯
~, Les objectifs du professionnel en exercice qui r~alise une mission d’examen d’~tats financiers
sont les suivants :
a) exprimer une conclusion, du fait qu’il a mis en oeuvre des procedures, principalement des
demandes d’informations et des procedures analytiques, et ~valu~ le caract~re suffisant et plausible
....... ~" des ~ldments probants obtenus, indiquant qu’il n’a rien relev~ qui le porte it croire que les
~tats financiers n ’ ont pas ~t~ prepares, dans tous leurs aspects significatifs, conform~ment au r~f~rentiel
d’information financiOre applicable; ,~
Question 2
Dans l’hypoth~se oft la norme ISRE 2400 (r~vis~e) serait approuv~e telle que proposde dans l’expos~sondage, croyez-vous qu’il serait appropri~ que le CNAC adopte la norme ISRE 2400 (r~vis~e) en
remplacement de la s~rie 8000? Veuillez indiquer pourquoi ainsi que les types de modifications qu "il
serait, it votre avis, n~cessaire d’apporter it la norme ISRE 2400 (r~vis~e) afin de la rendre
appropri~e au contexte canadien.
Oui.
Nous sommes globalement en accord avec la nouvelle norme ISRE 2400 puisqu’elle propose,
essentiellement, les meilleures pratiques d’examen actuellement en vigueur au Canada. Elle refl~te
ad6quatement le travail auquel s’attendent les utilisateurs de ces 6tats financiers et elle s’harmonise
beaucoup mieux avec les NCA que les chapitres actuels de la s6rie 8000.
Toutefois, nous croyons que les changements suivants s’imposent :
Remplacement du terme ,, ~l~ment probant,
Le terme <, 616ment probant ,, est largement associ6 ~ la mission d’audit et il est susceptible d’engendrer
de la confusion au niveau de la distinction entre un audit et un examen. Nous croyons qu’il devrait ~tre
remplac6 par un terme mieux adapt6 au contexte de la mission d’examen.
...3
demersbeaulne ii~)
Monsieur Greg Shields, CA
Directeur, Normes d’audit et de certification
L’Institut Canadien des Comptables Agr66s
-3-
Le 11 avril 2011
Paragraphes 43 et 44 de I’ISRE 2400
Bien que nous soyons d’accord avec le fondement des paragraphes 43 et 44, nous avons des r6serves
par rapport au libell6 de ces paragraphes puisqu’il correspond davantage hun contexte off une opinion
de forme positive est exprim6e. En cons6quence, il y aurait lieu de reformuler ces paragraphes sous une
forme qui soit plus coh6rente avec le concept de la plausibilit6 et l’expression d’une opinion de forme
n6gative.
Paragraphe 57 de I’ISRE 2400
Bien que nous soyons d’accord avec l’exigence du paragraphe 57, nous avons des r6serves par rapport
au libell6 de ce paragraphe puisqu’il correspond davantage hun contexte o~ une opinion de forme
positive est exprim6e. En cons6quence, il y aurait lieu de reformuler ce paragraphe sous une forme qui
soit plus coh6rente avec l’expression d’une opinion de forme n6gative.
Par exemple ¯
~, soit de conclure que, saRe gtla raise en place des procddures suppldmentaires, il n ’a rien relev~ qtti
....
le porte d croire ~ au ~ .... ;-’/"~.....................
;~ ~
de.......
fairc
que les dtats financiers
r ......
pris dans leur ensemble comportent une ou des ano~lie(s) significative(s); ,,
Rapport d’examen
Nous croyons que le texte suivant du rapport, lequel fait r6f6rence au paragraphe 57, devrait ~tre enlev6
du rapport.
~, Un examen requiert aussi la mise en oeuvre de procddures suppldmentaires si le professionnel en
exercice prend connaissance de points qui le portent ~ croire que les ~tats financiers pris dans leur
ensemble puissent comporter des anomalies significatives. ,,
Nous croyons que les lecteurs du rapport de mission d’examen auront du mal ~ saisir la signification et
la port~e de cette phrase, et qu’elle ajoute un niveau de confiance injustifi6e ~ la mission d’examen.
