Auditor Reporting Model Comment Letters (PDFDrive)

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AFM
Canadian Public Accountability Board

Attn. Brian Hunt, FCA
150 York Street, Suite 200
Toronto, Ontario M5H 3S5
Canada
Date November 28, 2012

Our reference TA-MADu-l21 10578
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Phone +31 (0)20 79 72 837

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E-mail Martijn.Duffels@afm.nl
Concerning AFM Comments on Discussion Paper

‘Enhancing Audit Quality: Canadian
Perspective The Auditor Reporting Model’
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Dear Mr Hunt,
We appreciate your invitation to share our views regarding the conclusions in the discussion paper ‘Enhancing
Audit Quality: Canadian Perspectives The Auditor Reporting Model’ that provides a Canadian viewpoint on the
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various global proposals affecting auditor reporting. The views presented are based upon our oversight activities to
date as well as a joint consultation on audit policy matters from the Ministry of Finance, the AFM and the
professional body.
Overall considerations
We support additional information being provided (in the auditor’s report) to the users of financial statements, in
response to the clear and justified demand for auditors to provide greater transparency about the audit of the
financial statements. The auditor’s report should enhance the financial statements users’ understanding of the audit
process, especially with regard to significant risks of material misstatements in the financial statements. It is
important that the information is relevant, understandable, correct and complete.
We believe that the auditor’s report should continue to include a clear opinion on whether the fmancial statements
give a true and fair view, but it should also clearly communicate the views of the auditor based on his audit of the
financial statements.
Auditor Commentary
The AFM supports the concept of Auditor Commentary. If the auditor needs to communicate more to the users of
the financial statements, we think that this will contribute to changing the auditor’s mindset and focus towards the
needs of these users. Also we think that increased communication from the auditor will be supported by improved
Netherlands Authority for the Financial Markets

Netherlands Authority for the Financial Markets Visiting address Vijzelgracht 50
Chamber of Commerce Amsterdam, no. 41207759 P.O. Box 11723 1001 OS Amsterdam
Reference of this letter: TA MAD U—i 211 0578
— Phone +31(0)20 79 72 000 Fax +31(0)20 79 73 800 www.afm.nl
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‘AFM
Ourreference TAMADu-l21 10578
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disclosure by management on the items in the Auditor Commentary, we think that this will contribute to
increasing quality of the financial statements.
Auditor Commentary should include topics such as audit risk and the auditor’s responses thereto, the auditor’s
independence, materiality and the involvement of others, such as experts and component auditors, within the audit.
Further we would support the inclusion of a statement on the consistency of the other information in the annual
report with the financial statements.
Although we believe that as a principle Auditor Commentary may also include information which is not
specifically stated in the financial statements, omissions in the financial statements (including omissions in
disclosures) should not be ‘repaired’ through the Auditor Commentary. Auditor Commentary may not be used as a
replacement of issuing a modified opinion.
Going Concern
We would support the inclusion of a more specific statement on going concern. We believe that a more specific
statement adds value to investors, especially in the current difficult economic circumstances. A more specific
statement by the auditor on his views regarding going concern will act as an incentive for the auditor to increase
his attention to the audit procedures in relation to going concern and as such will contribute to audit quality. In this
respect, we believe that the current requirements on the auditor’s responsibility relating to going concern, as per
ISA 570, should be evaluated and where necessary reinforced.
Information on the work performed by the auditor to reach the going concern conclusion should only be included
when this provides relevant information to the users of the report in the specific situation and to constitute an
incentive to focus on this aspect during the audit, most notably in judgmental situations.
Other information
As mentioned, we are supportive of expanding the auditor’s responsibilities relating to other information. In this
context, we think that it should be clarified what the auditor’s responsibilities exactly are, and what he did in order
fulfill these responsibilities. We support that the auditor also relays information to the public on this.
Clarification and Transparency of the Audit Process

We certainly support measures that improve clarification and transparency of the audit process. We feel that this is
best achieved by making the auditor’s report entity specific. Generic, more boiler plate information on the audit
process, which is now part of the auditor’s report, could better be communicated to the general public by including
such information on a website maintained by the professional bodies. We believe that investors are mainly
interested in entity specific information, and that an expansion of the generic information on the audit process
should therefore not be included in the auditor’s report.
Naming the engagement partner is already mandatory in The Netherlands. We favor this as we believe it has a
positive impact on the involvement and accountability of the engagement partner.
AFM
Our reference TA-MADu- 12110578
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Including information on the use of other auditors and experts as part of the audit strategy, could contribute to
better understanding of the audit. It should, however, remain clear to the users of the financial statements that the
auditor remains solely responsible for the audit opinion on the financial statements as a whole, and what he has
done to ensure this sole responsibility. As a consequence, information regarding the portion of work performed by
other auditors or experts should not be misleading as to the division of responsibilities.
Yours sincerely,
Netherlands Authority for the Financial Markets
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Janine van Diggelen Martijn Duffels

Head of Division Senior Supervision Officer
Audit Firm Supervision Division Audit Firm Supervision Division
Institute of Corporate Directors (“ICD”) Roundtable on CPAB/CICA Enhancing Audit
Quality Initiative
(the “ICD Roundtable”)
Views of the ICD Roundtable
Members of the ICD Roundtable:
Beverley A. Briscoe
J. Spencer Lanthier
Stan Magidson
Guylaine Saucier
Wesley R. Twiss
1. Purpose of the ICD Roundtable
The purpose of the ICD Roundtable was to gather feedback from the perspective of
directors, in particular audit committee members, on the Canadian Public Accountability Board
(“CPAB”) and Canadian Institute of Chartered Accountants (“CICA”) discussion paper entitled
“Enhancing Audit Quality: Canadian Perspectives – Auditor Independence” (the “Auditor
Independence Discussion Paper”) and the CPAB/CICA discussion paper entitled “Enhancing
Audit Quality: Canadian Perspectives – The Auditor Reporting Model” (the “Auditor Reporting
Model Discussion Paper”, and together with the Auditor Independence Discussion Paper, the
“Auditor Discussion Papers”). As the matters addressed in the Auditor Discussion Papers could
directly impact the role of audit committees in the audit process, it is important that the views of
audit committee members be conveyed. In providing this perspective, the ICD Roundtable is
very interested in and has focused on how the quality of the audit process may be improved.
It should be noted that the views expressed in this memo reflect the outcome of the ICD
Roundtable’s discussion, but are not and should not be construed to be an official position of the
ICD.
The ICD Roundtable notes that a purpose of the Auditor Discussion Papers is to convey
Canadian views to regulators and other stakeholders in jurisdictions outside Canada regarding
alternatives that have been proposed in such jurisdictions for auditor independence and auditor
reporting requirements. The ICD Roundtable notes that while the problems identified in the
Auditor Discussion Papers do not appear to be prevalent in Canada, it is helpful for Canada to
attempt to shape the final outcome of international initiatives. However, Canadian solutions
should also be proportionate to the problems being addressed in Canada. They must also be
appropriate for the Canadian context, including for the small and medium enterprises (both listed
and unlisted) that play an important role in the Canadian economy.
61207-2027 14474103.4
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2. Discussion of Auditor Independence Discussion Paper
In general, the ICD Roundtable does not believe that auditor independence is a significant
issue in the Canadian audit context and, therefore, the proposals are largely a solution to a
problem that does not currently exist. The ICD Roundtable has the following specific views on
the Auditor Independence Discussion Paper.
(a) General Views on the Proposals for Auditor Independence and a Fourth Alternative
The ICD Roundtable does not believe that a case has been made for any of the three
proposals regarding auditor independence (being mandatory audit firm rotation, mandatory audit
firm tendering and a mandatory comprehensive audit firm review). The ICD Roundtable believes
that independence is a fundamental and necessary requirement for auditors, particularly with
respect to the role of auditors in exercising skepticism and challenging management where
needed. However, the ICD Roundtable does not believe that the foregoing alternatives would
significantly improve auditor independence or accordingly auditor skepticism and audit quality,
and in the case of mandatory audit firm rotation and mandatory audit firm tendering may reduce
audit quality.
The ICD Roundtable believes that a fourth alternative should be considered, which is to
maintain the status quo while providing enhanced guidance and tools for audit committees on
how to perform the annual assessment of the audit firm in connection with the recommendation
to shareholders regarding the appointment of the audit firm. In addition to auditor independence,
this assessment should evaluate other elements required for professional skepticism, including
the broad elements of the audit firm’s quality assurance program.
This fourth alternative could be combined with additional guidance on how audit
committees should conduct their annual auditor assessment, with some associated disclosure
(possibly through changes to National Instrument 52-110 - Audit Committees). It is important,
however, that the final decision on auditor recommendation be made by the audit committee and
not be delegated to a regulatory framework.
In evaluating all of these proposals, the ICD Roundtable believes it is important that
CPAB/CICA consider the cost-benefit relationship of increased regulation on small and medium
enterprises in Canada. This sector should not be negatively impacted with unnecessary
compliance costs. Additionally, the ICD Roundtable notes that much of the attention in the area
of auditor independence is due to the financial crisis, but industries outside the financial industry
could end up being required to comply with regulatory changes to address financial crisis
concerns.
(b) Views on Mandatory Rotation and Mandatory Tendering
The ICD Roundtable is against mandatory tendering or mandatory audit firm rotation
under any scenario. The ICD Roundtable believes that these alternatives may negatively impact
audit quality by requiring arbitrary changes to what the audit committee may view at the time to
be a very effective audit relationship in the first case, and by focusing on cost rather than on
audit quality in the second case.
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(c) Views on Mandatory Comprehensive Audit Firm Review
If Canadian regulators come to the view that the status quo with respect to auditor
independence should be changed, the ICD Roundtable agrees that of three alternatives proposed
in the Auditor Independence Discussion Paper, a mandatory comprehensive audit firm review is
preferable to either mandatory tendering or mandatory audit firm rotation.
The ICD Roundtable also believes that under this approach the audit committee should
set the timing for a mandatory comprehensive audit firm review and explain the rationale for
such timing in the public disclosure. In other words, a comply or explain approach should be
applied to comprehensive audit firm review. This would give the audit committee appropriate
flexibility to determine what makes sense in the particular circumstance.
The ICD Roundtable notes that should mandatory comprehensive audit firm review be
required, there is a logistical issue of staggering such reviews among entities once implemented.
If all entities were reviewing their audit firms at the same time, this would put a stress on
resources, especially because audit committees might need a third party to assist with this
review.
The ICD Roundtable also believes that there needs to be more clarity regarding the
process for conducting a comprehensive audit firm review and the depth of review that would be
required. Therefore, the ICD Roundtable feels that it is important to note that appropriate criteria,
tools and guidance would need to be developed to assist audit committees in carrying out a
comprehensive review.
(d) Other Views on the Auditor Independence Discussion Paper
The ICD Roundtable also noted the following:
More clarity is required from CPAB/CICA regarding the statement in paragraph

