The Canadian Institute of Chartered Accountants

The CICA’s Guide to New CASs in Canada August 31, 2009 About the CICA The Canadian Institute of Chartered Accountants (CICA) conducts research into current business issues and supports the setting of accounting, auditing and assurance standards for business, not-for-profit organizations and government. It issues guidance on control, best practices and governance, publishes professional literature, develops continuing education programs and represents the CA profession nationally and internationally.

Together with the provincial, territorial and Bermuda institutes/ordre of Chartered Accountants, the CICA represents a membership of approximately 74,000 CAs and 10,000 students in Canada and Bermuda. The CICA is a founding member of the International Federation of Accountants (IFAC) and the Global Accounting Alliance (GAA). The CICA’s CAS Website For the latest information to help you manage the transition to the new Canadian Auditing Standards (CASs) and Canadian Standards on Quality Control (CSQC 1), go to www. cica. a/CAS, or to the website of your provincial institute/ordre. Make sure to bookmark our CAS site. It is updated regularly, and links you to the resources you need to ensure a smooth transition. About this Guide The CICA has prepared this reference guide to help you prepare for the new Canadian Auditing Standards (CASs) and Canadian Standards on Quality Control (CSQC 1). This Guide highlights areas of similarity and difference between CASs and existing Canadian standards as set out in the CICA Handbook – Assurance.

How the CICA Can Help The CICA is the recognized leader in providing information and professional education that clarifies and aids in the application of standards in Canada. The new Canadian Auditing Standards represent a significant change for financial statement auditors, and the change to CSQC 1 will affect firms providing assurance services. Chartered Accountants of Canada, through the CICA and the provincial institutes/ordre, are committed to helping you prepare for the transition. Foreword

In June 2006, following extensive consultation with CAs and business leaders across Canada, the Canadian Auditing and Assurance Standards Board (AASB) announced its decision to adopt International Standards on Auditing (ISAs) as Canadian Auditing Standards (CASs), and International Standards on Quality Control (ISQC 1) as Canadian Standards on Quality Control, (CSQC 1). The changes to the standards will affect all financial statement auditors in Canada. ISAs and ISQCs are issued by the International Auditing and Assurance Standards Board (IAASB) and are used by auditors around the world.

As of June 1, 2009, there are 36 ISAs dealing with financial statement audits and one comprehensive ISQC dealing with quality control standards for firms performing assurance engagements. All have been redrafted by the IAASB using a new clarity format which is clear, consistent, and easy to use. ISAs and ISQC 1 have been adopted as CASs and CSQC 1 with minimal amendments to accommodate unique Canadian circumstances. These minimal amendments are clearly identified in the new standards. The CASs come into effect for audits of financial statements for periods ending on or after December 14, 2010.

Firms that provide assurance services are required to establish a system of quality control in compliance with CSQC 1 by December 15, 2009. Any change of this magnitude will inevitably need some preparation, planning and training. Those firms that have project leaders ready to prepare and plan for how to incorporate the CASs into their practices should find the transition to be relatively smooth. This concise reference guide provides an excellent starting place for the needed preparation and planning. Ron Salole Vice-President, Standards Canadian Institute of Chartered Accountants

Canada’s adoption of international standards for auditing and quality control is an important change for all CAs in public practice. While there is significant overlap between current Canadian standards and

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the new standards, elements of the transition will present challenges. Some auditors in particular may be apprehensive about the impact CASs will have on their audit practices. The Canadian Institute of Chartered Accountants and the provincial institutes/ordre are gearing up their information and education resources to prepare you to manage the transition.

This guide is one element in a comprehensive program of implementation support. I encourage you to visit our CAS website at www. cica. ca/CAS to access the downloadable publications, implementation tools, and a range of provincially offered courses and e-learning opportunities. The time to begin preparing for this transition is now. This concise reference guide, which provides a comparative overview of changes on a standard-by-standard basis, will help you identify the changes you need to consider in order to get started. Tim Forristal CA Vice-President, Education Canadian Institute of Chartered Accountants

List of Acronyms AASB: Auditing and Assurance Standards Board (Canada) CASs: Canadian Auditing Standards EDs: Exposure Drafts ISA: International Standards on Auditing ISQC: International Standards on Quality Control CSQC: Canadian Standards on Quality Control pica/ordre: provincial institute of chartered accountants/ ordre de comptables agrees du Quebec GAAS: Canadian Generally Accepted Auditing Standards GSF-QC: General Standards of Quality Control for Firms Performing Assurance Engagements IAASB: International Auditing and Assurance Standards Board Contents

New Canadian Standards for Auditing and Quality Control The New Clarity Format Canada’s Timeline for Change The AASB’s Process for Adopting CASs and CSQC 1 The Expected Impact What to Watch for How to Prepare for the Transition The CICA Handbook – Assurance Sections Related to Audits of Financial Statements Concordance Overview of the New CASs, Cross-referenced to Existing CICA Handbook – Assurance Sections Dealing with Audits of Financial Statements Notes on Disposition of Other Existing CICA Handbook – Assurance Sections Dealing with the Audit of Financial Statements 1 2 3 5 6 6 8

Resources Available from the Chartered Accountants of Canada 9 11 13 19 Overview of Existing CICA Handbook – Assurance Sections Dealing with Audits of Financial Statements, Cross-referenced to the New CAS 20 New Canadian Auditing Standards Overview and Comparisons Understanding the Implications of Canadian Auditing Standards 25 29 30 The CICA’s Guide to New CASs in Canada 1 New Canadian Standards for Auditing and Quality Control For many years, Canada’s auditing standard setters have been involved with the efforts of the International Auditing and Assurance Standards Board (IAASB) to develop global auditing standards.

These efforts have culminated in the development of reformatted, and in some cases, revised: • International Standards on Auditing (ISAs) for the audits of financial statements and other historical financial information for all entities; and International Standards on Quality Control (ISQC) for firms. • Together, these new standards provide a basis on which auditors worldwide may conduct high quality, consistent and comparable audits. The Canadian Auditing and Assurance Standards Board (AASB) is adopting ISAs as Canadian Auditing Standards (CASs) for the audits of financial statements.

Once effective, the CASs will constitute Canadian Generally Accepted Auditing Standards (GAAS) for financial statement audits. No decision has yet been made on adopting international standards for other assurance engagements such as reviews and compilations. The AASB is also adopting International Standards on Quality Control (ISQC 1) as Canadian Standards on Quality Control (CSQC 1), which will apply to all firms performing assurance engagements. Why Change Now? There is nothing unique about auditing in Canada.

