Audit change is nearly here

Investors in Canada may soon benefit from more useful auditor reports

While numerous countries have worked to implement the new and revised auditor reporting standards issued by the International Auditing and Assurance Standards Board (IAASB) in January 2015, we in Canada haven’t yet adopted them – but we may be a big step closer.

The Canadian Auditing and Assurance Standards Board (AASB) had long been waiting to see what the Public Company Accounting Oversight Board (PCAOB) would include in their proposed standard and how closely it might align with the new International Standards on Auditing (ISAs). The PCAOB’s proposal was highly anticipated, of course, given the potential of its implications to Canadian companies listed in the US as well as Canada.

In May 2016, the PCAOB issued its re-proposed standard. No doubt to the relief of many, it’s consistent for the most part with the international standards, whose aim is to increase transparency about audit-related matters and to make auditor judgments on key matters more easily understood by investors. In a report comparing the re-proposed PCAOB standard with its own, the IAASB noted that it is in the public interest that the two have taken a relatively similar approach to enhancing the auditor’s report. In particular, that they both aim to provide greater transparency to investors and other stakeholders, and to encourage more communication between auditors and the audit committee.

After the comment period on the re-proposal ends in August, the PCOAB will determine whether or not to adopt final rules. If it does, it will submit a final proposed standard to the US Securities and Exchange Commission (SEC) for approval.

What will Canada do?

Now that there’s more clarity on the direction of the PCAOB auditor reporting standard, what will the AASB do? Since its mandate is to adopt the standards of the IAASB with minimal amendments, and since the re-proposed PCAOB standard is similar, I think we can expect to see standards that are relatively consistent with the ISA standards. The AASB has announced it expects to approve new standards in September 2016.

In the meantime, as investors, auditors, audit committees, and management, we all need to become more familiar with the new reporting standards. I, for one, am looking forward to the changes. Helping financial statement readers understand what issues the auditor considered of key importance will help users to better understand where auditors apply their judgment. And that should ultimately help users make more informed decisions.

For more information, visit the Deloitte Centre for Financial Reporting for the latest audit developments, financial reporting news, learning materials, best practices, and Deloitte perspectives.

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