23 (on page 11) that independence rules address partner compensation.
With respect to the discussion of non-audit services, the ICD Roundtable agrees
that requiring pre-approval by a member state designated competent authority is
not a practical solution.
The ICD Roundtable generally agrees with the recommendation that additional
prohibitions regarding personal tax services for individuals and services on a
contingency fee basis may be warranted. However, the ICD Roundtable feels that
more clarity is needed on what is meant by aggressive and confidential tax
transactions before reaching a final view.
The ICD Roundtable agrees with the recommendation to reject the audit-only firm
proposal.
The ICD Roundtable agrees with the recommendation to reject a requirement for
joint audits. The ICD Roundtable believes that joint audits should not be
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prohibited, but it should be left up to audit committees to decide whether a joint

audit is appropriate for a particular entity.
3. Discussion of Auditor Reporting Model Discussion Paper
The ICD Roundtable has the following views on the Auditor Reporting Model Discussion
Paper.
(a) Views on Going Concern Disclosure
The ICD Roundtable agrees that if there is a going concern issue disclosed in the notes to
the financial statements, a reference to that note should be highlighted in the auditor’s report.
Audit firms should not be required to do more than this with respect to going concern issues.
With respect to the approach to addressing going concern issues regarding regular
dialogue between auditors of financial institutes and regulators (referenced on page 25 of the
Auditor Reporting Model Discussion Paper), the ICD Roundtable notes that in Canada the
auditors of financial institutions are in frequent contact with the Office of the Superintendent for
Financial Institutions and believes that no new requirements are necessary in this area.
(b) Views on the Auditor’s Report
The ICD Roundtable agrees that going concern issues should be referred to in the
auditor’s report by cross-referencing to any note to the financial statements in that regard. The
ICD Roundtable has differing views on whether the auditor’s report should provide a more
general roadmap to key disclosure in the financial statements, with some members believing this
would be helpful disclosure but other members believing that this is a slippery slope to matters
that are outside the auditor’s core competency or are otherwise matters that shareholders should
assess for themselves. All members of the ICD Roundtable agreed, however, that the auditor’s
report should not provide any additional auditor commentary. For example, the ICD Roundtable
is not supportive of the suggestion that auditors should report on the level of materiality auditors
apply to perform the audit or areas of significant difficulty encountered during the audit and their
resolution. The ICD Roundtable also does not believe that readers desire more information about
audit procedures.
The ICD Roundtable is supportive of the recommendation to have the auditor’s opinion
appear at the beginning of the auditor’s report.
The ICD Roundtable does not agree with the proposal to disclose the engagement
partner’s name in the auditor’s report. The ICD Roundtable believes that the audit firm should
take responsibility for the report and that the name of the individual engagement partner should
not be disclosed.
Provided it does not add to audit costs, the ICD Roundtable is supportive of expanding
the auditor’s report to make reference to the fact that the auditors have read other public
disclosure documents to ensure consistency with the financial statements, and noting which
documents were reviewed, but is not supportive of enhancing the auditor’s role for other
information beyond this.
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The ICD Roundtable does not support auditors making value-added comments on other
information; it is management’s responsibility to provide this disclosure. With respect to non-
GAAP measures, entities are required to explain non-GAAP measures and if the auditors have
concerns with this disclosure, they discuss such concerns with the audit committee.
The ICD Roundtable feels that as quarterly reviews are limited reviews that are distinct
from audits, it is not helpful to note that the auditors have completed a quarterly review.
The ICD Roundtable believes that the UK Financial Reporting Council proposal to have
the auditor’s report address the completeness and reasonableness of any report of the audit
committee would not be appropriate because the audit committee makes a recommendation to
shareholders regarding the appointment of the auditors. Therefore, it is not appropriate to have
the auditors also comment on the audit committee’s report.
(c) Views on an Auditor’s Discussion and Analysis
The ICD Roundtable does not support a recommendation for auditors to provide an
auditor’s discussion and analysis.
(d) Views on an Audit Committee Report to Shareholders
The ICD Roundtable believes that proposals requiring the audit committee to provide
additional information to shareholders rather than having auditor commentary will need to be
considered further after a review of the discussion paper of the Role of the Audit Committee
Working Group.
November 27, 2012

TRANSLATION
November 9, 2012
Eric R. Turner, CA
Audit Reporting Working Group
Chartered Accountants of Canada / Canadian Public Accountability Board
Sent by e-mail: eaq.ar@cica.ca
Dear Sir:
Subject: Discussion Paper - Enhancing Audit Quality: Canadian Perspectives
The following is our feedback on the Canadian working group’s views expressed in the
above-mentioned Discussion Paper regarding the proposals of the International Auditing
and Assurance Standards Board (IAASB).
As the Quebec government's chief accountant and preparer of its consolidated financial
statements, the Comptroller of Finance of Quebec is concerned about the IAASB’s
proposal relating to the inclusion of auditor commentary in the auditor’s report
accompanying financial statements.
In our opinion, the auditor’s report is not the best means for providing comments in
addition to those relating to the fairness of financial statements. If additional comments
are deemed necessary, they should be included in another report prepared by the
auditor or the audit committee.
Above all, auditors provide an opinion in their report on the fair presentation of the
financial statements as a whole, in accordance with an accepted accounting framework.
Including additional information in this report to supplement their opinion on fair
presentation may undermine the credibility of financial statements and of the auditor’s
opinion.
Moreover, as mentioned by the working group, we agree that if additional information

has to be disclosed, then an application framework should be developed to promote
consistency and understandability. In this regard, guidance on the nature, form and
content to include in auditor commentary should be provided. Without such guidance,
we believe that one of the objectives of applying International Standards on Auditing
(ISAs), i.e. international harmonization of auditor reports, would not be achieved.
In practice, Emphasis of Matter paragraphs are rarely used. In fact, over-use of
commentary will reduce the effectiveness of the auditor’s message taken as a whole.
Lastly, we believe that the proposal to include audit commentary in the auditor’s report
accompanying the financial statements should not be adopted, regardless of the type of
entity.
We hope these comments will assist in the work of the Canadian working group.
Yours truly,
André Miville, CPA, CA Vicky Lizotte, CPA, CA

Director General, Professional Practice Director, Standard Setting
Auditor Reporting Working Group 8 November 2012
Via email: eaq.ar@cica.ca
Enhancing Audit Quality: Canadian Perspectives – The Auditor Reporting Model

