AASB’s compliance reporting proposals shift the needle

The AASB’s proposed revisions to assurance engagement standards are intended to drive consistency in practice. For practitioners, this may bring significant changes.

Re-proposed standards dealing with special considerations when reporting on an entity’s compliance with agreements, laws or regulations are likely a significant change in practice for many practitioners.

The Auditing and Assurance Standards Board (AASB) proposals contain revisions founded on overarching standards for assurance engagements issued in 2015 and in effect later this year. The requirements and application material in the overarching standards would extend to compliance engagements conducted by auditors of both private sector and public sector entities.

Assurance engagements include both attestation engagements, in which management evaluates the underlying subject matter against criteria, and direct engagements, in which the practitioner evaluates the underlying subject matter against the criteria. There are two proposed standards, covering attestation engagements separately from direct engagements. Each standard addresses both audits and reviews. There are some key differences between the two standards, reflecting the difference in the objective of the engagements.

Implications for practitioners

So, a key question a practitioner needs to ask before accepting a compliance reporting engagement will be: which standard should I use?

For example, before accepting an attestation compliance engagement, the practitioner will need an explicit statement of compliance from management. In many compliance engagements today, management does not, and may not be willing to, make such a statement. A schedule prepared by management demonstrating compliance (for example, a debt covenant calculation) is expressly identified in the proposals as not sufficient for this purpose. For many practitioners, and their clients, this may represent a change in practice.

The form and content of the practitioner’s report provides greater transparency and will look quite different from what users see today. The wording of the conclusion is different as between an attestation engagement and a direct engagement.

The latest proposals respond to comments received on the AASB’s 2015 exposure draft and, in my view, deal in a pragmatic way with many of the complex features of these assurance engagements.

Keep the conversation going

Read the re-proposed standards and provide your input. In particular, what do you think of the proposed requirement for an explicit statement of compliance by management? How about the wording of the conclusion — do the differences between the conclusion for an attestation engagement and a direct engagement make sense? Do you agree that the proposals will improve consistency in practice?

Post a comment below; or email me directly.

Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada