They’re here! AASB concludes adoption of auditor reporting standards for 2018

The Auditing and Assurance Standards Board (AASB) has approved a package of standards, effective in 2018, dealing with auditor reporting, addressing disclosures in the audit of financial statements and reporting and responsibilities relating to other information.

What are the changes, in a nutshell?

The new auditor’s report, affecting all audits and adopted by more than 110 countries, represents a step change in the information content of the report by better describing what an audit is and what an auditor does, including an ability to provide further transparency in the reporting of key audit matters.

Other changes enhance requirements in various standards to drive changes in the auditor’s approach and improve consistency in practice to more specifically address disclosures, in particular qualitative disclosures. They also clarify and enhance the auditor’s work effort in relation to going concern.

A revised standard enhances the auditor’s work effort relating to the range of other information in documents containing audited financial information, taking account of how such information is disseminated. It also prescribes new communications to be included in the auditor’s report.

Auditor reporting standards

A significant component of international auditor reporting standards is a requirement that auditors of listed entities communicate key audit matters — those matters that, in the auditor’s judgment, were of most significance in the audit. The final Canadian standards, as adopted, do not contain this requirement at this time but do allow for law or regulation to require reporting of key audit matters.

Stakeholders made it clear throughout the AASB’s extensive consultations that changes to auditor reporting standards need to recognize that the Canadian and U.S. capital markets are closely integrated. They emphasized that if key audit matter reporting requirements are significantly different between Canada and the U.S., or the entities to which they would apply, this could create confusion in the marketplace and potentially affect comparability of information across the North American capital markets.

However, the U.S. Public Company Accounting Oversight Board has not finalized its auditor reporting standards, including its proposed key audit matter reporting concept, so the AASB decided not to mandate key audit matter reporting for listed entities in Canada.

There are other differences between the CAS and U.S. reporting standards – reporting on other information is one key difference – but these are not seen as controversial as key audit matter reporting.

What happens now?

This is not the end of the story for key audit matter reporting. The AASB is monitoring developments in the U.S. and the post-implementation review that the International Auditing and Assurance Standards Board is scheduled to conduct. The AASB is also studying Australian experience in implementing the new auditor reporting standards and will review experience gained in Canada by those who apply key audit matter reporting in accordance with law or regulation, as well as those who apply this reporting voluntarily. AASB will use this information in deciding on future developments for key audit matter reporting.

The AASB is working with CPA Canada and other organizations to assist in effectively implementing the new reporting standards. Materials will start to arrive in the next few months aimed not just at auditors but also at financial statement preparers and audit committees — they also have a role in effective implementation of the new standards.

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How do you feel about where Canada ended up with its new reporting standards?

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