Discussion Paper
Dear Auditor Reporting Working Group:
Ernst & Young LLP (Ernst & Young) is pleased to provide comments to the Auditor Reporting
Working Group (ARWG) on its discussion paper on the auditor reporting model (the Discussion
Paper). We believe some change is clearly necessary and fully support responsible
developments in this area. This letter provides our perspectives on the views expressed by
the ARWG in the Discussion Paper
We encourage the ARWG, to continue the outreach and dialogue with all stakeholders and
gain as full an understanding as possible of the relative value and impediments as it continues
to explore possibilities for revisions to the auditor reporting standards in Canada
General Comments
Some financial statement users have expressed dissatisfaction with the current reporting by
auditors and have suggested a variety of changes to the auditor reporting model, some of
which would represent fundamental changes to the auditor’s role. Some financial statement
users also have expressed dissatisfaction with corporate financial reporting, saying annual
reports are becoming too complex and, in some cases, appear to be more focused on
compliance than on effectively communicating key information and performance trends.
While we recognize that there are clear calls for improvements to auditor reporting, we
believe the auditor’s report is just one element in the suite of information provided to users of
the financial statements. We believe it is important to consider changes to the auditor
reporting model in the context of other initiatives aimed at enhancing overall corporate
financial reporting. Attempts to address concerns with corporate financial reporting solely
through changes in the auditor’s reporting model will not be successful and could result in
significant change to or expansion of the auditor’s role, which we do not believe is appropriate
or cost-effective.
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In general, we believe that changes in the auditor’s reporting model should adhere to the
following principles:
Management, and those charged with governance, are the original source of
disclosure of information about an entity. The auditor neither should be expected to
nor should disclose, discuss or reference information not otherwise disclosed by
management or those charged with governance.
Audit quality should not be negatively affected by changes to auditor reporting. The
relationships between the auditor and management, as well as those charged with
governance, should not be jeopardized or otherwise constrained in a manner
detrimental to audit quality.
Changes to auditor reporting should be perceived to narrow, or to at least not expand,

the expectations gap.
Changes to auditor reporting should be viewed by investors and other relevant users
as valuable and beneficial, and the costs of any changes should be reasonable in
comparison to their perceived benefits.
Changes to auditor reporting should not create investor confusion. Changes should
not:
Raise any questions about the nature of the auditor’s opinion, particularly when
the auditor is expressing an unmodified (i.e., unqualified) opinion on the
Result in conflicts, either actual or perceived, between information provided by

management, or those charged with governance, and the auditor.
Result in subjective information or commentary provided by the auditor that

may be viewed as misleading, subject to misinterpretation or misunderstood by
the intended users.
We also believe that comparability is important for global investors and global markets and we
note that there are many ongoing initiatives internationally to improve the auditor reporting
model; therefore, we encourage any Canadian developments to consider and strive for
consistency with IAASB initiatives in this area.
Summary of our perspectives on the views of the ARWG
Auditor Commentary
In general, we are supportive of the concept of the auditor providing additional information in
the auditor’s report to respond to investor requests for more decision-useful information from
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the auditor. We believe that certain changes to the auditor’s report could be used to help
investors navigate increasingly complex financial statements. As such, we support an
approach that involves increased use of emphasis of matter paragraphs for the purpose of
highlighting and directing the reader to certain areas within the financial statements that the
auditor believes are most important to the users’ understanding of the audited financial
statements. We believe the following matters would represent an appropriate starting point
for criteria for the auditor to consider when evaluating what items to identify in the auditor’s
report:
Areas of significant management judgment

Significant or unusual transactions
Material risks and uncertainties
Information about the structure of the entity and its related parties that is significant
to understanding assertions made in the f/s
Other matters that in the auditor’s judgment that may be important to a user’s
understanding
Matters of audit significance – difficult or contentious matters , other issues of
significance related to the audit scope or strategy
To achieve these objectives, the use of emphasis of matter paragraphs should be based on
suitable, well-defined criteria for auditors to apply judgement in identifying matters to be
emphasised. We support the view of the ARWG that additional guidance on the nature, form
and content of any auditor commentary must be established to promote consistency and
understandability, but also to facilitate continued effective communication between auditors
and audit committees or those charged with governance.
We also concur with the view of the ARWG that any proposal to include auditor commentary
or expand the use of emphasis of matter paragraphs in the auditor’s report should avoid
inclusion of subjective views about the audit or the entity that would cause the auditor to be
the original source of disclosure of information about the entity. However, we believe it is
possible to provide an indication of why the auditor believes a matter is important to users
and include wording that explains why the auditor considered the matter to be important
without providing original information about an entity.
We believe that any expansion of the use of emphasis of matter paragraphs should also be
limited to matters of true significance in order to avoid the risk of “boilerplate” information
being included in auditor’s reports and such that the auditor’s report does not become a
lengthy list of less significant matters that are included in the auditor’s report only to avoid
the risk of omitting information that a particular user may conclude should have been
included.
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In addition, we do not believe that the auditor’s report should include a summary of “key audit
procedures” performed in the areas of emphasis. For important areas, it would be difficult to
summarize the hundreds of audit hours spent into a few crisp sentences. We also do not
believe that an expansive description of the audit procedures carried out in a particular area
would be helpful to users. In addition, since specific procedures performed in a particular area
are developed in the context of the overall audit, the procedures may be subject to
misinterpretation and it may be difficult to effectively convey how such procedures relate to
the auditor’s evaluation of the financial statements taken as a whole.
Going Concern
In the area of going concern, we share the views of the ARWG and do not support proposals to
add information on going concern to the auditor’s report until a more holistic review of the
financial reporting model and the appropriate roles of management, those charged with
governance and the auditor can be developed. We concur that in the current reporting
model, such information might provide information of limited value to users and be open to
misinterpretation. We also believe that additional information on going concern in the
auditor’s report could extend the auditor’s responsibilities beyond what is currently required
in ISA 570, Going Concern and may extend the auditor’s responsibilities beyond those of
management and those charged with governance.
We believe that under the current financial reporting model, any proposal to require the
auditor’s report to include a conclusion about management’s use of the going concern
assumption is unlikely to provide useful information beyond that which management is
already required to provide. In addition, if the auditor does not agree with management’s
going concern basis of presentation or disclosure of material uncertainties, an adverse
opinion would be required in the auditor’s report, which would sufficiently alert users to
concerns that the various proposals related to going concern are trying to address.
Accordingly, we believe a holistic approach, which requires collaboration between accounting
and auditing standard setting bodies should be considered.
We believe that any change in the area of going concern disclosures should first be achieved
by appropriate changes to financial reporting frameworks in order to provide relevant
disclosures of information related going concern provided by management within the financial
statements. We acknowledge that a number of initiatives are in place around the world
intended to explore enhancements to the financial reporting framework about going concern.
We believe that a comprehensive reassessment of requirements for reporting on going
concern by both preparers and auditors which should include clarifications to terminology,
would lead to significant enhancements to the usefulness of going concern information for
users. We believe that any such proposals will require additional study to address
harmonization with global standards and to examine the benefits and cost impediments.
With respect to the ARWG’s view that an examination of whether Canadian requirements for
auditors of financial institutions reporting to prudential regulators could be enhanced, we
support a further examination into whether enhancements could be made to this reporting
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that may be more effective in protecting the public interest than disclosure in the auditor’s
report on going concern matters relating to entities whose failure could have significant
adverse implications for the economy. We concur that any examination into this matter
needs to consider appropriate legal protections for auditors and consider the appropriate
communications between auditors, management and the audit committee with respect to
reporting to prudential regulators.
Other Information
We concur with the ARWG in your support of proposals to include a description in the
auditor’s report of the auditor’s responsibility for other information in documents containing
audited financial statements as we believe this context is very important to not widening the
expectations gap. We are also supportive of the inclusion of a statement that no material
inconsistencies have been identified based on the auditor’s reading of the other information.
Our support of a proposal to include a description in the auditor’s report of the auditor’s
responsibility for other information in documents containing audited financial statements and
a statement in relation to the other information is subject to the following:
As noted in the Discussion paper, Canadian listed entities may not file all regulatory
documents at the same time or in one package. Any proposal will need to address the
situation in Canada where securities legislation requires the Management Discussion
and Analysis to be filed separately from the annual financial statements and allows for
other filings such as the Annual Information Form to be filed at a time different from
that of the annual financial statements.
Any proposals should consider an alternative mechanism for communicating the
auditor’s responsibility for the other information where the auditor is associated with
other information in documents that do not contain or incorporate by reference the
audited financial statements (and thus do not contain the auditor’s report).
We concur that the auditor’s responsibilities with respect to other information in documents
containing audited financial statements and any proposals related to an auditor statement
about such information should be reconsidered once revisions to ISA 720, The Auditor’s
Responsibilities Relating to Other Information in Documents Containing Audited Financial
Statements, are finalized.
Clarifications and Transparency of the Audit Process
We are supportive of changes to the layout of the auditor’s report to place the opinion
paragraph at the beginning of the auditor’s report.
We generally support efforts to clarify the various responsibilities of those involved in the
financial reporting process and transparency about the audit; however we believe that any
changes to the auditor’s report should focus on matters that would help reduce the
expectation gap without adding lengthy descriptions that may detract from the current
pass/fail type report that provides a concise conclusion as to whether the financial
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statements, taken as a whole, are presented fairly in accordance with the applicable financial
reporting framework.
We believe that the following elements are worthwhile considering in improving the clarity of
the standard auditor’s report:
Clarifications/definitions of reasonable assurance, materiality and material

misstatement
Discussion of auditor’s responsibilities related to fraud
Discussion of management’s and auditor’s responsibilities for other information in
documents containing the audited financial statements (as discussed in the previous
section)
Although such changes would add to the length of the auditor’s report, the costs of such
changes would not be significant. We agree with the comment of the ARWG that the above
noted clarifications to the auditor’s report will do little to enhance audit quality.
We also concur with the ARWG that the standard auditor’s report should be self-standing, and
that no portion of the content of the report should otherwise be relocated, for example, to a
website. An auditor’s report that is not self-standing, in our opinion, may have the
unintended consequences of widening the expectations gap.
Any changes in the standard language of the auditor’s report should be concise so as to
reduce the risk that the auditor’s report becomes too lengthy, and essentially contains too
much “fine print” that would be counter to the objective of improving the communicative
value of the report by helping users to better understand the audit process.
We do not support disclosure of the engagement partner’s name in the auditor’s report as we
do not believe such disclosure would enhance audit quality. Our view is that such disclosures
would have little or no effect on the behaviour of auditors considering the already rigorous
internal processes and professional standards that instil a strong sense of accountability and
requirements to behave appropriately. In addition, disclosing to users only the engagement
partner’s name may lead them to reach inappropriate conclusion that the auditor’s report is
the engagement partner’s product and not the firm’s, whereas there are other participants on
audits such as the engagement quality control reviewer, engagement partner on significant
components, tax partner, etc, that often play a significant role in the audit. We are also
concerned that disclosure of the engagement partner name could cause undue potential for
personal liability for certain auditors.
We share the view of the ARWG in that we do not support disclosing the names of other
auditors participating in the audit as such disclosures appear contrary to the “sole
responsibility” principle. We are concerned that disclosure of the involvement of other
auditors in a group audit engagement may confuse users about the responsibility of group
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auditor and that users may perceive the disclosure as shifting responsibility for the audit from
the group auditor to the component auditors.
Expanding the Information on which Auditors Can Provide Assurance Beyond the
Financial Statements
We support a further exploration of whether there is a demand for some auditor involvement
with information beyond what auditors currently have and how this involvement should be
communicated to users. If demand for such assurance appears to be significant, the costs
and benefits of alternatives should be considered.
We note that the ARWG has highlighted in the Discussion Paper that the Canadian system for
the release of quarterly financial statements of reporting issuers allows for optional auditor
review of quarterly financial statements and that when auditors do review quarterly financial
statements, their report is not made public and there is no indication in regulatory filings that
a review has taken place or what the conclusion contained in the review report is. We are
supportive of further exploration of initiatives that may enhance public clarity as to whether
interim financial information has been reviewed and the results of the auditor’s review. Such
initiatives need to include a consideration of addressing the potential expectations gap that
might be created based upon a broad-based distribution of more limited procedures on other
information.
Application of Auditor Reporting Proposals in the Canadian Environment
We believe that the auditor’s report for general purpose financial statements of listed entities
should be as consistent as possible across jurisdictions, as comparability is important to
global investors. A global baseline auditor’s report, such as the one in ISA 700, allows for
other reporting responsibilities to be communicated within the auditor’s report, as may be
required by some jurisdictions.
Moreover, in our view, any consideration for listed entities might be extended to public
interest entities (PIEs). Due to nature of their business, their size or special legal status,
some PIEs have a wide range of stakeholders with similar information needs. We agree with
the ARWG observation that there is not a definition of PIEs in the Canadian environment and
also note that there is no globally accepted definition of PIEs. We encourage further
clarification of the definition of a PIE as part of the consideration of which entities should be
subject to any changes to the auditor reporting model before expansion of the auditor
reporting model to a broader group of entities.
As to consistency in auditor reporting between listed and non-listed entities, the population
and diversity of non-listed entities is broad, and therefore it is difficult to make a generalized
statement regarding the applicability of auditor reporting changes to non-listed entities. Some
non-listed entities are very large, complex organizations with financial reporting complexities
rivalling those of a large listed entity. On the other hand, there are many thousands of small
and medium-sized entities (SMEs) for which we believe users of financial statements have
8
generally not voiced the same concerns about the need for additional information as have
users of listed entity financial statements. Nevertheless, we believe that it would be
beneficial to have a standard auditor’s report for both listed and non-listed entities, if
possible.
Notwithstanding the above, we do not believe that the benefits, costs, potential challenges
and other implications of change are the same for all types of entities. Certain changes may
be applicable across all entities while other changes may be more appropriate for only listed
and public interest entities.
Subject to our comments in earlier sections of this letter we believe the proposals in the
Discussion Paper related to Clarifications and Transparency of the audit process and
Expanding the Information on which Auditors Can Provide Assurance Beyond the Financial
Statements are likely beneficial and applicable across all entities and user groups. These
changes are cost effective and have few implications of change, but may be viewed by some
users as the least meaningful of all of the potential options for change in auditor reporting.
Also subject to our comments in earlier sections of this letter, we believe the proposals in the
Discussion Paper related to Auditor Commentary represent incremental changes to the
standard auditor’s report, and are likely most beneficial for listed entities whose financial
statement users are seeking more information about the entity and the audit process to make
informed investment decisions, and for public interest entities whose financial statement
users are seeking greater transparency. These options will require incremental reporting for
the auditor, which will involve increased costs and implications of change
We believe the approach in the Discussion Paper, which includes Not-for-profit organizations
(NPOs), pension plans and benefit plans in the discussion of entities that would require
auditor commentary, should be subjected to more study and input from stakeholder groups.
We are concerned that for many NPOs, pension plans and benefit plans, the value of auditor
commentary may not be supported relative to the impediments.
* * * * *
We would be pleased to discuss our comments with members of the Auditor Reporting
Working Group
Sincerely,
Chairman: Secretariat:
Ms Lynn Wood c/- The Treasury
c/- The Treasury Langton Crescent
Langton Crescent Canberra ACT 2600
Canberra ACT 2600 Telephone:
(02) 6263 3144
Email:
chairman@frc.gov.au Facsimile:
(02) 6263 2770
E-mail:
frcsecretary@treasury.gov.au
8 November 2012
Mr David A. Brown C.M., Q.C.

Chair, Enhancing Audit Quality Steering Group
PO Box 90
Toronto, Ontario M5H 3S5
Canada
Dear David
Thank you very much for your letter of 5 October. Unfortunately I only received it on 26 October and was
overseas on holiday at that time. For some reason I did not receive your letter of 12 September.
Therefore, given your deadline for comment of 16 November, we do not have time to refer your reports to
the Financial Reporting Council (FRC) Audit Quality Committee for more detailed comment. However we
do very much believe that it is desirable to maximise the consistency and compatibility of the auditing
regulatory frameworks, and welcome the opportunity to provide comment on your work.
Mr Michael Coleman, Chairman of the FRC Audit Quality Committee; Ms Merran Kelsall, FRC Audit Quality
Committee Member and Chairman of the Auditing and Assurance Standards Board; and I reviewed your
three reports, which are very comprehensive and well researched. We would like to make the following
points on your reports on behalf of the FRC:
• Your discussion of the difficulty of defining audit quality is insightful and it seems that it would be
ideal if a definition of audit quality could be agreed to help improve communication on the issue.
– A suggested definition discussed with Professor Arnold Schilder (Chair of the International
Auditing and Assurance Standards Board (IAASB)) on his recent visit to Australia is “The
likelihood that the audit process will identify when the financial report does not represent a
true and fair view of the organisation’s financial position and performance and the likelihood
that the auditor will clearly represent this opinion”.
– This definition is based on a discussion I had with James Sylph (Executive Director, Professional
Standards, IAASB) in October 2011 as well as the chart (p. 4) in the IAASB document (attached)
Audit Quality: An IAASB Perspective (January 2011) stating that inputs such as auditing
standards and auditor attributes (both processes and people) are important contributors to
audit quality.
– We note that since issuing the thought piece on Audit Quality in January 2011, the IAASB has
continued its work in this area, and anticipates issuing a more comprehensive document after
its December 2012 Board meeting. This Framework for Audit Quality will include an expanded
definition of a quality audit.
• We agree that there is a benefit in clarifying the roles of the auditor, management and the audit
committee.
• We also recognise that going concern is one area where the expectations gap is significant and our
submission to the IAASB on Improving the Auditor’s Report (attached) offers suggestions to address
this issue.
• We agree that the auditor reporting recommendations should only be applied to public interest
entities and the definition of them needs to be clear. It may well be that some flexibility is required
at the international level so that National Standards Setters can provide a clear definition in their
own jurisdictions in the context of local laws and regulations. This would include consideration of
which public sector entities would be included in the definition of public interest entities, recognising
that at present audit reports in the public sector in Australia and Canada are more comprehensive
than those in the private sector, and not likely to be recommended for change.
• Australia also has safeguards to maintain auditor independence and, after lengthy consultation with
industry, the legislation was updated in June 2012, such that the FRC now has a strategic role in
relation to audit quality (see attached article).
• In Australia the audit partner is required to sign the auditor’s report.
• Like you, we are closely monitoring international developments in relation to proposals to strengthen
regulation of auditors and improve auditor reporting given that we will be affected by decisions
made by the European Union, the US Public Company Accounting Oversight Board and other
organisations internationally.
Australia and Canada have much in common, but there are some interesting differences. In particular,
while we both share a heritage as Commonwealth countries and we are both federations, our laws have
developed in different ways. For example, over time the Australian States and the Commonwealth have
agreed to develop a single securities regulator, the Australian Securities and Investments Commission
(ASIC). ASIC regulates markets, companies and auditors and is responsible for conducting inspections of
audit firms, including compliance with independence requirements and it also registers individual auditors.
Australia’s FRC has a specific role to provide strategic advice to Government in relation to audit quality.
We look forward to keeping in touch as you and others undertake research into the issue of audit quality.
Yours sincerely
Lynn Wood
Chairman
Financial Reporting Council
Chairmman: Secretariat::
Ms Lynnn Wood c/- The Treasuryy
c/- The Treasury Lanngton Crescentt
Langtonn Crescent Canberraa ACT 2600 0
Canberrra ACT 26000 Australiaa
Australiia Telephone:
+611 2 6263 3144 4
Email: Facsimile:
chairmaan@frc.gov.auu +611 2 6263 2770 0
E-mail:
frccsecretary@trreasury.gov.auu
12 O
October 20122
The Internationaal Auditing and

