Standards Roundup

What’s on tap in standard setting in Canada and internationally

(This page will be updated as new projects come on board. Coming soon: The work of other standard-setting bodies, such as the FASB, the IAESB and the IESBA).

International Auditing and Assurance Standards Board:

Propose revisions to ISA 315 (Revised), “Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment,” to establish more robust requirements and appropriately detailed guidance to drive auditors to perform appropriate risk assessment procedures in a manner commensurate with the size and nature of  an entity. These revisions are intended to enhance the auditor’s approach to understanding the entity, its environment (including its internal control) and risk assessment activities in light of the changing environment. The ISA 315 Task Force presented its initial responses to the comments received to the IAASB at a March 2019 meeting.

A project on restructuring ISQC 1, “Quality Management at Firm Level,” which would impose additional requirements or guidance within the standard or additional guidance in support of the standard. Specific aspects within ISQC 1 and ISA 220, “Quality Controls for an Audit of Financial Statements,” being explored include: governance, engagement partner responsibilities, engagement quality control reviews, monitoring, remediation, alternative audit delivery models and specific issues pertaining to small- and medium-sized practices. An exposure draft has been released for comment by July 1, 2019.

A project on enhancing ISQC 2, “Engagement Quality Reviews, “ by:

  • setting more robust criteria for firms to apply when determining which engagements should be subject to an EQC review,
  • establishing the objective of an EQC review,
  • clarifying the nature, timing and extent of the EQC review and
  • enhancing the requirements for the eligibility of the individuals who perform the review.

In doing so, consideration will also be given to maintaining the appropriate balance between the respective roles and responsibilities of the EQC reviewer and the engagement partner who retains overall responsibility for the engagement.  Comments due July 1, 2019.

Revising ISA 600, “Group Audits.” The aim is to determine the nature of the IAASB’s response to issues relating to group audits that have been identified during the ISA Implementation. These will be discussed at monitoring projects and outreach activities, inspection reports from audit regulators and responses to the IAASB’s Work Plan consultation (i.e., whether standard-setting activities are appropriate to address the issues, and if so, whether specific enhancements within ISA 600 or a more holistic approach to the standard would be more appropriate).

A project to redraft ISRS 4400, “Agreed-Upon Procedures,” using the clarity drafting conventions so that this standard is consistent with other IAASB International Standards  and to revise the standard to better reflect practice in AUP engagements.

Revising ISAE 3000 (Revised) “Extended External Reporting (EER) Assurance” to enable more consistent and appropriate application of the standard to emerging forms of external reporting (EER) and greater trust in the resulting assurance reports by users of EER. This will be achieved primarily through: developing non-authoritative guidance in applying ISAE 3000 (Revised) to EER; continuing to provide thought leadership on assurance issues in relation to EER; and coordinating the work of the project with related initiatives of other relevant international organizations.

The aim of a project on the “Audits of Less Complex Entities” is to explore possible actions to address perceived issues when undertaking audits of less complex entities for further IAASB consideration. In its initial phases.

Professional skepticism: Another project in its initial information gathering phase is to make recommendations on how to more effectively respond to issues related to professional skepticism.

A Data Analytics Working Group (DAWG) is exploring emerging developments in the effective and appropriate use of technology, including data analytics, to enhance audit quality and exploring how the IAASB most effectively can respond to these emerging developments via new or revised International Standards on Auditing or non-authoritative guidance (including Staff publications) and in what timeframe.

International Accounting Standards Board:

Amendments to IFRS 17, “Insurance Contracts.” Since IFRS 17 was issued in May 2017, the Board has been monitoring the implementation of that standard and has learned about concerns and implementation challenges. The Board had previously indicated that it would consider whether additional action is needed to address matters arising during implementation. The criteria against which any possible amendment would be considered were agreed on at the October 2018 meeting. An exposure draft of proposed amendments is currently expected in the second quarter of 2019.

Changes in accounting policies and estimates. This project aims to clarify the distinction between a change in an accounting policy and a change in an accounting estimate, in relation to the application of IAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors.” The exposure draft “Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8)” was published on September 12, 2017, with comments requested by January 15, 2018.  Early feedback on the ED was discussed in 2018.

Disclosure initiative — Overview. Provides a summary of projects that are part of the IASB's overall disclosure initiative, outlining summary progress on the implementation and research projects the IASB has decided to consider as part of the broader initiative.

Earnings per share. On hold. Originally a joint IASB-FASB project to converge the requirements for the calculation of earnings per share. This project is currently on hold pending an IASB staff review to develop a recommended course of action.

