When Canada adopted international auditing standards in 2010, two major changes affecting auditors related to auditing group financial statements and accounting estimates. To assist all auditors as they performed the principal audit steps in these new standards, CPA Canada developed implementation tools to answer key questions and provide matters for auditors to consider.\nWith all standards, the devil is often in the details so practical experience over the last few years, and inspection results both here and abroad, have highlighted specific challenges auditors face in complying with the standards. CPA Canada’s response – three non-authoritative alerts shedding light on the challenges and how to respond to them.\nThe three alerts do not cover every aspect of a group audit or an audit of accounting estimates; reference should always be made to the standards themselves to understand all the relevant requirements. The alerts bolster the existing implementation tools. CPA Canada plans on supporting the alerts with other materials designed to enhance audit quality in these complex areas.\nThe three alerts cover:\nHow an auditor determines for a group audit (a) the type of work to be performed on components, and (b) component materiality.\n\n Determining the type of audit work to be performed at each component is a critical element of a group audit. If an auditor fails to do this appropriately, there is a danger that the auditor will not obtain sufficient appropriate audit evidence to support the group audit opinion. This alert guides auditors through the requirements for identifying whether components are financially significant or likely to include significant risks of material misstatement, and the nature and extent of audit work required on non-significant components. It also explains the basics of calculating component materiality.\n\nThe issues presented by group audits involving components located in emerging markets.\n\n Audits of entities that have operations located in emerging markets (such as Asia, South America and Eastern Europe) present unique challenges for auditors. This alert helps auditors work through the key questions to ask when deciding whether to accept or continue such an engagement. Further, the alert contains a section dealing with how an auditor might respond to commonly encountered risks of material misstatement specific to certain significant account balances and classes of transactions, such as revenues, related party transactions and ownership of assets.\n\nSpecific aspects of auditing accounting estimates.\n\n This alert covers areas where professional skepticism is key for auditors to identify and respond appropriately to the assessed risks of material misstatement in accounting estimates and the implications for the rest of the audit, specifically\n \n understanding management’s process for making accounting estimates\n assessing whether accounting estimates have high estimation uncertainty, and if those estimates are significant risks that require additional audit effort \n dealing with indicators of possible management bias\n \n \n\nKeep the conversation going… The alerts and related implementation tools can be found at the links below and CPA Canada welcomes comments on the alerts by October 3, 2014.\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.