a Assurancce Standards Board
Re: Invitatio
on to Comm
ment: Improoving the Au
uditors Repo
ort
Deaar Mr Gunn
I reffer to the Invvitation to Coomment issueed by the Intternational Audit

A and Asssurance
Stanndards Boardd (IAASB) inn June 2012 entitled
e ‘Impproving the Auditor’s
A Repport’.
I am
m pleased to attach
a a subm mission by thhe Financial Reporting
R Council (FRC
C). I would liike
to thhank you for giving us ann opportunityy to commennt on your pro
oposals.
The FRC is currrently conduucting a num mber of audiit quality proojects as parrt of its strategic
adviice role, of which
w a revieew of the audditor commeentary is one component. The FRC Audit A
Quaality Committtee has beenn specificallyy tasked with assisting thee FRC in prooviding advicce on
audiit quality to the
t Australiaan Government. The Coommittee com mmissioned an online suurvey
of m
members of the t Australiaan Sharehold ders Associaation on percceptions of the
t usefulness of
the aaudit reportss for retail shhareholders inn Septemberr 2012, to infform the FRC
C response too the
IAAASB ITC. A summary off the results of o this surveyy are at Attacchment A.
Pleaase feel free to contact me

m or the FR RC Secretaryy (frcsecretaary@treasuryy.gov.au ) shhould
you have any qu ueries regardiing the FRC submission.
Youurs sincerely
Lynnn Wood
FRCC Chair
1
SUBMISSION OF THE AUSTRALIAN FINANCIAL REPORTING COUNCIL
ON THE IAASB INVITATION TO COMMENT ‘IMPROVEMENT TO THE
AUDITOR’S REPORT’
Summary of Recommendations
The recommendations in this submission may be summarised as follows:
• The Australian Financial Reporting Council (FRC) supports the development

of the auditor commentary and believes that the auditor commentary may be an
important tool for communicating key information to users of financial reports.
The challenge will be in providing meaningful information to users and avoiding
boilerplate disclosure. A survey of retail shareholders conducted for the FRC
identified that any material uncertainties in relation to going concern are of
particular interest. A concern about major differences between book values and
market values has also been suggested for review.
• The FRC believes it is important that the users of financial reports understand
the role and responsibility of the audit.
• The FRC supports the industry’s attempt at self-regulation to better

communicate the value of audit and believes that there is merit in relocating the
auditor’s opinion to the beginning of the auditor’s report. The FRC notes that the
ITC is one element of a broader push towards audit regulation internationally
that the IAASB can address.
Specific reforms to the audit reporting framework must be considered in the context
of improving market stability and accountability more broadly. As this is one of a
number of mooted changes to the audit framework from various sources, we believe
that it is important that the IAASB consider the systemic effects of these
modifications on the whole financial reporting process. In particular, it is important
that changes do not result in an over-regulated system or a system in which the parts
are in conflict.
Overview
The FRC is pleased to make a submission to the IAASB public consultation process.
The FRC is the peak body responsible for overseeing the effectiveness of the financial
reporting framework in Australia. Its key functions include the oversight of the
accounting and auditing standards setting processes for the public and private sectors,
providing strategic advice in relation to the quality of audits conducted by Australian
auditors, and advising the relevant Australian Government Ministers on these matters.
The FRC monitors the development of international accounting standards by the