The high quality, consistent and transparent global standards that have been established by the IAASB effectively eliminate the need for Canada to maintain its own separate and distinct set of standards. The increasingly global 2 The CICA’s Guide to New CASs in Canada economy, meanwhile, strengthens the impetus for moving to international auditing rules. In addition: • The IAASB’s principles-based approach to standard setting is consistent with the existing Canadian approach.

The IAASB’s process for developing and issuing standards is rigorous and transparent, and allows for appropriate input from the Canadian Auditing and Assurance Standards Board and Canadian CAs. The AASB has developed a set of criteria for making amendments to ISQC 1 and ISAs when adopting them to address particular Canadian circumstances. The IAASB has developed a format for ISQC and ISAs called the clarity format, which auditors will find clear, consistent and easy to understand. ISQC and ISAs are being adopted globally; Canada joins more than 100 countries, which have already adopted ISAs or are in the process of doing so. • • • The New Clarity Format The IAASB has redrafted its ISQC 1 and ISAs using a new drafting convention called the clarity format. This new format is clear, consistent and easy to understand. Canadian standard setters have actively participated in the development of the clarity format, and are confident that it will be appropriate for the Canadian profession. The clarity format presents each standard in five parts: • • • Introduction: which explains the purpose and scope of the CASs; Objectives: which define the context in which the requirements are set; Definitions: which include specific meanings of terms in the CASs;

The CICA’s Guide to New CASs in Canada 3 • • Requirements: which define what the auditor must comply with, using the words “the auditor shall;” and Application and other Explanatory Material: crossreferenced to the Requirements, and providing further explanation of and guidance for carrying out the requirements of the standard. Canadian standard setters will continue to influence the development of international standards and their application in Canada. Canada’s Timeline for Change The change to audit standards will come into effect for all financial statement audits for periods ending on or after December 14, 2010.

CASs will become Canadian GAAS for these audits at that time. CASs will NOT apply to other assurance work, such as reviews and compilations. The change to the quality control standard for firms takes effect December 15, 2009. All firms that provide assurance services need to establish a system of quality control compliant with CSQC 1 by December 15, 2009. The new CICA Handbook – Assurance, which includes CSQC 1, is planned for release in June 2009. 4 Transition Timeline Quality Control Standards for Firms for all Assurance Engagements 2009 New Canadian Standard on Quality Control (CSQC 1) 2010 011 Current QC Standards Dec. 15, 2009 CSQC 1 becomes effective. Quality Control systems must comply with CSQC 1 from this date. The CICA’s Guide to New CASs in Canada Canadian GAAS for Financial Statement Audits New Audit Standards become effective for audits of financial statements for periods ending on or after this date. Early adoption is not permitted. Dec. 14, 2010 Current Canadian GAAS New Canadian Auditing Standards (CASs) 2009 2010 For example for year ends: ? • Nov. 30, 2010 — Audit and Audit Report under current standards ? • Dec 31, 2010 — Audit and new Audit Report under CASs 011 During the transition, auditors will begin using the new standards and new Audit Report for certain audits, while continuing to use the current standards and current Audit Report for other audits, depending on the year ends of their clients, and the timing of the audit work. The CICA’s Guide to New CASs in Canada 5 The AASB’s Process for Adopting CASs and CSQC 1 The AASB is adopting international auditing and quality control standards as Canadian standards with minimal amendments. Most stakeholders have expressed strong support for this approach.

For the detailed criteria under which ISAs/ISQC 1 may be amended in adopting them as CASs/CSQC 1, see the AASB’s website at www. aasb. ca. The AASB has made few amendments to ISA wording in adopting those standards as CASs. One key change relates to references in the ISAs to compliance with the IFAC Code. These references have been replaced with references to rules of professional conduct and codes of ethics, which are applicable to the practice of public accounting issued by various professional accounting bodies. The CASs also include Joint Policy Statements with the Canadian Bar Association and the Canadian Institute of Actuaries.

In adopting international standards as the Canadian standards, the AASB has followed established Canadian due process for releasing Exposure Drafts (EDs) for comment, ensuring that Exposure Drafts of all clarified standards are available for a reasonable consultation period. The exposure periods for CASs/CSQC 1 were somewhat shorter than for the related ISAs/ISQC 1 to allow the AASB to obtain input from Canadian stakeholders in time to respond to the ISA/ISQC 1 Exposure Draft before the deadline set by the IAASB. The AASB will continue to follow established due process for future changes to CASs and CSQC 1.

To review and comment on EDs, visit the AASB’s website at www. aasb. ca. 6 The CICA’s Guide to New CASs in Canada The Expected Impact All Canadian assurance providers should be preparing now for the introduction of new Canadian auditing and quality control standards. • All financial statement auditors will require detailed working knowledge of the CASs. Preparers of audited financial statements should also understand how changes in standards may affect the audit process, in particular interactions between the auditor and the preparer.

The CA profession is committed to helping members achieve the level of expertise their professional responsibilities require. All firms providing assurance services will require detailed knowledge of CSQC 1 to ensure its effective implementation by December 15, 2009. • All new standards will be published in the new CICA Handbook – Assurance, which will be available in June 2009. What to Watch for CASs CASs are principles-based, as are existing Canadian standards for audits of financial statements. Most are consistent with existing Canadian practice.

Some, however, contain significant changes from existing standards and will require auditors to prepare accordingly. The CICA’s Guide to New CASs in Canada 7 Areas of Financial Statement Auditing Consistent with Existing Canadian Practice The following areas of financial statement auditing are essentially unchanged under the new CASs: • • • • Compliance with professional ethics and auditor responsibilities; Understanding business entities and business risk; Audit planning; and Internal control evaluation and testing.

There are no significant changes to standards governing other public accounting services and reports. Further, some significant standards contained in the existing CICA Handbook – Assurance already closely mirror the incoming CASs. These standards, which should already have been implemented by auditors, deal with audit risk, fraud and audit planning. Areas of Financial Statement Auditing with Significant Changes under CASs Some CASs contain significant differences from existing standards for audits of financial statements.

These changes represent good auditing practice. The time and effort required to implement these CASs could be significant for some auditors, depending in part on the processes and procedures they currently use. Readers can learn more about significant differences between the CASs and existing standards for audits of financial statements in the section, “Overview and Comparisons: The Existing CICA Handbook – Assurance — CASs and CSQC1”, beginning on page 29. New Quality Control Standards

CSQC 1 shares many similarities with the current General Standards of Quality Control for Firms Performing Assurance Engagements (GSF-QC). Firms providing assurance 8 The CICA’s Guide to New CASs in Canada services should, however, review the new standard in detail and update their systems of quality control before the December 15, 2009 implementation date. There are two areas of significant difference which all firms providing assurance services should review: • The need to complete the engagement quality control review and resolve differences of opinion before the date of he auditor’s report; and The prohibition of those performing the engagement or the engagement quality control review from being involved with the inspection of the completed engagement as part of the monitoring function. • The AASB has issued a Risk Alert on these two matters, which you can review on its website at www. cica. ca/CAS. How to Prepare for the Transition Now is the time for all auditors to start preparing for the transition to CASs, and for all firms providing assurance services to start preparing for the transition to CSQC 1. Information, education and training will be needed to ensure a smooth transition.

Here are important things auditors can do to start preparing for CASs: • • • • • Ensure you are up to date with current auditing standards, including all recent changes; Familiarize yourself with the clarified CASs; Appoint a person or team to be in charge of the transition; Prepare your transition plan, including professional education plans for all audit staff; and Talk to your staff and to your clients about the potential impact. All assurance providers should follow this same familiarization and education process in preparing for the implementation of CSQC 1. The CICA’s Guide to New CASs in Canada These steps will help minimize the impact of the transition on your staff and your clients. Remember to bookmark the CA profession’s CAS website at www/cica. ca/CAS. It will keep you up to date on the transition process, and provide you with immediate access to CAS information and resources offered by the Chartered Accountants of Canada. Resources Available from the Chartered Accountants of Canada The CA profession’s capacity to provide information and knowledge development on International Standards on Auditing throughout the transition and beyond is unrivalled.

The provincial institutes/ordre and the CICA will provide a full range of information and learning opportunities to help you prepare for the transition to CASs and CSQC 1. Other resources available will include: • • • • • • The CICA Practice Engagement Manual (PEM) The CICA Quality Assurance Manual (QAM) Information and Guidance on International Standards on Auditing Training and self-study materials Up-to-date courses and conferences Materials developed by the Auditing and Assurance Standards Board staff.

You can access the CAS resources of the CA profession through the CICA website at www. cica. ca/CAS, or through your provincial institute/ordre website. The CICA Handbook – Assurance Sections Related to Audits of Financial Statements Concordance The Existing CICA Handbook – Assurance — CASs and CSQC 1 Overview of the New CASs, Crossreferenced to Existing CICA Handbook – Assurance Sections Dealing with Audits of Financial Statements 14 New CICA Handbook – Assurance Canadian Auditing Standards Existing CICA Handbook – Assurance Sections/Guidelines Existing Section/ Guideline No.

Title of Section/Guideline New Standard No. Title of Standard CANADIAN STANDARDS ON QUALITY CONTROL (CSQCs) CSQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements. Introduction GSF-QC Introduction to general standards of quality control for firms performing assurance engagements General Standards of Quality Control for Firms Providing Assurance Services The CICA’s Guide to New CASs in Canada AUDITS OF HISTORICAL FINANCIAL INFORMATION CAS 100-999 Canadian Auditing Standards 00-199 INTRODUCTORY MATTERS (no CASs currently in this section) 200-299 GENERAL PRINCIPLES AND RESPONSIBILITIES CAS 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards CAS 210 CAS 220 5145 5135 5090 5095 5100 5110 5030 CAS 230 CAS 240 Agreeing the Terms of Audit Engagements Quality Control for an Audit of Financial Statements Audit Documentation Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements

Audit of Financial Statements Reasonable Assurance and Audit Risk Generally Accepted Auditing Standards Terms of the Engagement Quality Control Procedures for Assurance Engagements Documentation The Auditor’s Responsibility to Consider Fraud New CICA Handbook – Assurance Canadian Auditing Standards Existing CICA Handbook – Assurance Sections/Guidelines Existing Section/ Guideline No. Title of Section/Guideline New Standard No. Title of Standard 00-299 GENERAL PRINCIPLES AND RESPONSIBILITIES (continued from previous page) 5136 5751 5220 Misstatements — Illegal Acts CAS 250 CAS 260 CAS 265 Consideration of Laws and Regulations in an Audit of Financial Statements Communication with Those Charged with Governance Communicating Deficiencies in Internal Control to Those Charged with Governance and Management Communications with Those Having Oversight of the Financial Reporting Process Internal Control in the Context of an Audit — Weaknesses in Internal Control 00-499 RISK ASSESSMENT AND RESPONSE TO ASSESSED RISKS Planning an Audit of Financial Statements 5150 CAS 300 CAS 315 Identifying and Assessing the Risks of Material 5141 Misstatement Through Understanding the Entity and Its Environment 5142 CAS 320 Materiality in Planning and Performing an Audit AuG-41 CAS 330 The Auditor’s Responses to Assessed Risks 5143 5310 AuG 42 The CICA Comparison CAS 402 Audit Considerations Relating to an Entity Using a Service Organization Planning Understanding the Entity and Its Environment and Assessing the Risks f Material Misstatement Materiality Applying the concept of materiality The Auditor’s Procedures in Response to Assessed Risks Audit Evidence Considerations when an Entity Uses a Service Organization Service organizations that use other service organizations 15 16 New CICA Handbook – Assurance Canadian Auditing Standards Existing CICA Handbook – Assurance Sections/Guidelines Existing Section/ Guideline No. Title of Section/Guideline 5142 Materiality New Standard No. Title of Standard Evaluation of Misstatements Identified During the Audit 500-599 AUDIT EVIDENCE CAS 500 Audit Evidence Audit Evidence Communications with Actuaries

CAS 450 CAS 501 Audit Evidence — Specific Consideration for Selected Items 5300 Appendix to Section 5365 6030 6560 The CICA’s Guide to New CASs in Canada AuG-26 5303 6560 CAS 505 External Confirmations Inventories Communications with Law Firms Regarding Claims and Possible Claims (including the Joint Policy Statement) Applying audit procedures to segment disclosures in financial statements Confirmation Communications with Law Firms Regarding Claims and Possible Claims (Including the Joint Policy Statement) Analysis CAS CAS CAS CAS 5301 5305 5306 6010 6550 5405 10 520 530 540 Initial Audit Engagements—Opening Balances Analytical Procedures Audit Sampling Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures CAS 550 CAS 560 Related Parties Subsequent Events Audit of Accounting Estimates Auditing Fair Value Measurements and Disclosures Audit of Related Party Transactions Subsequent Events Date of the Auditor’s Report New CICA Handbook – Assurance Canadian Auditing Standards Existing CICA Handbook – Assurance Sections/Guidelines Existing Section/ Guideline No.