Considerations propres aux petites entit~s
Les NCA contiennent des consid6rations propres aux petites entit6s qui, une fois adapt6es au contexte
de la mission d’examen, devraient ~tre r6cup6r6es dans la norme ISRE 2400.
...4
demersbeaulne (~i
Monsieur Greg Shields, CA
Directeur, Normes d’audit et de certification
L’Institut Canadien des Comptables Agr66s
-4-
Le 11 avril 2011
Les consid6rations propres aux petites entit6s seraient particuli~rement utiles pour la compr6hension des
exigences du paragraphe 43 ,, Acquisition d’une compr6hension par le professionnel en exercice ~ dans
le cadre d’une mission d’examen d’une petite entitY.
Nous esp6rons que nos commentaires vous seront utiles et nous vous prions d’agr6er, Monsieur,
l’expression de nos sentiments distingu6s.
COMPTABLES AGRI~t~S
demersbeaulne (’~i
Click here to submit
Review Engagements
INVITATION TO COMMENT
Comments are request by April 11, 2011
AASB welcomes comments on all aspects of the Invitation to Comment
This form is not intended to constrain your response. Each text box will accommodate your full comments.
You are able to save and forward this form to others in your organization for review prior to submission.
Name :
Alain LeFebvre
Organization :
Chan Foucher LeFebvre LLP
E-mail :
[email protected]
Phone : 250-562-4522 ext 1227
Providing comments to the AASB re: standards for review engagements in Canada
The AASB would appreciate receiving responses to the following questions, in addition to receiving a copy
of the response to the IAASB's Exposure Draft.
1.
The attached Appendix notes how proposed ISRE 2400 (Revised) and the 8000 series differ regarding
their approach to the “level of assurance associated with a review.” Do you believe that it is
important that the revised Canadian review engagement standard mirror the existing standard by
including an explicit reference to the concept of “plausibility” as the basis for considering whether the
practitioner has performed enough work to support his or her conclusion? Please provide reasons for
your response.
Yes, it is important to include an explicit reference to the concept of "plausibility" as the basis for considering whether the
practitioner has performed enough work to support his or her conclusion. ISRE 2400 (Revised) discusses that the practitioner
needs to obtain sufficient appropriate evidence to form a conclusion on the financial statements. There is no discussion about
what the practitioner is looking for when gathering the evidence. They just need to form a conclusion. But on what basis? The
concept of "plausibility" provides a basis for conclusion on the Canadian review engagements.
2.
Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft, do you believe that
it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to replace the 8000 series? Please
provide reasons supporting your response, including the types of amendments to ISRE 2400 (Revised)
you consider would be necessary for the standard to be appropriate for use in the Canadian reporting
context.
Yes, we believe it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to replace the 8000 series. The ISRE 2400
(Revised) is aligning with the CAS especially in the format of the review engagement report. A more detailed report does
provide users with a better understanding of the type of engagement performed. Explicitly stating that materiality and going
concern should be considered will take away some of the variations between practitioner performance of review engagements.
As mentioned above the concept of plausibility should be included in the Canadian standard. The ISRE is not too prescriptive in
regards to the procedures to be performed, but does provide some very good explanatory material that should be retained in
the adopted Canadian standard.
Click here to submit
April 11, 2011
Greg Shields, CA
Director, Auditing and Assurance Standards
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, ON M5V 3H2
Dear Mr. Shields:
RE: Review Engagements Invitation to Comment
Thank you for the opportunity to comment on the above noted document. We have reviewed the
Invitation to Comment (ITC) as well as the related Exposure Draft (ED) of proposed International
Standard on Review Engagements (ISRE) 2400 (Revised) issued by the International Auditing
and Assurance Standards Board (IAASB). Our response is focused on the standards specific for
review engagements in Canada, therefore we have not provided comments in response to the
specific questions asked in the “Guide for Respondents” contained in the IAASB’s ED. We have
provided our comments to the Auditing and Assurance Standards Board’s (AASB’s) ITC below:
1. The attached Appendix notes how proposed ISRE 2400 (Revised) and the 8000 series
differ regarding their approach to the “level of assurance associated with a review.”
Do you believe that it is important that the revised Canadian review engagement
standard mirror the existing Canadian standard by including an explicit reference to
the concept of “plausibility” as the basis for considering whether the practitioner has
performed enough work to support his or her conclusion? Please provide reasons for
your response.
We acknowledge the IAASB’s concerns that it does not wish to define the term, “limited
assurance”, for fear that, in doing so, it will unintentionally restrict the broad acceptable range
within which limited assurance can be provided. However, we believe that practitioners may
find it difficult to conceptualize “limited assurance” as intended to form an appropriate
conclusion for the purpose of issuing the review engagement report, and that this difficulty
may lead to reduced consistency in practice.
We concur with the AASB’s assessment that, within Canada, the concept of “plausibility” is
widely and well understood by practitioners and financial statement users relying on a review
engagement report to define the level of limited assurance associated with this type of
engagement. Furthermore, it provides a well-defined conceptual benchmark against which
practitioners can assess the sufficiency and appropriateness of review evidence to support
their review conclusion. We therefore strongly support the inclusion of the concept of
“plausibility” in any new Canadian review engagement standard as a unifying description of
the intended level of assurance, particularly with respect to the review of historical financial
statements.
2. Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft, do
you believe that it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to
replace the 8000 series? Please provide reasons supporting your response, including
the types of amendments to ISRE 2400 (Revised) you consider would be necessary for
the standard to be appropriate for use in the Canadian reporting context.
We recommend that the AASB adopt ISRE 2400 (Revised) as the new Canadian review
engagement standard, with amendments as required for Canadian practice. In many
fundamental respects, ISRE 2400 (Revised) is consistent with current Canadian review
engagement standards and we support the increased guidance that ISRE 2400 (Revised)
provides in areas where the existing Canadian standards are silent, such as in regard to
assessing the risk of material misstatements and materiality. We believe that the adoption of
this standard in Canada, with appropriate amendments, will result in increased consistency
among practitioners while still maintaining the requirement for practitioners to apply
professional judgment in the performance of review engagements. We also support the
fundamental consistency of a new Canadian review engagement standard with the current
Canadian Auditing Standards.
Our commentary on the amendments we consider necessary for ISRE 2400 (Revised) to be
appropriate for use in the Canadian reporting context is as follows:
Level of Assurance
We acknowledge that the level of assurance associated with a review engagement would be
implicitly achieved in abiding by the requirements of ISRE 2400 (Revised). However, as
noted above, we support the inclusion of the concept of “plausibility” in the revised Canadian
review engagement standard so as to improve practitioners’ understanding, and consistency
in application, of these new requirements.
Materiality
We agree with the requirement of ISRE 2400 (Revised) that the practitioner should make an
initial determination of materiality and revise this determination, as needed, in order to
adequately support the conclusion expressed in the review engagement report that the
practitioner does not have reason to believe that the financial statements reviewed are not
presented fairly, in all material respects. However, in our opinion, the requirements under
proposed ISRE 2400 (Revised) may not provide the practitioner with sufficient guidance on
the assessment of materiality in order for this standard to operate as a stand-alone standard
from CAS. ISRE 2400 (Revised) provides details in its application and other explanatory
material on the concept of materiality, but it does not provide any examples of appropriate
benchmarks or starting points for the assessment of a materiality level. In order for a new
Canadian review standard to operate as a stand-alone standard and provide consistency in
practice, we recommend that guidance similar to that contained in CAS 320.A3-A9 on the use
of benchmarks in determining materiality should be included in the new standard.
Level of Evidence to Support Expression of a Modified Conclusion
We concur with the requirement of ISRE 2400 (Revised) that if the practitioner becomes
aware of a matter that causes the practitioner to believe the financial statements may be
materially misstated, the practitioner must design and perform additional procedures in order
to conclude whether the financial statements are in fact materially misstated. We believe this
requirement is likely consistent with what many practitioners already do in practice and that
the inclusion of this requirement in the review engagement standard will serve to increase
consistency among all practitioners while also strengthening user confidence in the review
engagement report. However, in our opinion, ISRE 2400 (Revised) may not provide the
practitioner with sufficient guidance on the nature and extent of additional procedures in order
for this standard to operate as a stand-alone standard from CAS. Accordingly, we
recommend that further guidance on types of additional procedures, similar to that contained
in CAS 500.A14-A20 on inspection, observation, external confirmation, recalculation and
reperformance should be included in the new standard to supplement the guidance provided
in paragraphs A97 and A98.