International Accounting Standards Board (IASB) and auditing standards by the
IAASB, works to further the development of a single set of accounting and auditing
standards for world-wide use and promotes the adoption of these standards.
2
The FRC has a wide range of stakeholders including a broad spectrum of preparers
and users of financial reports, the Australian Government, State and Territory
Governments, and other government bodies such as standard setters and regulators.
Key stakeholder bodies are represented on the FRC as Members. In addition, the
Australian and New Zealand Governments have established cross-appointment
arrangements to promote closer economic relationships between the two countries.
The FRC accordingly has a New Zealand representative as one of its members.
Australia was one of the early adopters of International Financial Reporting Standards
(IFRS) in 2005 – and this is because we recognised early on, that with the current
pace of globalisation, the movement to a global set of accounting standards is a
logical transition. Australia’s auditing standards have been harmonised with
International Standards on Auditing (ISAs) since the mid-1990s. More recently, since
the clarity revision of ISAs in 2009, Australian Auditing Standards have been
converged with ISAs. In addition, the Australian Accounting Professional and Ethical
Standards Board (APESB) use the pronouncements of the International Ethics
Standards Board for Accountants (IESBA) to develop Australian standards consistent
with those issued by the international body.
The FRC has decided to provide a general response, with particular detailed
comments to be provided by other Australian organisations, with specific interests in
the requirements of particular stakeholders. These include stakeholders such as the
Auditing and Assurance Standards Board (AUASB), professional accounting bodies
and the Group of 100, which represents Australia’s senior finance executives.
As noted above, the FRC’s Audit Quality Committee (AQC) is specifically tasked
with assisting the FRC to provide advice to the Australian Government on audit
quality. To help inform the FRC response to the IAASB ITC, the AQC
commissioned an online survey of members of the Australian Shareholders
Association (ASA) a member group of retail shareholders. The survey sought to
understand views about the usefulness of the auditor’s reports for retail shareholders
in September 2012. A summary of the results of this survey are at Attachment A.
Overall Consideration
The FRC supports the IAASB’s ongoing interest in improving audit quality at the
international level through initiatives such as the proposed improvements to the
auditor’s report. The FRC also supports changes to improve the usefulness and
relevance of the auditor’s report.
However, the FRC believes that care must be taken to ensure that information
included in the auditor’s report remains meaningful to users rather than simply
increasing the quantum of information required to be disclosed by audited entities or
the auditors. Accounting Standards currently require preparers of financial reports to
provide further detail where required if the existing reporting requirements are
“insufficient to enable users to understand the impact of a particular transaction, other
events and conditions on the entity’s financial position and financial performance”
(AASB 101 clause 17(c)). As such, additional audit reporting requirements may
duplicate and increase the existing compliance burden on Australian businesses.
3
The FRC believes that improving audit quality requires a coordinated effort by both
the international bodies in developing improved standards and guidance, as well as
the national regulators to promote and support means by which auditors can
effectively communicate meaningful information to users of financial reports of the
audited entity.
Respondents to the FRC survey on the usefulness of the auditor’s report noted that
they were generally comfortable with the information currently included in the
auditor’s report; however some respondents support the inclusion of an explicit
statement as to whether or not any material uncertainties in relation to going concern
have been identified.
Auditor Commentary
The FRC believes that the auditor commentary may be an important tool for
communicating key information to users of financial reports. Almost one third of
respondents to our survey supported this position, revealing that the auditor’s report
was one of their most useful sources of information. In terms of further improving the
auditor’s report through enhanced auditor commentary, survey respondents especially
supported the inclusion of references to significant or unusual transactions and
contentious matters noted during the audit.
However, the FRC believes that care should be taken to ensure that the contents of the
auditor commentary remain within scope of the auditor’s existing role. The possible
expansion of the audit role through the auditor commentary risks increasing the
liability of auditors at a time when auditors are being held to account for decisions
made by directors and management. In Australia, recent experience with various
failed public companies ignited public debate about the role of audit in preventing
corporate collapse, despite the contributing roles of the directors, management and
poor business strategy more broadly. Audit reform may have the unintended
consequence or the perception of increasing the role of audit by increasing the
importance of the auditor commentary. This would not address problems associated
with directors and management not meeting their existing statutory obligations in
relation to financial statement preparation and entity management. The FRC supports
the proposal to only require auditor commentary for public-interest audits. Tiered
auditing requirements ensure that large and public interest entities have an appropriate
level of oversight without increasing the compliance burden on smaller entities. In
the Australian context, nearly 98% of companies are small proprietary companies,
small companies limited by guarantee or not-for-profits that are subject to reduced or
no reporting requirements. Care also needs to be taken in relation to whether public
sector entities might be included in the proposals for various reasons and, if so, how.
This is because auditors-general ordinarily prepare descriptive long-form reports to
Parliament on the outcomes of their annual financial audits, which are separate to the
auditor’s reports that accompany the financial reports of public sector entities.
Another consideration is whether all public sector entities should, as a matter of
course, be considered to be public interest entities.
4
Going Concern/Other Information
The FRC believes that it is important that the IAASB carefully considers the purpose
of expanding the auditor commentary, and to clearly distinguish between providing
information otherwise not included, and highlighting significant information
contained elsewhere in the financial report.
Improvements to the use of audit and accounting concepts such as ‘going concern’,
‘emphasis of matter’ and ‘areas of significant auditor effort’ need to be carefully
considered in the context of the broad range of users of financial reports. The FRC
believes that these concepts should be clearly defined in the auditor’s report, as
different users of financial reports have widely divergent understandings of these
concepts. Respondents to the FRC survey reflected this, demonstrating varied
understandings of key audit concepts, with just over half claiming to understand the
‘going concern’ concept, whereas only 13 per cent claimed to understand the use of
‘emphasis of matter’. We understand that the IAASB has reached out to the IASB
seeking better definition and guidance in relation to the accounting terms in the
accounting standards. To this end, we believe that, ideally, those charged with
governance should be required by IFRS to make an explicit statement in the notes to
the financial statements, as distinct from the present implicit assumption, that the
financial statements have been prepared on a going concern basis and that the entity is
a going concern as at reporting date. It would also be helpful for the IASB to consider
whether such a statement should highlight that the financial statements have been
prepared on a “going concern” basis, or highlight solvency risks more broadly.
Clarifications and Transparency
The FRC believes that users of the financial reports should have a clear understanding
of the role and responsibility of the auditor. This should not itself add to the
complexity of reading such reports, and not be overly wordy, including perhaps tables
or diagrams if useful.
The survey results reflect the degree to which clarity about the role of the auditor is
needed. While a majority correctly identified the role of the auditor as forming an
opinion as to whether the financial reports had been prepared according to the
relevant accounting standards, approximately half of the survey respondents also
noted that the role of the auditor was also to ensure that the entity was financially
‘healthy’, that the financial reports are ‘100% correct’ and to prevent serious
mismanagement leading to corporate collapse. To the extent to which users believe
that the auditor is responsible for ensuring the health of the audited entity, auditors
can be seen to have assumed responsibility for management decisions in the
preparation of the accounts.
The FRC believes that users should have easy access to descriptions of the respective
roles of key actors in the audit, to better understand the scope and role of the auditor.
Over the longer-term, a review of the auditor’s report is an opportunity to review the
means by which the roles of those involved in the development of financial reports are
communicated to users. As almost two thirds of the survey respondents stated that the
auditor’s report does not provide sufficient information about what the auditor is
5
required to do, there is potential for the auditor’s report to improve communication
with users. Such communication could be improved through the provision of
standardised material describing the respective roles of auditors, directors and
management in an appendix to the annual report, a proposal that was overwhelmingly
supported by survey respondents.
Form and Structure
The FRC believes that it is not necessary to overly regulate the order and structure of
the auditor’s report any more than currently. Additional auditor commentary is
designed to reveal areas of significant audit interest in relation to the audited entity.
As such the inclusion of additional commentary is expected to result in different
auditor’s reports between audited entities. This position is supported by over 80 per
cent of survey respondents, who noted that they had no problems with auditor’s
reports becoming less standardised where additional auditor commentary is included.
Equally, however, we believe that too much latitude in this respect runs the risk that
the objective of consistency and comparability across jurisdictions may not be
attained. It is worth noting that in Australia, the relevant auditing standard ASA 700
directly follows the requirements and form of ISA 700, other than the additional
insertion of local regulatory requirements to conform to the Corporations Act.
More broadly, rather than focus on the form of the information, it is important that
auditor’s reports effectively communicate key information to users. Survey
respondents have expressed frustration at what they consider to be increasingly
“bland”, “useless” and “lengthy” auditor’s reports when many are seeking a clear,
plain language account of the position of the audited entity. The development of
further auditor’s report requirements risks increasing audit disclosures without
improving the communication of key audit information to users. At its extreme, the
volume of disclosures may make it increasingly difficult for non-sophisticated users
to understand this information.
Nevertheless, the FRC supports the relocation of the auditor’s opinion to the
beginning of the auditor’s report; with over three quarters of survey respondents also
supporting this position. The auditor’s opinion plays an important role in conveying
the focus of the audit, and allows users to easily understand the key issues in the
audited accounts and to identify highlighted areas in their subsequent consideration of
the auditor’s report.
6
ATTACHMENT A – AUSTRALIAN SHAREHOLDERS ASSOCIATION SURVEY ON
PERCEPTIONS OF THE USEFULNESS OF AUDIT REPORTS, SEPTEMBER 2012
7
Usefulness of Audit Reports for Retail
Shareholders
1. As an investor, on which of the following sources of information do you rely? (please

select all that apply)
Response Response
Percent Count
1.1 Investment advisors 29.4% 115
1.2 Financial planners 13.6% 53
1.3 Brokers 39.4% 154
1.4 Auditor's Report 25.6% 100
1.5 Annual Report to shareholders 69.6% 272
1.6 Accountants 14.8% 58
1.7 Newspapers 73.1% 286
1.8 In-house investment teams 10.7% 42
1.9 None of the above 1.8% 7
1.10 Other please specify 23.8% 93
Other (please specify)

137
answered question 391
skipped question 1
1 of 13
2. You said that you rely on the Annual Report to Shareholders. As an investor, which of
the following components of the Annual Report to Shareholders do you find most useful?
(please select up to five options)
Response Response
Percent Count
2.1 Chairman's letter 60.5% 46
2.2 CEO's letter 67.1% 51
2.3 Corporate Governance

11.8% 9
Statement
2.4 Remuneration Report 40.8% 31
2.5 Director's Report 38.2% 29
2.6 Financial Statements 89.5% 68
2.7 Auditor's Report 27.6% 21
2.9 Other (please specify) 5.3% 4

5
skipped question 316
2 of 13
3. You said that you find the financial statements component of the annual report useful.
Which of the following elements do you find most useful? (please select up to five
options)
Response Response
Percent Count
3.1 Statement of Income 73.3% 11
3.2 Statement of Comprehensive

33.3% 5
Income
3.3 Balance Sheet 66.7% 10
3.4 Statement of Cash Flows 80.0% 12
3.5 Statement of Changes in

40.0% 6
Equity
3.6 Notes to the Financial

40.0% 6
Statemetns
4. Does the auditor's report provide sufficient information to you about what the auditor
is required to do?
Response Response
Percent Count
Yes 35.2% 109
No 64.8% 201
skipped question 82
3 of 13
5. Which of the following do you regard as the responsibility of the auditor? (please
select all that apply)
Response Response
Percent Count
5.1 To ensure that the entity is

49.3% 176
financially 'healthy'
5.2 To form an opinion about

whether the financial statements
provide a true and fair
88.8% 317
representation of the results and
financial position of the
company
5.3 To ensure that the financial

51.5% 184
statements are 100% accurate
5.4 To ensure that the financial

37.5% 134
statements are generally correct
5.5 To form an opinion that

financial statements are prepared
75.6% 270
according to the relevant
accounting standards

52
skipped question 35
4 of 13
6. As an investor, where would it be of value to you to find standardised material
describing the auditor's, management's and director's responsibility? (please select all
that apply)
Response Response
Percent Count
6.1 In a appendix to the Annual

64.0% 226
Report to Shareholders
6.2 On a website 36.8% 130
6.3 In the auditor's report 39.1% 138
6.4 In some other accessible

5.1% 18
location (please specify)