Title of Section/Guideline New Standard No. Title of Standard CAS 570 Going Concern CAS 580 Written Representations 600-699 USING WORK OF OTHERS 5370 6930 Management Representations Reliance on Another Auditor CAS 600 CAS 610 CAS 620 Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors) Using the Work of Internal Auditors Using the Work of an Auditor’s Expert 5050 5049 Using the Work of Internal Audit Use of Specialists in Assurance Engagement 00-799 AUDIT CONCLUSIONS AND REPORTING CAS 700 Forming an Opinion and Reporting on Financial Statements 5400 5600 CAS 705 5600 5510 The Auditor’s Standard Report Auditor’s Report on Financial Statements Prepared Using a Basis of Accounting Other than Generally Accepted Accounting Principles Reservations in the Auditor’s Report CAS 706 Modifications to the Opinion in the Independent Auditor’s Report Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report 5701

The CICA Comparison Auditor’s Report on Financial Statements Prepared Using a Basis of Accounting Other than Generally Accepted Accounting Principles Other Reporting Matters 17 18 New CICA Handbook – Assurance Canadian Auditing Standards Existing CICA Handbook – Assurance Sections/Guidelines Existing Section/ Guideline No. Title of Section/Guideline 5701 AuG-8 7500 New Standard No. Title of Standard CAS 710 Comparative Information — Corresponding Figures and Comparative Financial Statements CAS 720

Other Reporting Matters Auditor’s report on comparative financial statements Annual Reports, Interim Reports and Other Public Documents* The CICA’s Guide to New CASs in Canada The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements 800-899 SPECIALIZED AREAS Special Considerations — Audits of Financial CAS 800 Statements Prepared in Accordance with Special Purpose Frameworks 5600 5800 5805 AuG-25 CAS 805 Special Considerations— Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement

CAS 810 Engagements to Report on Summary Financial Statements Auditor’s Report on Financial Statements Prepared Using a Basis of Accounting Other than Generally Accepted Accounting Principles Special Reports — Introduction Special Reports — Audit Reports on Financial Information Other Than Financial Statements Auditor’s report on summarized financial statements *Section 7500 has been redrafted as “Auditor’s Consent to the Use of the Auditor’s Report in Connection with Designated Documents” and will be effective at the same time as the CASs.

The CICA Comparison 19 Notes on Disposition of Other Existing CICA Handbook – Assurance Sections Dealing with the Audit of Financial Statements The new Handbook will not contain separate CASs comparable to the following current Handbook Sections: • Section 5365 “Communications with Actuaries. ” The “Joint Policy Statement Concerning Communications Between Actuaries Involved in the Preparation of Financial Statements and Auditors,” currently an Appendix to Section 5365, will appear as an Appendix to CAS 500.

Section 5750 “Communication with Management of Matters Identified During the Financial Audit. ” Aspects of communications with management will be dealt with in various CASs. • 20 The CICA’s Guide to New CASs in Canada Overview of Existing CICA Handbook – Assurance Sections Dealing with Audits of Financial Statements, Cross-referenced to the New CASs Existing CICA Handbook – Assurance Sections Introduction to General Standards of Quality Control for Firms Performing Assurance Engagements GSF-QC General Standards of Quality Control for Firms Performing Assurance Engagements Quality

Control Procedures for Assurance Engagements Use of Specialists in Assurance Engagements Using the Work of Internal Audit Audit of Financial Statements New CICA Handbook – Assurance Canadian Auditing Standards/Practice Statements CSQC-1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements. 5030 CAS 220 Quality Control for an Audit of Financial Statements CAS 620 Using the Work of an Auditor’s Expert CAS 610 Using the Work of Internal Auditors 5049 5050 5090

CAS 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards The CICA Comparison 21 Existing CICA Handbook – Assurance Sections 5095 Reasonable Assurance and Audit Risk New CICA Handbook – Assurance Canadian Auditing Standards/Practice Statements CAS 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards. CAS 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards.

CAS 210 Agreeing the Terms of Audit Engagements 5100 Generally Accepted Auditing Standards 5110 5135 Terms of the Engagement The Auditor’s Responsibility to Consider Fraud CAS 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements CAS 250 Consideration of Laws and Regulations in an Audit of Financial Statements CAS 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment 5136 Misstatements – Illegal Acts 5141 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement 142 Materiality CAS 320 Materiality in Planning and Performing an Audit CAS 450 Evaluation of Misstatements Identified During the Audit 5143 The Auditor’s CAS 330 The Auditor’s Procedures in Responses to Response to Assessed Assessed Risks Risks Documentation CAS 230 Audit Documentation 5145 22 The CICA’s Guide to New CASs in Canada Existing CICA Handbook – Assurance Sections 5150 5220 Planning New CICA Handbook – Assurance Canadian Auditing Standards/Practice Statements CAS 300 Planning an Audit of Financial Statements

Internal Control in CAS 265 Communicating the Context of an Deficiencies in Audit — Weaknesses in Internal Control to Internal Control Those Charged with Governance and Management Audit Evidence Analysis Confirmation Audit of Accounting Estimates CAS 500 Audit Evidence CAS 520 Analytical Procedures CAS 505 External Confirmations CAS 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures CAS 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures CAS 402 Audit Considerations Relating to an Entity Using a Service Organization Appendix to CAS 500 300 5301 5303 5305 5306 Auditing Fair Value Measurements and Disclosures 5310 Audit Evidence Considerations when an Entity Uses a Service Organization Communications with Actuaries 5365 Joint Policy Statement Concerning Actuaries Involved in the Preparation of Financial Statements and Auditors* 5370 5400 Management Representations CAS 580 Written Representations