Financial Instruments – Macro Hedge Accounting. A project to consider risk management strategies referring to open portfolios (macro hedging) which are not specifically covered by the IASB’s project on general hedge accounting. A discussion paper was published on 17 April 2014. A second discussion paper is expected later in 2019.

Financial Instruments – Comprehensive Project. A multi-faceted joint IASB-FASB project to rewrite the requirements for accounting for financial instruments, consisting of a number of sub-projects.

IAS 1 – The Classification of Liabilities.” This project seeks to develop a more general approach to the classification of liabilities under IAS 1, “Presentation of Financial Statements,” which is based on the contractual arrangements in place at the reporting date. In April 2016, the Board paused work on this project while it finalized revisions to the definitions of assets and liabilities in its “Conceptual Framework for Financial Reporting.” At its September 2018 meeting, the IASB reactivated the project. The next project step will be finalized amendments to IAS 1.

IAS 8 – Accounting Policy Changes. This project looks into the accounting for voluntary changes in accounting policies — in particular, changes in accounting policies that result from agenda decisions published by the IFRS Interpretations Committee. An exposure was published March 27, 2018, with comments requested by July 27, 2018. No further news on this one.

IAS 16 – Proceeds Before Intended Use. This project looks into the accounting for any proceeds from selling items produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management. An exposure draft ED/2017/4, “'Property, Plant and Equipment — Proceeds before Intended Use (Proposed amendments to IAS 16),” was published June 20, 2017, with comments requested by October 19, 2017. Although the next project milestone is now an IFRS amendment, no expected date has been provided yet.

IAS 19/IFRIC 14 — Remeasurement at a plan amendment, curtailment or settlement / Availability of a refund of a surplus from a defined benefit plan. A narrow scope project to clarify (a) the calculation of current service cost and net interest an when an entity remeasures the net defined benefit liability (asset) when a plan amendment, curtailment or settlement occurs; and (b) whether a trustee's power to augment benefits or to wind up a plan affects an employer's unconditional right to a refund and thus, in accordance with IFRIC 14, restricts recognition of an asset. An exposure draft was published June 18, 2015, with a comment letter deadline of October 19, 2015. Amendments to IAS 19 regarding (a) were issued February 7, 2018. Amendments regarding (b) are still outstanding.

IAS 37 – Onerous Contracts. This project looks into the costs a company should include when assessing whether a contract will be making a loss. An exposure draft with comments requested by April 15, 2019, was published December 13, 2018.

Management commentary (Wider corporate reporting). The aim of this project is to review and update the “Management Commentary Practice Statement” issued in 2010 to help address the lack of alignment and integration between wider corporate reporting and financial reporting.

The Canadian Auditing and Assurance Standards Board

Not surprisingly, Canadian standard-setting initiatives are very much aligned with international ones. For example, in April, the AASB issued an exposure draft that proposes to adopt revised international standards from the IAASB dealing with quality control. The revisions will apply to all standards in the CPA Canada Handbook – Auditing and Assurance, including compilation engagements, and to all sizes of firms.

The Board has also issued its annual plan for the year which notes the following projects under way:

CAS 500, “Audit Evidence”: Provide the Canadian perspective as this project evolves. 

Audits of less complex entities: Submit response to IAASB discussion paper on this topic. 

CAS 701, “Auditor Reporting”: This project involves undertaking research and reaching conclusion on combined report/engagement/partner name. Specifically, the project aims to assess and support the activities of stakeholders to resolve the engagement partner name deferral. As well, it will reach a decision on whether the Board can design a combined report, including the engagement partner name, that would be accepted by the U.S. Public Company Accountability and Oversight Board and the Securities and Exchange Commission.  It would then issue the appropriate revisions to the standard.

Data analytics: Like IAASB, Canada’s AASB is looking at the whole issue of data analytics and how to make effective use of this emerging technology. The idea is to provide the Canadian perspective on this issue as this project evolves. To that end, an IAASB member has been invited to provide an update to the AASB. 

CAS 600, “Group Audits”: Provide the Canadian perspective as this IAASB project evolves. 

CAS 315, “Identifying and Assessing the Risks of Material Misstatement”: Make revisions to CAS 315 and issue standards according to normal due process. Complete a implementation risk analysis and support the development of implementation guidance. 

Agreed-upon Procedures: Here the aim is to replace Sections 9100 and 9110 of the Handbook – Auditing and Assurance with the IAASB’s CSRS 4400, then approve standard, complete the implementation risk analysis and support the development of implementation guidance. 

Compilation Engagements: The plan is to update Section 9200 Of the Handbook – Auditing and Assurance issue the standard, complete the implementation risk analysis and support the development of implementation guidance. 

Extended External Reporting: Provide the Canadian perspective as this IAASB project evolves. Considering the IAASB approach, we will talk to stakeholders to find out the relevance of this initiative in a Canadian context so the AASB is positioned to respond appropriately to the planned international exposure draft. 

The Canadian Accounting Standards Board

Given that Canadian public companies follow International Financial Reporting Standards (IFRS), the objective of Canada’s ASB is to support its stakeholders with implementation through targeted activities, such as the following: 

  • Monitor: The ASB closely monitoring developments for the Financial Instruments, Revenue and Leases standards and will participate in consultation activities whenever they are available. It is also monitoring implementation issues using existing standards, such as developments in the cannabis industry, cloud computing and accounting for cryptocurrencies.
  • Implementation guidance and communications: The ASB continues to focus on the status of the global and Canadian implementation of the new Insurance standard, through regular meetings with sub-groups of the insurance industry including life and health, property and casualty, mortgage insurers and workers compensation boards. We will also be in regular contact with IASB members and staff, and staff of other national standard setters and prudential regulators. 

In addition, it is incorporating into the CPA Canada Handbook – Accounting the “Bases for Conclusions” issued by the IASB that supports and supplements IFRS. With IASB’s “Bases for Conclusions on Financial Instruments, Revenue and Leases, Insurance Contracts and Conceptual Framework” already in the Handbook, 2019-2020 will see IASB guidance for IFRS 3, “Business Combinations,” and IFRS 13, “Fair Value Measurement,” also incorporated. 

Finally, the ASB also plans to continue to identity unnecessary differences between IFRS Standards and U.S. GAAP and advocate for change.

For private enterprises, 2019-2020 will have the ASB continue to focus on the areas that are causing private enterprises difficulties when reporting. It will be moving forward the work on the Related Party Transactions, Employee Future Benefits and Financial Statement Concepts projects. A new Agriculture standard will be issued and included in the CPA Canada Handbook – Accounting. The ASB will also issue an exposure draft on the narrow-scope amendments to the Revenue standard.

In the area of non-for-profit organizations, the ASAB plans to continue to move forward the work on topics of importance to NFPOs, namely contributions and combinations. It will issue a consultation paper for contributions and an exposure draft for combinations.

The Public Company Accounting Oversight Board

The PCAOB has released its latest standard, the New Auditor's Report (Updated June 4, 2019). The new auditing standard retained the pass/fail opinion of the existing auditor's report, but made significant changes to the auditor's report, including:

 Communication of critical audit matters—matters communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements; and (2) involved especially challenging, subjective, or complex auditor judgment.

 Disclosure of auditor tenure—the year in which the auditor began serving consecutively as the company's auditor.

 Other improvements to the auditor's report—a statement that the auditor is required to be independent, changes to certain standardized language in the auditor's report, and changes to the standardized form of the auditor's report.

Additional information on the new auditing standard: 

 SEC Action: Release No. 34-81916  

 Auditing Standard: AS 3101: The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion

 Adopting Release: PCAOB Release No. 2017-001 

 Fact Sheet: Adoption of an Auditing Standard on the Auditor’s Report

Why did the PCAOB adopt this standard?

The PCAOB adopted the standard to make the auditor's report more relevant to investors and other financial statement users by requiring more information about the auditor and the audit.

The communication of critical audit matters arising from the audit is intended to inform investors and other financial statement users about matters that required especially challenging, subjective, or complex auditor judgment, and the response that the auditor had to those matters.

Disclosure of auditor tenure in the auditor's report will make this information readily accessible in a timely way for investors who find it useful.

The other improvements to the auditor's report are intended to enhance the user's understanding of the auditor's role and responsibilities related to the audit of the financial statements, make the auditor's report easier to read, and provide a consistent format. 

What are the effective dates?

 Provisions related to the disclosure of audit tenure and other improvements to the auditor's report took effect for audits for fiscal years ending on or after December 15, 2017.

 Provisions related to critical audit matters will take effect for audits for fiscal years ending on or after June 30, 2019, for large accelerated filers; and for fiscal years ending on or after December 15, 2020, for all other companies to which the requirements apply. 

FASB ACCOUNTING STANDARDS UPDATES

Issued In 2019

Update 2019-07—Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates  (SEC Update)

Update 2019-06—Intangibles—Goodwill and Other (Topic 350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities

Update 2019-05—Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief

Update 2019-04—Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments

Update 2019-03—Not-for-Profit Entities (Topic 958): Updating the Definition of Collections

Update 2019-02—Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials (a consensus of the Emerging Issues Task Force)

Update 2019-01—Leases (Topic 842): Codification Improvements