In summary, we believe that it is appropriate for the AASB to adopt ISRE 2400 (Revised) to
replace the 8000 series of the Handbook with certain amendments necessary for the standard to
be appropriate and applicable to Canadian entities and financial statement users.
We are pleased to offer our assistance to the Auditing and Assurance Standards Board in further
exploring issues raised in our response or in finding alternative solutions to meet the needs of
financial statement users.
Meyers Norris Penny LLP (MNP) is one of Canada’s largest chartered accountancy and business
advisory firms. Our clients include small to mid-size owner-managed businesses in agriculture,
agribusiness, retail and manufacturing as well as credit unions, co-operatives, First Nations,
medical and legal professionals, not-for-profit organizations and municipalities. In addition, our
client base includes a sizable contingent of publicly traded companies.
Yours truly,
MEYERS NORRIS PENNY LLP
Jody MacKenzie
Jody MacKenzie, CA
Vice President, Assurance Professional Standards
BDO
April 11th, 2011
Greg Shields, CA
Director, Auditing and Assurance Standards
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, Ontario
M5V 3H2
Email: [email protected]
Re: Exposure Draft – ISRE 2400, Engagements to Review Historical Financial Statements
Dear Greg:
We are pleased to have the opportunity to comment on the above Exposure Draft.
Overall Comments
Overall we are in agreement that the standards should be better aligned with the Canadian
Auditing Standards. We also agree that a level of assurance is still needed to fill the gap
between compilation and audit engagements.
With respect to achieving a lesser level of assurance than an audit, we feel that the ISRE fails
to meet the objective since the lines between an audit and review as proposed in the standard
are blurred. This has been detailed below under Distinction From an Audit Engagement.
Furthermore, it is unclear who these standards have been written for. Audit terminology has
been used to some extent, for example, the concepts of “materiality”, “general versus special
purpose frameworks” are introduced, however, there is no link or reference to the audit
guidance. Is the expectation that public accountants reading these standards are also auditors
who can fill in these gaps? If not, further explanation or guidance needs to be provided in the
proposed standard. Another observation is that the proposed standard does not require a
detailed assessment of the risks of material misstatement in the financial statements, however
practitioners must focus their review procedures on areas where material misstatements are
likely to arise. This is essentially a risk-based approach without using risk terminology. If the
intention is to use this approach, the standard would be better understood using risk
terminology (again with a reference to the audit standards or further guidance regarding the
terminology).
Distinction From an Audit Engagement
Paragraph 57 and the related application material of the ISRE imply that additional procedures
are required when the financial statements may be materially misstated. The application
materials cite performing external confirmations as an example.
Paragraphs 43 and 44 state that the practitioner should obtain an understanding of the entity
and its environment to identify areas in the financial statements where material misstatement
are likely to arise in order to focus inquiry and analytical procedures.
The distinction between areas that “may be misstated” as opposed to areas where “material
misstatement are likely to arise” is blurry. Therefore, is it unclear when audit-type procedures
as opposed to review procedures are required. Note, since paragraph 57 does not mention the
sufficiency and appropriateness of evidence obtained, it is unclear whether these procedures
are required when the practitioner is dissatisfied with the review level evidence obtained or if
these procedures are always required with the financial statements may be materially
misstated.
Paragraph 43 also requires that the practitioner gain an understanding of the entity and its
environment. The application guidance paragraphs A78-A80 referring to the initial
understanding do not describe how this understanding must be obtained (e.g., it is unclear on
whether an audit procedures to obtain the understanding is required). Note, however, that in
subsequent years, paragraph A81 refers to updating the understanding through review
procedures which further implies that the initial year understanding may require additional
audit procedures.
We also note that the terminology used in the proposed standard imply obtaining a “positive”
level of assurance rather than a “negative” level of assurance. For example, paragraph 48
refers to obtaining sufficient and appropriate evidence from review procedures performed
(i.e., the concept of “seeking” evidence). Paragraph 43 and 44 refer to the “likelihood” of
material misstatement rather than misstatements that we become aware of.