The Auditor’s Standard CAS 700 Forming an Opinion Report and Reporting on Financial Statements Date of the Auditor’s Report Reservations in the Auditor’s Report CAS 560 Subsequent Events CAS 705 Modifications to the Opinion in the Independent Auditor’s Report 5405 5510 *Please see notes on disposition of other existing Handbook Sections dealing with the audit of financial statements. The CICA Comparison 23 Existing CICA Handbook – Assurance Sections 5600 Auditor’s Report on Financial Statements Prepared Using a Basis of Accounting Other than Generally Accepted Accounting Principles

New CICA Handbook – Assurance Canadian Auditing Standards/Practice Statements CAS 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report CAS 800 Special Considerations — Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks CAS 706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report CAS 710 Comparative Information — Corresponding Figures and Comparative Financial Statements 5701 Other Reporting Matters 5750

Communication with Management of Matters Identified During the Financial Statement Audit Communications with Those Having Oversight of the Financial Reporting Process Special Reports — Introduction Special Reports — Audit Reports on Financial Information Other Than Financial Statements Aspects of communications with management is dealt with in various CASs* 5751 CAS 260 Communications with Those Charged with Governance 5800 5805 CAS 805 Special Considerations — Audits of Simple Financial Statements and Specific Elements, Accounts or Items of a Financial Statement. Please see notes on disposition of other existing Handbook Sections dealing with the audit of financial statements. 24 The CICA’s Guide to New CASs in Canada Existing CICA Handbook – Assurance Sections 6010 6030 Audit of Related Party Transactions Inventories New CICA Handbook – Assurance Canadian Auditing Standards/Practice Statements CAS 550 Related Parties CAS 501 Audit Evidence — Specific Considerations for Selected Items 6550 6560 Subsequent Events Communications with Law Firms Regarding Claims and Possible Claims (including the Joint Policy Statement) Reliance on Another Auditor

CAS 560 Subsequent Events CAS 501 Audit Evidence — Specific Considerations for Selected Items 6930 CAS 600 Special Considerations — Audits of Group Financial Statements (including the Work of Component Auditors) The CICA Comparison 25 New Canadian Auditing Standards Canada is joining more than 100 countries in its commitment to adopt the 36 clarified ISAs and ISCQ 1. ISAs and ISQC 1 have been adopted as CASs and CSQC 1 with minimal amendments to accommodate unique Canadian circumstances. The effective date for CSQC 1 is December 15, 2009. The effective date for the CASs is for periods ending on or after December 14, 2010.

CANADIAN STANDARDS ON QUALITY CONTROL CSQC 1: Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Engagements 200-299 CAS 200: GENERAL PRINCIPLES AND RESPONSIBILITIES Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with Canadian Auditing Standards Agreeing the Terms of Audit Engagements Quality Control for an Audit of Financial Statements Audit Documentation The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements Consideration of Laws and Regulations in an Audit of Financial Statements Communication with Those Charged with Governance Communicating Deficiencies in Internal Control to Those Charged with Governance and Management RISK ASSESSMENT AND RESPONSE TO ASSESSED RISKS Planning an Audit of Financial Statements Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment Materiality in Planning and Performing an Audit The Auditor’s Responses to Assessed Risks Audit Considerations Relating to an Entity Using a Service Organization Evaluation of Misstatements Identified During the Audit CAS 210: CAS 220: CAS 230: CAS 240: CAS 250: CAS 260: CAS 265: 300-499 CAS 300: CAS 315: CAS 320: CAS 330: CAS 402: CAS 450: 26 The CICA’s Guide to New CASs in Canada 500-599 CAS 500: CAS 501: CAS 505: CAS 510: CAS 520: CAS 530: CAS 540: CAS 550: CAS 560: CAS 570: CAS 580: 600-699 CAS 600:

AUDIT EVIDENCE Audit Evidence Audit Evidence — Specific Considerations for Selected Items External Confirmations Initial Audit Engagements — Opening Balances Analytical Procedures Audit Sampling Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures Related Parties Subsequent Events Going Concern Written Representations USING WORK OF OTHERS Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors) Using the Work of Internal Auditors Using the Work of an Auditor’s Expert AUDIT CONCLUSIONS AND REPORTING Forming an Opinion and Reporting on Financial Statements Modifications to the Opinion in the Independent Auditor’s Report Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report Comparative Information — Corresponding Figures and Comparative Financial Statements The Auditor’s Responsibilities Relating Other Information in Documents Containing Audited Financial Statements SPECIALIZED AREAS Special Considerations — Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement Engagements to Report on Summary Financial Statements CAS 610: CAS 620: 700-799 CAS 700: CAS 705: CAS 706: CAS 710: CAS 720: 800-899 CAS 800: CAS 805: CAS 810: Overview and Comparisons

The Existing CICA Handbook – Assurance — CASs and CSQC 1 Comparison of Existing CICA Handbook – Assurance Sections Dealing with Audits of Financial Statements, Cross-referenced to the New CASs and CSQC 1 30 The CICA’s Guide to New CASs in Canada Understanding the Implications of Canadian Auditing Standards This CICA publication has not been adopted, endorsed, approved, disapproved or otherwise acted upon by the Auditing and Assurance Standards Board (AASB), or any CICA Board or committee, the governing body or membership of the CICA, or any Provincial Institute/Ordre. Changes identified here represent significant differences between existing Recommendations in the CICA Handbook – Assurance at December 31, 2007, and the requirements in the CASs. What is significant to any individual user will depend on the particular circumstances.

Users of this comparison should note that it may not identify all the differences between the current standards and the CASs that are significant to a particular engagement. Therefore readers should perform their own review of the entire CASs and other relevant materials to understand how its proposals would require changes to their current practices, policies or methodologies. Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 31 CAS 200 Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with Canadian Auditing Standards ExISTING HAndbook SECTION(S) REPLACED There is no single Section in the existing Handbook that is comparable to CAS 200.

CAS 200 will replace material contained in Sections 5090, Audit of Financial Statements, 5095, Reasonable Assurance and Audit Risk and 5100, Generally Accepted Auditing Standards. These Sections deal with aspects of overall concepts that are applicable to performing a financial statement audit similar to the matters covered by CAS 200. • Section 5090 requires the auditor to perform an audit with an attitude of professional scepticism. CAS 200 has the same requirement in paragraph 15. Section 5095 quotes examination standard (i) from Section 5100 and has no other Recommendations. Section 5100 includes the general standard, the three examination standards and the four reporting standards.

