New Canadian Standards for Review Engagements and Auditor Reporting Standards
Like all professional governing bodies, Chartered Professional Accountants of Canada (CPA Canada) often changes or refines industry standards.
CPA Canada has recently issued two major changes that impact all accounting firms and their clients.
The first is a completely new set of standards for review engagements (effective December 2017), and the second includes changes to audit reporting standards coming into effect this December.
Both are aimed at improving the quality, context, and clarity of information, with the goal of helping business people and their advisors make better decisions.
Our small- and medium-sized business clients are subject to one or the other of these processes. So, what’s the difference?
The audit report on financial statements will impact our business clients who have their financial statements audited. The audit work won’t change significantly; however, the actual audit reports we issue will change – for the better.
Audit reports are the key deliverable of any audit process, and that makes these latest CPA Canada changes especially important.
In short, the new requirements will make auditors’ reports more transparent, more informative, and better communicated. Again, the aim is to help business owners and their advisors make better decisions. For example, the new auditor’s report will include an enhanced description of the responsibilities of management, those charged with governance, and the auditor, so that readers have a clearer understanding of each party’s role. It will also include an explicit statement of the auditor’s fulfillment of ethical requirements, including the requirement to be independent of the entity subject to audit.
A review engagement is a more common analysis of a client’s books, and is a less intense examination than an audit.
That said, clients can probably expect more questions from, and interaction with, their accountants under the new rules. In return, clients will receive clearer, more detailed information both about the review process and its overall findings. For instance, as part of a review engagement, clients may be asked some more comprehensive and targeted questions to enhance our understanding of their business operations and any major changes in the year. There are also new inquiries that we are required to make, including questions about fraud, non-compliance, and complex and non-monetary transactions.
This enhanced discussion will improve our ability to identify areas in the financial statement where material misstatements are more likely to arise, and focus our review procedures on those areas. Under the new review standard, we are also required to communicate to management all misstatements identified during the review (other than those that are clearly trivial) and request that they be corrected.
These audit report and review engagement examples are among the many major changes and minor adjustments issued by CPA Canada, as it seeks to make accounting processes more user friendly and of greater value to clients.
When standards change, accounting firms need to keep pace and have internal structures in place to ensure that staff fully understand what is changing and when.