Finally, the proposed reports provided in Appendix 2 also use terminology that implies positive
assurance. For example, under the Practitioner’s Responsibility, there is a statement that
reads “We believe that the evidence we have obtained in our review is sufficient and
appropriate to provide a basis for our conclusion”.
Request for Specific Comments
1. The attached Appendix notes how proposed ISRE 2400 (Revised) and the 8000 series
differ regarding their approach to the “level of assurance associated with a review.” Do
you believe that it is important that the revised Canadian review engagement standard
mirror the existing standard by including an explicit reference to the concept of
“plausibility” as the basis for considering whether the practitioner has performed enough
work to support his or her conclusion? Please provide reasons for your response.
We believe that the revised Canadian review engagement standard should mirror the existing
standard with respect to including a reference to “plausibility”. Canadian users are familiar
with the level of assurance in a review no matter the subject matter. Moving away from that
plausibility threshold would be confusing for users.
The proposed ISRE 2400 states that a review engagement is a limited assurance engagement.
This reference to assurance could cause confusion as to what the auditor’s responsibilities
actually are. Referring to assurance does not provide a clear differentiation between review
and audit. The fact that the IAASB determined that it is not practicable to describe the level
of assurance in a limited assurance will further confuse what type of engagement we are doing
and allow for different interpretations and different amounts of work amongst practitioners.
2. Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft, do
you believe that it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to
replace the 8000 series? Please provide reasons supporting your response, including the
types of amendments to ISRE 2400 (Revised) you consider would be necessary for the
standard to be appropriate for use in the Canadian reporting context.
Although we are in agreement that the standards should be better aligned with the Canadian
Auditing Standards, there are many changes we feel need to be made before we can adopt the
proposed standard. As discussed in our Overall Comments above, there are some fundamental
changes required (e.g., clarifying the limited level of assurance requirements as opposed to
audit level assurance requirements). Also as discussed above, we would like to see the concept
of “plausibility” brought into the standard. Further specific amendments/comments are
provided below under Comments on Other Matters.
Comments on Other Matters
Paragraph 34(f): there is a requirement to identify in the terms of the engagement, “the
intended use and distribution”. We have no problem when the engagement letter restricts
distribution of the financial statements, but we do not agree that it needs to specify the
intended use in all cases since this could create a duty of care if we are reporting on general
purpose financial statements going to the bank. This also ties into 29(a) that indicates we
shouldn’t perform a review engagement if we can’t identify the purpose (since we don’t always
do this in a general purpose engagement).
Paragraph 51: the proposed standard requires procedures related to circumstances when
suspected fraud or non-compliance with laws or regulations has occurred. We are concerned
that by accepting this responsibility, we could be held liable in circumstances were there was
fraud or non-compliance that we did not detect (particularly because review procedures are
not designed to detect these circumstances).
Paragraph 65: we are concerned with the last sentence that indicates that if we find out the
client issued erroneous financial statements, we need to take appropriate action to prevent
reliance on our report. There may be legal ramifications of this and whether we have a duty to
contact the third party relying on the financial statements.
Paragraph 67: we would like there to be an additional requirement to ask the client to book
adjusting journal entries and provide a reason for not adjusting.
Paragraph 84-87: Emphasis of Matters & Other Matters: it would be beneficial if the proposed
standard provided examples for when these paragraphs are required (e.g., going concern
issues, subsequent events, etc.).
Application paragraph A41: we are concerned that this proposed paragraph suggests that if
the books of the entity are a mess, we should do a compilation engagement. We may not have
this choice for many of our clients that require a review engagement.
Thank-you for your consideration of the above-noted comments. If you have any further
questions, please contact me at (416) 369-3088.
Yours truly,
BDO Canada LLP
Chartered Accountants
Nazia Lakhani
Nazia Lakhani, C.A.
Assurance Standards Senior Manager
Deloitte & Touche LLP
2 Queen Street East
Suite 1200
P.O. Box 8
Toronto ON M5C 3G7
Canada
Tel: 416-874-4424
Fax: 416-874-3889
www.deloitte.ca
April 14, 2011
Greg Shields, CA
Director, Auditing and Assurance Standards
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, ON M5V 3H2
Dear Mr. Shields,
We appreciate the opportunity to comment on the IAASB Exposure Draft, ISRE 2400 (Revised),
Engagements to Review Historical Financial Statements (the “ED”).
Based on our review we are in agreement with the proposed changes to the ED and believe that the
proposed standards will serve the Canadian environment well. The ED appears to move towards
greater alignment with some of the concepts in the Canadian Auditing Standards (the “CASs”) and
supports the same reporting model as in the CASs (i.e. general purpose vs. special purpose financial
reporting frameworks and reporting on compliance and fair presentation frameworks). We believe
that it is important that a practitioner be able to provide limited assurance (review) over the same
subject matter where reasonable assurance (audit) can be provided. The ED focuses the practitioner’s
work on those areas in the financial statements where material misstatements are likely to arise,
which we feel is appropriate.
Notwithstanding our overriding comments noted above, we have provided responses to the questions
requested by the AASB. We have also included our key observations in areas where we feel the ED
could be amended or enhanced.
1) Do you believe that it is important that the revised Canadian review engagement standard
mirror the existing Canadian standard by including an explicit reference to the concept of
“plausibility” as the basis for considering whether the practitioner has performed enough
work to support his or her conclusion?
We believe the concept of plausibility has served us well in Canada. In our view, the concept
in the ED relating to evaluating the sufficiency and appropriateness of evidence obtained,
will result in the practitioner obtaining the same evidence and arriving at the same conclusion
as we do today. We support the concepts included in the ED. Furthermore, if Canada adopts
the ED, we would prefer to use the terminology in the international standard and not revise
the terminology for Canadian-specifics.
April 14, 2011
Page 2
2) Assuming that ISRE 2400 (Revised) is approved as proposed in the Exposure Draft, do you
believe that it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to replace
the 8000 series? Please provide reasons supporting your response, including the types of
amendments to ISRE 2400 (Revised) you consider would be necessary for the standard to be
appropriate for use in the Canadian reporting context.
We are supportive of the AASB adopting the ED without adding any “made in Canada”
amendments. Notwithstanding this, one of our main concerns is the fact that the ED doesn’t
achieve the objective of becoming a stand-alone standard. As written, the ED provides little
to no guidance on topics such as: reporting considerations, including but not limited to,
compliance frameworks; emphasis of matter and other matter paragraphs; the use of the work
of experts; or the assessment of misstatements. This lack of guidance could make it difficult
for a practitioner not familiar with the CASs to perform a review engagement in accordance
with the proposed standard. It is our view that the proposed standard is not “self-standing” as
an understanding of the CASs is essential to understanding the requirements and application
material in the proposed ED. The following items are some of our key observations noted
during our review of the ED.
Item
1
Section
Structure
Topic
2
ISRE 14
Sufficient
appropriate
evidence
3
ISRE 17
Definitions
4
ISRE 22-23
Professional
skepticism and
professional
judgment
5
ISRE 24-26
& 27-32
Engagement level
quality control &
Acceptance and
continuance of
engagement
Comment
The format of the standard is very similar to the ISAs/CASs
and therefore is much clearer as to nature of the
requirements and the appropriate application of the material.
ISRE uses the phrase “evaluating the sufficiency and
appropriateness of evidence obtained” while Canadian
standards use the term “plausible”. This change in approach
may suggest to users relying on the financial statements that
evidence obtained is closer to audit level assurance and that
more reliance will be placed on the information than is
warranted.
ISRE defines several terms but the definition of a
compliance framework is missing. Clearly this is important
as it is mentioned in the context of a special purpose
framework but is not defined separately. We recommend
this be clearly defined.
ISRE uses the terms professional skepticism and
professional judgment, which are used in the ISA’s, while
the Canadian standards refer to the practitioner exercising
due care and an objective state of mind. Concepts are similar
but the ISRE terms are clearer and line up with the CASs
better.
ISRE topics (1) Engagement level quality control and (2)
Acceptance and continuance of client relationships and
review engagements are covered in much more detail and
are more rigorous than in the Canadian review standards.
Although these topics are covered in CSQC 1, the addition
here is seen as an improvement.
April 14, 2011
Page 3
6
ISRE 35 (g)
7
ISRE 40
8
ISRE 41-42
9
ISRE 45
10
ISRE 46
11
ISRE 55
Agreeing terms
of engagement
ISRE requires that the engagement letter include a reference
to the expected form and content of the report to be issued
while in Canadian review standards this is optional. This is a
good practice and in line with the CASs.
Communications ISRE states that all significant matters in the judgment of the
with management practitioner should be communicated to management or
and those charged those charged with governance. This seems more onerous
than in our Canadian review standards, where it is stated in a
with governance
more negative way, “we do not become aware of all matters
as in an audit.” The application material provides a few
examples of significant matters so we believe this is an
improvement as it is clearer what types of matters should be
communicated.
Materiality
ISRE covers the requirements to (1) determine materiality
and (2) revise materiality if information becomes available
that would change the previous determination, both of which
are not covered in our Canadian review standards. This is an
improvement, although we suggest more guidance be given
on determining an appropriate materiality and some
suggested benchmarks, similar to the CASs.
Inquiry
ISRE contains more specific requirements on the areas to
inquire, including related party transactions, significant
accounting estimates, existence of actual or suspected fraud
or illegal acts and non-compliance with laws and
regulations. These areas are not covered specifically in
Canadian review standards and are a good addition.
Analytical
ISRE adds a requirement when designing analytical
procedures
procedures, to consider the source of the data and whether it
is satisfactory for our purposes. This is not clearly defined
and could be open to interpretation as this seems more auditfocused. This requirement in our view is consistent with the
sufficient appropriate evidence concept as per item 2 above.
Use of work by
ISRE adds a requirement to consider using the work of
others
others in the review engagement although there’s no
application material on this topic. There are two ISAs
covering the use of experts, therefore we suggest more
guidance be added on this topic.
Also, in the context of a group audit scenario (CAS 600), the
group auditor may request the component auditor to perform
a review of the financial information of the component.
Given that many group audits are international in scope,
having a common review engagement standard will assist
group auditors in Canada who have component auditors
around the world who perform review engagements in
accordance with ISRE 2400.
April 14, 2011
Page 4
12
ISRE 59(b)
Written
representations
13
ISRE 67
Impact of
misstatements
14
ISRE 68 &
70
Fair presentation
frameworks
15
ISRE 84 &
87
Emphasis of
matter and other
matter paragraphs
ISRE requirements state that we obtain from management
the written assertion that “all transactions have been
recorded and are reflected in the financial statements”. There
is no mention of management’s responsibility for the design
and implementation of internal controls to prevent, detect
fraud and error, which is included as a requirement in our
Canadian review standards. We recommend that the AASB
urge the IAASB to add this as a requirement.
ISRE adds a requirement to consider the impact of
unadjusted misstatements on the financial statements
although it does not include any application material on how
a practitioner performs this assessment. We suggest more
guidance be added on this topic.
See our comments on the lack of guidance on the topic of
compliance frameworks. We recommend significant
guidance be added or the ISA material be incorporated into
this topic. We also recommend the ISRE add more on the
determination of what constitutes an acceptable financial
reporting framework.
ISRE adds two requirements to consider (1) including an
Emphasis of Matter paragraph and (2) including an Other
Matter paragraph in the review report but it does not give
clear guidance under which circumstances such paragraphs
could be used. We suggest more guidance be added on both
topics.
We have not provided the IAASB with a copy of these comments as our global firm, Deloitte Touche
Tohmatsu Limited, will respond directly to the IAASB with comments from an international perspective.
Once again, we appreciate the opportunity to comment.
Yours truly,
Thomas Kay, CA
National Professional Practice Director
Deloitte & Touche LLP
4 April 2011
Greg Shields, CA
Director, Auditing and Assurance Standards
The Canadian Institute of Chartered Accountants
277 Wellington Street West
Toronto, Ontario
M5V 3H2
Via email to [email protected]
Dear Mr. Shields:
Re:
Invitation to Comment – Review Engagements
The Exposure Draft Forum of the Institute of Chartered Accountants of British Columbia has
reviewed the above invitation to comment and is pleased to provide the following comments to
the Auditing and Assurance Standards Board (AASB or the Board) for its consideration.
The Forum is comprised of volunteer members from public practice, industry, and other sectors
who meet periodically to discuss and comment on draft guidance. The views expressed in this
letter are solely those of members of the Forum and do not represent the views of the Institute,
its Council, or its staff.