The concepts are covered in CAS 200 or in other CASs as follows: — The general standard is replaced with the requirement in CAS 200 to comply with relevant ethical requirements. — Examination standard (i) dealing with the concept of reducing audit risk to an acceptably low level is dealt with in CAS 200 paragraph 17. Direction and supervision of engagement team members are covered, for example in paragraph 15 of CAS 220 and paragraph 10 of CAS 300. — Examination standard (ii) dealing with obtaining an understanding of the entity and its environment is not covered in CAS 200. It is covered in paragraphs 11-23 of CAS 315. Examination standard (iii) dealing with obtaining — sufficient appropriate audit evidence is comparable to the requirement in paragraph 17 of CAS 200.

Section 5100 contains overall reporting requirements while CAS 200 does not. CAS 700, CAS 800 and other CASs in the 700 and 900 series provide reporting requirements. • Section 5021 in the existing Handbook applies to all assurance engagements while CAS 200 applies only to audits of financial statements and may be adapted as necessary in the circumstances when applied to audits of other historical financial information. In the • • 32 The CICA’s Guide to New CASs in Canada new Handbook, Section 5021 will describe the authority of standards and guidance, other than the CASs. • The three Recommendations in Section 5021 are dealt with in CAS 200, in relation to financial statement audits, as follows: — Paragraph 5021. 4 deals with compliance with the Recommendations in the Handbook and is comparable to requirements in paragraphs 22 and 23 of CAS 200. — Paragraph 5021. 06 deals with the use of interpretive publications (i. e. , the Assurance and Related Services Guidelines). — Paragraph 5021. 09 deals with the use of professional judgment in applying other auditing and assurance publications. These matters are not addressed in CAS 200. DIFFERENCE(S) IN SCOPE Differences in scope between CAS 200 and relevant existing Handbook Sections are noted above. NEW CONCEPT(S) CAS 200 introduces the concepts of “applicable financial reporting framework” including “fair presentation frameworks” and “compliance frameworks. These concepts pervade the CASs and affect, for example, the form and content of the report on the relevant financial statements, as discussed in the 700 and 800 series of CASs dealing with auditor’s reports. CHANGES TO REQUIREMENT(S) Requirements in CAS 200 that could represent a significant change for Canadian auditors include the following: • The auditor shall have an understanding of the entire text of a CAS, including its application and other material, to understand its requirements. This matter is addressed in explanatory material in Section 5021. The auditor is prohibited from representing that he or she has complied with the Canadian generally accepted auditing standards in the auditor’s report unless the auditor has complied with CAS 200 and all other CASs relevant to the audit.

This concept is implicit in the existing Handbook, but there is no comparable requirement. — Each CAS contains an objective or objectives that provide the context in which the requirements of the CASs are set. Existing Handbook Sections do not contain objectives. The objectives in the CASs support the overall objective of the auditor, which, similar to the objective • Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 33 — — — in the current Canadian standards, is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error, and to report on the financial statements in accordance with the auditor’s findings.

CAS 200 requires the auditor to: use the objectives in planning and performing the audit, having regard to the interrelationships amongst the CASs and having complied with the requirements of the CASs: o to determine whether any audit procedures in addition to those required by the CASs are necessary in pursuance of the objectives stated in the CASs; and o to evaluate whether sufficient appropriate audit evidence has been obtained in the context of the overall objective of the auditor. evaluate, where an individual objective has not been or cannot be achieved, whether this prevents the auditor from achieving the auditor’s overall objective (to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement); and document a failure to achieve an objective. 34 The CICA’s Guide to New CASs in Canada CAS 210 Agreeing the Terms of Audit Engagements ExISTING HAndbook SECTION(S) REPLACED CAS 210 replaces Section 5110, Terms of the Engagement. DIFFERENCE(S) IN SCOPE None.

NEW CONCEPT(S) Management and, where appropriate, those charged with governance CAS 210 uses the Definitions section to explain that references to “management” should be read as “management and, where appropriate, those charged with governance” in the remainder of the CAS. As explained in paragraphs A12 and A21, the decision as to whether the auditor should agree matters with management or those charged with governance is to be made in light of their respective responsibilities or roles in the entity and any relevant law or regulation. CHANGE(S) TO REQUIREMENT(S) Preconditions for an Audit CAS 210 paragraph 6 requires the auditor to establish whether the preconditions for an audit are present.

In order to do so, the auditor is required to: (a) determine whether the financial reporting framework to be applied in the preparation of the financial statements is acceptable; (b) obtain an agreement of management that it acknowledges and understands its responsibilities: (i) for the preparation of the financial statements in accordance with the applicable financial reporting framework, including where relevant their fair presentation; for such internal control as management determines is necessary to enable to preparation of the financial statements that are free from material misstatement, whether due to fraud or error; and (ii) Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 35 iii) to provide the auditor with: o access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters; o additional information that the auditor may request from management for the purpose of the audit; and o unrestricted access to persons within the entity from whom the auditor determines it necessary to obtain audit evidence. Section 5400, The Auditor’s Standard Report requires that general purpose financial statements be prepared in accordance with GAAP for the auditor to issue a clean opinion. The concept of other acceptable financial reporting frameworks is addressed, in part, in Section 5110, Terms of the Engagement. For example, paragraph 5110. 2 makes reference to Auditor’s Report on Financial Statements Using a Basis of Accounting other than Generally Accepted Accounting Principles, Section 5600 which specifies the types of engagements that the auditor can accept and the reporting requirements for such engagements. Paragraph 5110. 17(a) contains a requirement similar to that in CAS 210 paragraph 6(b)(i). Paragraph 5110. 17(c) contains a requirement similar to that in CAS 210 paragraph 6(b)(ii). In addition to describing such responsibility in the written agreement, the auditor is required, by paragraph 5141. 100 and paragraph 5135. 090(a), to obtain a written representation regarding management’s responsibility for internal control.

The description of management responsibility for internal control in the extant standards is more explicit than CAS 210. The extant standards require that management acknowledge its responsibility for the “design and implementation of internal control”; CAS 210 requires that management acknowledge its responsibility “for such internal control as management determines is necessary. ” Section 5110 does not contain the requirement in CAS 210 paragraph 6(b)(iii). If the preconditions for an audit are not present, CAS 210 requires the auditor to discuss the matter with management. Section 5110 does not contain a similar requirement. 36 The CICA’s Guide to New CASs in Canada

CAS 210 contains a requirement that the auditor not accept an audit engagement, unless required by law or regulation, if: • the auditor has determined that the financial reporting framework to be applied in the preparation of the financial statements is unacceptable, unless specific requirements are met (see below); or management has not provided an agreement that it acknowledges and understands its responsibility set out in item (b) above; or management or those charged with governance impose a scope limitation that the auditor believes would result in a disclaimer of opinion. • • Specified requirements where the auditor has determined that the financial reporting framework prescribed by law or regulation would be unacceptable.

CAS 210 paragraph 19 states that if the auditor determines that, for the fact that it is prescribed by law or regulation, the applicable financial reporting framework would not be acceptable, the auditor may accept the engagement only if: (a) management agrees to provide additional disclosures in the financial statements required to avoid the financial statement being misleading; and (b) it is recognized in the terms of the engagement that the auditor’s report will incorporate an Emphasis of Matter paragraph drawing users’ attention to the additional disclosures and, unless required by law or regulation, will not include the phrases “present fairly, in all material respects,” or “give a true and fair view. If these conditions are not present and the auditor is required by law or regulation to undertake the audit engagement, the auditor shall evaluate the effect of the misleading nature of the financial statements on the auditor’s report, and include appropriate reference to this matter in the terms of the audit engagement. Section 5110 does not contain a similar requirement. Agreeing on Engagement Terms CAS 210 paragraph 9 requires the auditor to agree the terms of the audit engagement with management or those charged with governance. In the context of the CASs and ISAs or means and/or (unless specifically stated otherwise) so the auditor may agree the terms of engagement with both parties. Requirement paragraph 5110. 2 requires the auditor to establish an understanding of the terms of engagement with both parties (not just one of the parties). Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 37 CAS 210, paragraph 10 requires that: • The auditor include in the engagement letter the identification of the applicable reporting framework for the preparation of the financial statements. Section 5110 does not contain such requirement as it assumes the application of Canadian GAAP for general-purpose financial statements. Section 5600 required the auditor to confirm in writing with the entity the basis of accounting used when reporting under a basis of accounting other than GAAP.

The auditor include in the engagement letter reference to the expected form and content of any reports to be issued and a statement that there may be circumstances in which the report may differ from its expected form and content. Section 5110 does not contain such a requirement. • CAS 210, paragraph 11 requires that if law or regulation prescribes in sufficient detail the terms of the audit engagement required in this CAS, the auditor need not record them in a written agreement, except the auditor is required to seek the written agreement that such law or regulation applies and that management acknowledges and understands its responsibilities as set out in the requirements of this CAS. Section 5110 does not contain such a requirement.

CAS 210, paragraph 12 requires that if law or regulation prescribes responsibilities of management and the auditor determines that such responsibilities are equivalent in effect to those set out in the requirements of this CAS, the auditor may use the wording of the law or regulation to describe them in the written agreement. For those responsibilities that are not prescribed by law or regulation such that their effect is equivalent, the written agreement shall use the description set out in the requirements of this CAS. Section 5110 does not contain such a requirement. Section 5110 requires that the written agreement describe: • the limitation of the engagement. CAS 210 does not contain such requirement but provides similar application and explanatory material in paragraph A23; specific information that management is responsible to provide to the auditor, when applicable.

CAS 210 does not contain such an explicit requirement; specific auditor responsibilities, when applicable. CAS 210 does not contain such an explicit requirement but provides similar application and explanatory material in Appendix 1; • • 38 The CICA’s Guide to New CASs in Canada • management responsibility for providing written confirmation of significant representation to the auditor. CAS 210 does not contain such a requirement but provides similar application and explanatory material in paragraph A13; any other matters that are relevant and important to the engagement. CAS 210 does not contain such a requirement but conveys the same message in paragraph A23 of the application and explanatory material. • Recurring Audits CAS 210 paragraph 13 requires that on recurring audits, the auditor shall assess whether circumstances require the terms of the audit engagement to be revised and whether there is a need to remind the entity of the existing terms of the audit engagement. Section 5110 does not contain such a requirement but provides similar application and explanatory material in paragraph 5110. 06. Acceptance of a Change in the Terms of the Engagement • CAS 210 paragraph 14 requires the auditor to not agree to a change in the terms of the audit engagement where there is no reasonable justification for doing so. Section 5110 does not contain such a requirement. CAS 210 paragraph 15 contains a requirement related to circumstances when the auditor is requested to change the engagement to one that provides a lower level of assurance.

Section 5110 does not contain such a requirement. CAS 210 paragraph 16 contains a requirement that any change in the terms of the agreement be recorded in a written agreement. Section 5110 does not contain such a requirement but provides similar application and explanatory material in paragraph 5110. 04. CAS 210 paragraph 17 contains requirements related to circumstances when the auditor is unable to agree to a change of the terms of the engagement and is not permitted by management to continue the original engagement. Section 5110 does not contain such requirements. • • • Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 39

Financial Reporting Standards Supplemented by Law or Regulation • CAS 210 paragraph 18 contains requirements, not contained in Section 5110, dealing with circumstances when the financial reporting standards are supplemented by law or regulation. In such case, CAS 210 requires the auditor to: — Determine whether there are any conflicts between the financial reporting standards and the additional requirements; if so, — Discuss with management the nature of the additional requirements and agree whether: (a) the additional requirements can be met through additional disclosures in the financial statements; or (b) the description of the applicable financial reporting framework in the financial statements can be amended accordingly.

If neither of these actions is possible, the auditor shall determine whether it will be necessary to modify the auditor’s opinion. Auditor’s Report Prescribed by Law or Regulation • CAS 210 paragraph 21 contains requirements, not contained in Section 5110, that deal with circumstances when, law or regulation prescribes the layout or wording of the auditor’s report in a form or in terms, that are significantly different from the requirement of the CASs. In these circumstances, CAS 210 requires the auditor to evaluate: — whether users might misunderstand the assurance obtained from the auditor of the financial statements and, if so, — whether additional explanation in the auditor’s report can mitigate possible misunderstanding.