21
skipped question 39
5 of 13
7. As an investor, which of the following concepts used in relation to the auditor's report
do you understand? (please select all that apply)
Response Response
Percent Count
7.1 Reasonable assurance 42.3% 151
7.2 Materiality 37.3% 133
7.3 Audit Opinion 60.2% 215
7.4 Emphasis of matter 13.2% 47
7.5 Going concern 52.4% 187
7.6 Areas of significant audit effort 22.7% 81
7.7 Areas of significant auditor

28.0% 100
judgement
7.8 Matters of audit significance 40.1% 143
skipped question 35
8. Would it be of value to relocate the audit opinion to the beginning of the auditor's
report?
Response Response
Percent Count
Yes 75.5% 259
No 24.5% 84
skipped question 49
6 of 13
9. As an investor, if the auditor's report provided additional commentary, which of the
following areas would be valuable to you? (please select all that apply)
Response Response
Percent Count
9.1 Matters of audit significance,

including areas of significant 73.9% 257
auditor judgement
9.2 Areas of significant

56.0% 195
management judgement
9.3 Significant or unusual

86.8% 302
transactions
9.4 Difficult or contentious matters

84.8% 295
noted during the audit
9.5 Other issues of significance

related to the audit scope or 52.6% 183
strategy
9.6 Matters disclosed in the

52.6% 183
Financial Accounts

26
skipped question 44
10. If additional commentary were included, auditor's reports are likely to be less
standardised. Would you see any difficulties with this?
Response Response
Percent Count
Yes 17.0% 58
No 83.0% 284
skipped question 50
7 of 13
11. Annual reports include a lot of information that is not included in the financial
statements, for example the Directors Report, Chairman’s letter and CEO’s letter,
Sustainability reports etc. Which of the following should be included in the auditor’s
report? (please select all that apply)
Response Response
Percent Count
11.1 A conclusion about

management’s use of the going
concern assumption in the 60.8% 206
preparation of the financial
statements
11.2 An explicit statement as to

whether any material
uncertainties in relation to 87.3% 296
going concern have been
identified
11.3 A more detailed description of

41.9% 142
what the auditor has done
11.4 Details of any other auditors

in the audit process (eg firms in 36.6% 124
other countries )
11.5 Commentary about work

performed by the auditor on the
other information that is included in 50.7% 172
the Annual Report that is not
audited

24
skipped question 53
8 of 13
12. Is there any additional information that you would like to see included in the auditor's
report?
Response Response
Percent Count
Yes 20.8% 67
No 79.2% 255
skipped question 70
13. Please use the space provided to tell us what additional information you would like to
see included.
Response
Count
71
14. Please use the space provided for any other comments about the value of the
auditor's report.
Response
Count
103
9 of 13
15. What is your age bracket?
Response Response
Percent Count
15.1 Less than 20 years 0.0% 0
15.2 20-39 years 0.9% 3
15.3 40-54 years 8.5% 29
15.4 55 to 70 years 43.0% 147
15.5 more than 70 years 45.9% 157
15.6 Not disclosed 1.8% 6
skipped question 50
16. What is your gender?
Response Response
Percent Count
Female 16.6% 57
Male 82.5% 283
Not disclosed 0.9% 3
skipped question 49
10 of 13
17. What is your current working status? (please select one)
Response Response
Percent Count
17.1 Full-time employment 7.1% 24
17.2 Part-time employment 3.8% 13
17.3 Self-employed 10.0% 34
17.4 Unemployed 0.3% 1
17.5 Retired, but working part-time 14.1% 48
17.6 Fully retired 60.0% 204

18
skipped question 52
11 of 13
18. Where do you reside?
Response Response
Percent Count
18.1 ACT 5.9% 20
18.2 NSW 31.2% 106
18.3 NT 0.6% 2
18.4 QLD 13.8% 47
18.5 SA 9.4% 32
18.6 TAS 2.1% 7
18.7 VIC 27.4% 93
18.8 WA 8.8% 30

4
skipped question 52
12 of 13
19. Investors are classed differently to ensure that those in need of regulatory
protection are entitled to disclosure and other consumer protections. What type of
investor do you consider yourself? (please select one)
Response Response
Percent Count
18.1 Professional – Professional

investors have extensive
experience in using financial
services or investing in financial
products and include investors that 10.0% 34
have already satisfied certain
licensing, registration or listing
requirements, or having control of a
substantial sum of money.
18.2 Retail – Retail investors

have less experience in using
financial services or investing in
financial products. Retail
81.2% 276
investors tend to be those who
invest for their personal account
rather than for any other
company or organisation.

18
skipped question 52
13 of 13
The Canadian Institute of Chartered Accountants L’Institut Canadien des Comptables Agréés
277 Wellington Street West 277, rue Wellington Ouest
Toronto, ON Canada M5V 3H2 Toronto (ON) Canada M5V 3H2
Tel: 416 977.3222 Fax: 416 977.8585 Tél. : 416 977.3222 Téléc. : 416 977.8585
www.cica.ca www.icca.ca
October 29, 2012
Audit Reporting Working Group

The Canadian Institute of Chartered Accountants and
277 Wellington Street West
Toronto, ON M5V 3H2
Attention: Mark Davies, Chair
Dear Mr. Davies:
The CICA’s Directors Advisory Group (DAG) value the opportunity to respond to the Audit
Reporting Working Group (ARWG) request for comment on Enhancing Audit Quality: Canadian
Perspectives – The Auditor Reporting Model. The group commends the ARWG for a thorough
and reasoned report. This response was developed based on comments provided by several
members of the DAG. The responses specifically address select questions provided by the
Institute of Chartered Accountants of Ontario (ICAO).
The Directors Advisory Group (DAG), made up of a group of experienced corporate directors, is
responsible to provide advice and insight to the Risk Oversight and Governance Board (ROGB)
of the Canadian Institute of Chartered Accountants.
Question #1 Do you support the inclusion of auditor commentary in the auditor’s report
to highlight matters that the auditor considers to be important to a user’s understanding
of the financial statements or the audit? The DAG is in support of highlighting, in the auditor’s
report, the most important aspects of the financial reports. The group suggests that highlighting
matters will clarify the information in the report and guide readers to those significant aspects.
However the DAG does not support adding more information to the audit reports. This would
require asking auditors to be involved in activities for which they may not be prepared and would
inevitably result in increased costs for corporations. The group cautions that the costs associated
with requiring more information may be particularly burdensome to SMEs.
Question #2 Assuming that there is a requirement for auditor commentary, should it be

required for all entities? The DAG suggests that all entities should have the same
requirements regarding audit. If auditor reports are to be made in the public interest, they should
provide comfort to all affected stakeholders.
Question #3 Do you support proposals to add information on going concern to the
auditor’s report, including a conclusion on the appropriateness of management’s use of
the going concern assumption and explicit statements whether material uncertainties in
relation to this assumption have been identified? The DAG does not support adding
information on going concern to the auditor’s report. Disclosures of uncertainty should be in the
MD&A and as such, through the eyes of management who are in the best position to know what
is happening in the business. The audit committee is required to review the MD&A and is
involved through that process. There is significant guidance through the CICA for management
and the board on MD&A. If necessary, the CICA may wish to provide further guidance on
enhancing and overseeing the MD&A.
Question #5, Do you support the inclusion of a description in the auditor’s report of the
auditor’s responsibility for other information in documents containing audited financial
statements and the auditor’s report thereon? The DAG does not support the notion that the
auditor’s traditional role should be broader. The group suggests that a broader role would not be
helpful, may result in less clarity for investors, and would require capability development, all of
which may result in unintended costs. To that end the DAG is not in support of auditors being
responsible for other information, suggesting it is important to clarify for investors that some
information is audited and other information is not audited.
We trust this information is helpful. If you require additional information please contact the CICA
staff member responsible for the DAG, Gigi Dawe at gigi.dawe@cica.ca.
Yours Truly,
Giles Meikle, FCA
Page 2
23 October 2012
To:
Mr. Schilder
Chair of the International Auditing and Assurance Standards Board
Re.: Comment letter from European Audit Regulators relating to IAASB’s Invitation to
Comment, Improving the Auditor’s Report
Dear Mr. Schilder,
A number of independent European audit regulators and/or oversight bodies (“audit regulators”)
appreciates the opportunity to comment on the IAASB‟s (“Board”) Invitation to Comment, Improving
the Auditor’s Report (“ITC”). The content of this letter has been discussed and agreed between audit
regulators, representing the following countries:
Czech Republic – Audit Public Oversight Council