1. Do you believe the revised Canadian review engagement should mirror the existing
Canadian standard by including an explicit reference to the concept of “plausibility”?
Members of the Forum have found the concept of “plausibility” useful in determining when
they have performed sufficient amount of work but some suggest that the concept is actually
not always well understood by the user community, nor is it consistently applied by
practitioners.
From their experience with clients, forum members know clients accept a review is “less
than an audit and more than a compilation” but by how much is up for debate. Moreover,
forum members’ interactions with other practitioners lead them to conclude that there is also
divergence amongst firms as to the interpretation of “plausibility”. Their main concern is that
the revised standards specify when a practitioner has completed an adequate level of work
and that the Board develop sufficient guidance to assist practitioners in coming to the
conclusion that the standards have been met.
2. Do you believe that it would be appropriate for the AASB to adopt ISRE 2400 (Revised) to
replace the 8000 series?
Forum members support the Board’s decision to revise standards for review engagements
and the notion that it should be a “stand alone” set of standards. With the adoption of
Canadian Auditing Standards, it’s clear that linking review standards to auditing standards is
not feasible and should not be repeated.
Members of the Forum are not opposed to the Board adopting the revised ISRE with some
modifications, as discussed further below. In particular, they wish to point out the slight
inconsistency in the objective of the review engagement, the prescribed procedures, and the
proposed report. They detect a theoretical difference in approach where the objective and
the report speak to “negative assurance” whilst the requirements appear to have a “limited
assurance” tone. A limited assurance approach is “input based” versus a negative
assurance approach which is “output based”. Forum members see the difference as taking a
more “active search” in the limited assurance approach versus the negative assurance
approach where the practitioner, while maintaining professional scepticism, is “not expecting
to find anything”.
Furthermore, forum members suggest the Board consider their following observations:
• While most of the procedures being proposed are already performed today where
appropriate, forum members believe costs are likely to rise to cover some of the
additional documentation required. In particular, the work on knowledge of client
business will increase significantly when compared to what is currently done by
practitioners.
• Forum members understand the proposed standards do not prescribe that practitioners
perform a “risk assessment” yet they interpret the words “where material misstatements
are likely to arise” in paragraphs 43 and 44 to mean exactly that. Furthermore, in the
absence of specific guidance in the context of a review engagement, the discussion in
application paragraphs 78 to 84 could be interpreted as similar to a risk assessment as
required in the Canadian Auditing Standards. If it is not the IAASB’s intention to require
such an assessment, this expectation should be clearly stated in the standards.
Additional application guidance on evaluating how or where misstatements might arise
would be helpful to practitioners.
• Forum members are concerned that the proposals do not contain sufficient discussion to
articulate the differences of the risks involved in performing an audit versus a review,
and the lower standards required of the latter. To discourage inconsistent application of
the requirements, additional guidance on risk factors or benchmarks in the context of a
review engagement should be provided.
• Members of the Forum accept the preconditions for performing a review and factors
affecting engagement acceptance and continuance to be useful considerations for
practitioners. Moreover, they recommend the inclusion of general standards similar to
those currently in CICA Handbook Section 5025 and Paragraphs 8100.15 and .16
Invitation to Comment: Review Engagements
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•
•
covering the technical training, proficiency, and professional conduct rules of
practitioners.
Forum members find the discussion on trigger points in paragraphs 57 and 58 where
additional procedures are required to be too broad to assist practitioners in determining
how to proceed with the review in those difficult scenarios of potential misstatement.
Without additional specific guidance, they are concerned that practitioners might not be
able to meet the overall objectives consistently.
Forum members appreciate the new format of the report that clearly indicates the
responsibilities, nature, and scope of work by the practitioner in a review are different
from an audit. Moreover, they like the presentation of the modifications and the ability to
include an “emphasis of matter” or “other matter” paragraph to provide additional
information to the reader.
We appreciate the opportunity to provide input to the Auditing and Assurance Standards Board
and hope you find our comments useful.
Yours truly,
Exposure Draft Forum
[Via email]
Stella Leung, CA
Professional Standards Advisor
Staff Liaison to Exposure Draft Forum
Advisory Services Department
[email protected]
Invitation to Comment: Review Engagements
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