If the auditor concludes that additional explanation cannot mitigate possible misunderstanding, the auditor shall not accept the audit engagement unless required by law or regulation to do so. An audit which the auditor is required to accept in these circumstances would not comply with the CASs, and accordingly the auditor shall include no reference in the auditor’s report to the audit having been conducted in accordance with the CASs. OTHER MATTER(S) None. 40 The CICA’s Guide to New CASs in Canada CAS 220 and CSQC 1 Quality Control for an Audit of Financial Statements and Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance Engagements ExISTING HAndbook SECTION(S) REPLACED

CAS 220 replaces Section 5030, Quality Control Procedures for Assurance Engagements. CSQC 1 replaces GSF-QC, General Standards of Quality Control for Firms Performing Assurance Engagements. DIFFERENCE(S) IN SCOPE Limited to Audits of Financial Statements CAS 220 applies only to audits of financial statements (adapted as necessary for audits of other historical financial information). Section 5030 applies to all assurance engagements. An updated Section 5030 will be retained in the CICA Handbook – Assurance to deal with quality control procedures for assurance engagements other than audits of financial statements and other historical financial information.

NEW CONCEPT(S) Timing of Completion of the Engagement Quality CAS 220 and CSQC 1 require the completion of the engagement quality control review and resolution of any differences of opinion on or before the date of the auditor’s report. CAS 700 requires the auditor’s report to be dated no earlier than the date the auditor has obtained sufficient appropriate audit evidence on which to base the auditor’s opinion, including evidence that those with the recognized authority have asserted that they have taken responsibility for those financial statements. When a quality control review is performed, its completion assists the auditor in determining whether sufficient appropriate evidence has been obtained. The approach noted above epresents a significant change from Section 5030 and GSF-QC. Those standards require that the engagement quality control review be completed before the date of issuance of the engagement report. For many firms, the date of the engagement report may be significantly earlier than the date of issuance of that report. For these firms, the implementation of the CAS 220 and CSQC 1 requirement may represent a significant change in practice. Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 41 Listed Entity versus Public Enterprise CAS 220 and CSQC 1 include a definition of the term “listed entity” which differs from the existing Canadian definition of “public enterprise”.

CHANGE(S) TO REQUIREMENT(S) Changes to Requirements – CAS 220 CAS 220 contains, in addition to the requirement discussed above relating to the timing of completion of engagement quality control review, additional or more stringent requirements regarding: • specific engagement quality control review procedures regarding discussion of significant matters and review of financial statements and the proposed auditor’s report [paragraphs 20(a) and (b)]; engagement quality control review procedures specific to audits of financial statements of listed entities [paragraph 21]; engagement partner’s consideration of the results of the firm’s monitoring process [paragraph 23]; and documentation of the work performed by the auditor and the engagement quality control reviewer [paragraphs 24 and 25]. • • • Changes to Requirements – CSQC 1 Prohibition of those performing the engagement or the engagement quality control review from being involved with the inspection of the completed engagement as part of the monitoring function.

There is no significant difference between CSQC 1 and GSF-QC regarding requirements and guidance relating to most aspects of the monitoring process. Both CSQC 1 and GSF-QC take the position that in determining the scope of the firm’s inspection of completed engagements, the firm may take into account the scope or conclusions of an independent external inspection program performed, for example, by the provincial institutes/ordre or Canadian Public Accountability Board (CPAB). Under both standards, such an independent external inspection program does not act as a substitute for the firm’s own internal monitoring program. However, there is a significant difference between CSQC 1 and GSF-QC regarding who can perform the inspection of completed engagements.

CSQC 1 requires that those performing the engagement or the engagement quality control review not be involved in inspecting the completed engagement. GSF-QC, on the other hand, states that 42 The CICA’s Guide to New CASs in Canada whenever possible, an inspection of a completed engagement be undertaken by individuals not involved with performing the engagement or acting as an engagement quality control reviewer for it. Therefore, CSQC 1 is more rigorous in determining who is eligible to inspect completed engagements. As a result, smaller firms, for example, may need to use the services of a suitably qualified external person or another firm to carry out inspections of completed engagements.

Alternatively, smaller firms may wish to establish arrangements to share resources with other appropriate organizations and thereby facilitate certain monitoring activities. Other changes that primarily reflect matters that were formerly non-italicized paragraphs in extant GSF-QC. In addition to the changes in requirements noted above, CSQC 1 contains additional or more stringent requirements regarding: • acceptance or continuance of an engagement when a potential conflict of interest is identified [paragraph 27(b)]; review responsibilities in an engagement [paragraph 33]; specific engagement quality control review procedures regarding discussion of significant matters and review of financial tatements or other subject matter information and the proposed report [paragraphs 37(a) and (b)]; engagement quality control review procedures specific to audits of financial statements of listed entities [paragraph 38]; maintaining of engagement quality control reviewer’s objectivity and the firm’s response when the objectivity is impaired [paragraphs 40 and 41]; assembly of the final engagement files on a timely basis after the engagement reports have been finalized [paragraph 45]; and monitoring procedures specific to the circumstance where firms within a network operate under common monitoring policies and procedures and these firms place reliance on such a monitoring system [paragraph 54]. • • • • • • Overview and Comparisons The Existing CICA Handbook – Assurance — CASs and CSQC 1 43 OTHER MATTER(S) Rotation of Senior Personnel For audits of financial statements of listed entities, CSQC 1 requires the rotation of the engagement partner and the individuals responsible for the engagement quality control review, and where applicable, others subject to rotation requirements, after a specified period in compliance with relevant ethical requirements.

This wording is somewhat more specific than the requirement in GSF-QC that the firm establish policies and procedures to address applicable ethical requirements where the rotation of the practitioner and others is prescribed. However, there is no difference in substance between the requirements in CSQC 1 and GSF-QC. Both standards refer to compliance with relevant ethical requirements. For example, both CSQC 1 and GSF-QC recognize that under current ethical requirements for chartered accountants, a firm may choose not to require the rotation of senior personnel responsible for audits of listed entities with less than $10 million in market capitalization and total assets.

Of course, under CSQC 1 and GSF-QC, as well as the applicable ethical requirements, the firm must always establish policies and procedures (which may or may not involve the rotation of senior personnel) to effectively deal with a familiarity threat. Inspection Cycles for Completed Engagements Both CSQC 1 and GSF-QC require that a firm establish a monitoring process, including inspection of completed engagements on a cyclical basis, which provides it with reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate and operating effectively. The wording in application material in CSQC 1 regarding the timing of the inspection of completed engagements is different from that in GSF-QC.

However, the same underlying principle regarding the need to maintain an effective system of quality control drives the determination of the nature, timing and extent of the inspection cycle for completed engagements. An arbitrarily long inspection cycle would not be consistent with meeting this underlying principle. Further, as firms are already required to establish an inspection cycle for completed engagements under GSFQC, the nature, extent an

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