Positive investor response to auditor reporting proposals

Canadian investors are keen on working with the AASB and other stakeholders to support the effective implementation of the impending new auditor reporting standards, highlighted at a recent session in Toronto.

As the Canadian Auditing and Assurance Standards Board (AASB) continues to seek feedback on its Invitation to Comment on Implementation Considerations for New Auditor Reporting Standards, investors responded positively to the proposal at a recent lunch and learn session in Toronto.

Chartered Professional Accountants of Canada (CPA), in collaboration with Veritas Investment Research and the Canadian Public Accountability Board, brought over 30 investors (primarily portfolio managers and buy side financial analysts) to discuss key accounting and auditing matters of concern. This included discussions on the AASB’s Invitation to Comment

The AASB intends to adopt international auditor reporting standards in 2017. Standards for reporting of Key Audit Matters (a new section in the auditor’s report) would be implemented for TSX listed entities in 2017 and in 2018 for other entities. In addition, the AASB is also considering the implications of developments in the United States where the U.S. Public Company Accounting Oversight Board has a project to revise its auditor reporting standards. Of course, the AASB cannot predict how U.S. auditor reporting standards will evolve nor guarantee that Canadian and U.S. reporting standards will always be converged.

Investor insights

A survey conducted onsite revealed current investor perceptions of the proposed new auditor report and roll-out. Here are the percentages of investors who either moderately agreed or strongly agreed to the following statements:

  • I rely on publicly issued financial statements when making investment decisions (82 per cent)

  • the concept of Key Audit Matters will help improve communication between management and investors (89 per cent)

  • the proposed staged implementation of the new auditor reporting standards in Canada is appropriate (75 per cent)

  • it is very important that Canadian and United States audit reporting standards converge (82 per cent)

This investor feedback will likely be of keen interest to the AASB. To me, this feedback is significant because it demonstrates that investors do make decisions based on the financial statements and that transparency about key audit matters is important to them. Further, they also recognize that a measured approach to implementation is an appropriate path for the AASB to take.

Finally, in noting that the use of non-GAAP measures in the management discussion and analysis (MD&A) of public companies has increased dramatically over the last few years, 89 per cent of investors moderately agreed or strongly agreed that financial reporting would be improved if the auditor expressed assurance on non-GAAP measures and other key performance indicators.

A summary of the discussion will be posted here when available. Topics discussed will also be the subject of a future blog.

Keep the conversation going

What are your thoughts on the results of the investor roundtable? Do you think auditors can and should provide assurance on non-GAAP measures? Don’t forget to read the AASB’s Invitation to Comment and provide input to the AASB by February 5, 2016.

Post a comment below; or email me directly.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada