A response from the Auditing and Assurance Standards Board (AASB) to auditor reporting proposals of the International Auditing and Assurance Standards Board (IAASB) reflects the significant concerns of Canadian stakeholders and recommends significant changes be made in the final standards.\nMost Canadian stakeholders are supportive of the objective of improving the current auditor’s report to provide more meaningful information to users. They are also broadly supportive of the AASB continuing to adopt International Standards on Auditing (ISAs) as Canadian Auditing Standards (CASs). However, there are a number of broadly held concerns about the IAASB proposals that led the AASB to state in its response: “The AASB is extremely troubled about adopting proposals that are still causing concerns to key elements of our stakeholder community solely to maintain our commitment to adopting ISAs as CASs.” The AASB strongly encourages the IAASB to consider AASB recommendations that may provide a basis to allow the final reporting standards to be operational in the Canadian environment. The following summarizes two key issues that arose during the consultations:\n\n The IAASB proposes that auditor’s reports on the financial statements of “listed entities” should include key audit matters (KAM) that the auditor considers were of the most significance in the audit of the financial statements. Stakeholders are concerned that reported KAM might, among other things, become boilerplate. They believe more guidance is needed to help auditors report on a more consistent, meaningful basis. The AASB provided a number of suggestions on how the IAASB’s proposals might be revised to achieve this goal.\n \n More importantly, however, is the significant concern that requiring reporting KAM for listed entities is going to be problematic in Canada because of the nature of the Canadian marketplace, which has a significant number of smaller listed entities. KAM is not seen as being of benefit to users of financial statements of smaller listed entities, particularly those in the venture market with limited resources and where investment decisions tend to be based on such things as mining reserve reports and reporting on future prospects. Further, other stakeholders highlighted that there are certain unlisted entities, such as regulated financial institutions, where KAM might be particularly useful. Accordingly, the AASB asked the IAASB to provide national standard setters with the flexibility to add to or subtract from the audits covered by the requirement so it can be focused on users in a particular jurisdiction who will benefit most from the information.\n\n\n The IAASB proposes that auditor’s reports include statements to make transparent what auditors already do in the area of going concern. However, most Canadian stakeholders see this as more boilerplate with limited additional information value. They believe that the statements are confusing and open to misinterpretation by less-informed users. The AASB also questions whether the proposals will address their underlying objective of addressing concerns coming out of the financial crisis. The AASB suggests the IAASB continue to work with accounting standard setters as part of a holistic approach to reporting on going concern and defer finalization of reporting on going concern as part of that approach.\n\nThe AASB has communicated to both the IAASB, and the U.S. Public Company Accounting Oversight Board (PCAOB) on its reporting proposals, the importance of consistency in auditor’s reports on the financial statements of companies who operate in a global environment so that readers are not confused. While proposals in the U.S. may be similar to those from the IAASB there are differences. There is a need for a global solution so that the financial statements of similar companies who operate in different markets do not have significantly different auditor’s reports.\nThe comment periods for the IAASB and PCAOB proposals ended in November and December respectively. Now the two bodies are studying the responses they have received and will likely finalize their respective standards in 2014. Only time will tell whether the AASB has been successful in its influencing efforts.\nIt should be an interesting year!\nKeep the conversation going….read the AASB response letters and share with your colleagues. Do you agree that the AASB’s suggestions in its response letter will address concerns in the Canadian environment?\nPost a comment below; or email me directly.\nEric\nConversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.