Estonia – Auditors Activities Oversight Council
France – Haut Conseil du Commissariat aux Comptes
Germany – AbschlussPrüferAufsichtsKommission
Ireland – Irish Auditing & Accounting Supervisory Authority
Lithuania – Authority of Audit and Accounting
Luxembourg – Commission du Surveillance du Secteur Financier
Malta – Accountancy Board
the Netherlands – Netherlands Authority for the Financial Markets
Norway – Finanstilsynet
Portugal – Conselho Nacional de Supervisão de Auditoria
Slovenia – Agency for Public Oversight of Auditing
Spain – Instituto de Contabilidad y Auditoria de Cuentas
Revisorsnämnden – Sweden
Eidgenössische Revisionsaufsichtsbehörde – Switzerland
As European audit regulators we consider it important to pursue continuing improvement of standard

setting for the audit profession. Our comments in this letter reflect those matters on which we have
achieved a consensus amongst the above mentioned audit regulators; however, they are not intended
to include all comments that might be provided by individual regulators and their respective
jurisdictions.
The structure of this letter follows the five categories that the Board has used in the ITC.
Overall considerations
We support the Board‟s efforts to respond to the clear and justified demand for auditors to provide
greater transparency about the audit of the financial statements. The proposed auditor‟s report should
enhance the financial statements users‟ understanding of the audit process, especially with regard to
significant risks of material misstatements in the financial statements, and will contribute to the
responsibility and accountability of the auditor.
We concur with the Board‟s view that the auditor‟s report should continue to include a clear opinion
on whether the financial statements give a true and fair view, but it should also clearly communicate
the views of the auditor based on his audit of the financial statements.
1
Therefore, as the opinion paragraph is regarded as the most important part of the auditor‟s report, we
welcome the Board‟s initiative to place this paragraph at the beginning of the audit report.
The primary responsibility for the financial statements lies with the entity; the auditor is responsible
for the audit of the financial statements. While fully supporting increased auditor transparency, we
continue to believe that those responsibilities should remain intact. This means that the auditor cannot
„repair‟ omissions or errors (including in disclosures) unless through issuing an appropriately
modified opinion. The auditor should ensure that management provides such information, or he must
do that as part of his justification for a modified auditor‟s report.
We feel that adding more information – amongst others via Auditor Commentary – in the auditor‟s
report adds value to financial statements users. In addition, it will presumably also have a positive
effect on the quality of the financial statements and the audit process.
In order for the auditor‟s report to be sufficiently informative and responsive to financial statements
users‟ demands, we believe that Board should develop safeguards in order to ensure that:
omissions in the financial statements (including omissions in disclosures) are not „repaired‟
through the Auditor Commentary, also because the entity is primarily responsible for the
preparation and presentation of the financial statements. Instead, it should result in appropriate
modifications to the auditor‟s opinion;
entity specific information in the auditor‟s reports is useful and relevant to the financial
statements users and that boiler plate language is avoided. Consequently, it is necessary to
develop suitable and enforceable criteria with appropriate guidance and examples;
the scope of the auditor‟s report is clear, especially with regard to „other information‟.
Based on our discussions, we feel that the following information could also be considered for
inclusion in the new auditor‟s report:
a specific statement that the auditor complied with independence regulations and other ethical
requirements with a reference to the respective requirements, including information on services
provided;
a summary of the auditor‟s risk analysis and audit strategy used to mitigate significant audit risks,
including the risk of fraud. This would also encompass how the auditor maintains his sole
responsibility when using the work of other auditors and experts, where relevant. In this regard,
we note that the auditor should focus on financial statement risks, and not on general business
risks unless relevant to the specific audit;
information about materiality, as this helps financial statements users to better understand the
assurance provided and the extent and depth of audit work done1;
a statement on the consistency between the other information in the annual report and the
We believe that standardized information increases the risk of boiler plate language without adding
specific information to the financial statements or the audit thereof and should therefore be avoided as
much as possible.
We would like to highlight that there are other initiatives for changing the auditor‟s report under
discussion, f.i. the provisions of the European regulation for audit reporting. We favor consistency in
the format of the report, while allowing jurisdictions to adapt the report to their national constraints.
Accordingly, we think the building block approach is an appropriate solution.
1
The Haut Conseil du Commissariat aux Comptes takes exception to this point.
2
In addition, if it becomes apparent that some of the demands of the financial statements users would
be better resolved by enhancing the accounting and/or disclosure standards, we suggest the Board and
the International Accounting Standards Board (“IASB”) work together to improve also those
standards.
Auditor Commentary
As indicated earlier, we believe that the Auditor Commentary (“AC”) is a very appropriate means to
inform the financial statements users about the audit of the financial statements. In addition, we
believe that the inclusion of AC in the auditor‟s report constitutes a positive incentive for management
to enhance the quality of information disclosed in the financial statements.
AC should not replace information that should be included in the financial statements, which is the
responsibility of the entity. AC should highlight matters that are important for the understanding of
the audit of the financial statements and the auditor‟s judgment. We feel that there should be room for
judgment from the auditor about what to include in AC, but it should also be made clear in the
standards, by creating appropriate and enforceable criteria and supportive guidance, that the auditor is
supposed to comment on the aspects of his audit which are useful and relevant to the financial
statements users, such as significant risks of material misstatements in the financial statements, or
materiality2.
When reading the ITC, it occurs to us that many of the examples seem to refer to information in the
financial statements, to which little to no information is added. Further, the AC is rather descriptive in
nature, without the added value of the auditor‟s views based on the audit work performed.
Going concern/other information
We believe that it is helpful that the auditor includes a more specific statement about the going
concern assumption in the financial statements than what is required in the current standards. This
enhances the focus of the auditor on going concern issues, which would be a positive incentive,
without changing his current responsibilities. We believe that a specific auditor‟s statement on a
management assumption is in line with the role of the auditor.
However, we believe that the paragraph on the work performed by the auditor to reach the going
concern conclusion should only be included when this provides relevant information to the users of
the report in the specific situation and to constitute an incentive to focus on this aspect during the
audit, most notably in judgmental situations. Boilerplate or irrelevant information should be avoided.
We support the Board‟s intent to explore whether a revision of ISA 570 Going concern is needed and
to liaise with the IASB. This will contribute to specifying the extent of audit work to be done in
relation to going concern, and the respective reporting.
Stating clearly in the report whether material inconsistencies have been found or not in other
documents seems appropriate and adds value to the report. In this respect we note that including the
scope of the documents that have been examined could also be a valuable element for users of this
information, in order to be clear on what has been read and what has not been read by the auditor.
2
See also footnote 1.
3
Although we support the need for a clear distinction in the responsibilities between the auditor and the
entity, we do not see added value in the proposed descriptions of the various responsibilities in the
auditor‟s report. This is standardized information, and as such boiler plate without adding specific
information to the audit of the financial statements.
Naming the engagement partner is already current practice in most of Europe. We favor this as it has a
positive impact on the involvement and accountability of the engagement partner.
Including information on the use of other auditors and experts as part of the audit strategy, could
contribute to better understand the audit. It should remain clear to the financial statements users that
the auditor remains solely responsible for the audit opinion on the financial statements as a whole, and
what he did to ensure this sole responsibility. As a consequence, information regarding the portion of
work performed by other auditors or experts should not be misleading as to the division of
responsibilities.
Form and Structure
We concur with the proposed structure, subject to our comments on the standardized boilerplate
paragraphs. Further, we clearly see a benefit in global consistency in the structure and format of
auditor‟s reports.
We favor a consistent reporting format, while allowing jurisdictions the possibility to adapt the report
to their national constraints. Accordingly, we think the building block approach is particularly
appropriate.
Thank you for the opportunity to comment on the ITC. If you have any questions or would like to
further discuss the matters noted in this letter, please contact Janine van Diggelen, head of the audit
oversight division of the AFM in the Netherlands, at +31 20 797 2833.
Sincerely,
Audit regulator of:
Czech Republic
Estonia
France
Germany
Ireland
Lithuania
Luxembourg
Malta
the Netherlands
Norway
Portugal
Slovenia
Spain
Sweden
Switzerland
4
October 29, 2012
Canadian Institute of Chartered Accountants

Toronto ON M5V 3H2
By email: eaq.ar@cica.ca & eaq.ai@cica.ca
Attention: Eric Turner, CA, Principal and National Practice Area Leader for Audit & Assurance
Dear Mr. Turner:
Re: Consultation on Auditor Reporting and Auditor Independence
General Comments:
The Certified General Accountants Association of Canada (CGA-C) is pleased to provide comments on
both the issue of auditor reporting as well as auditor independence. Each of these issues requires careful
consideration of the costs and benefits to the public, including comparative needs, and the costs and
benefits to stakeholders, appreciating that these issues play a fundamental role in the confidence placed
upon audited financial statements.
Auditor Reporting:
Information Gap
We believe that it would be intrinsically wrong for the auditor to create information about the entity for
inclusion in the auditor’s report, and that this would serve to weaken the division of responsibility
between the entity and its independent auditor. Investors’ information requirements must be met by the
preparers of such information, and auditors should not be compelled to buttress inadequacies in financial
reporting through the audit report.
Auditor Commentary
We recognize that the general concept of Auditor Commentary may have positive benefits to users;
however, we have several concerns with the proposal. As a matter of principle, the Auditor Commentary
should be modelled on the existing Emphasis of Matter and Other Matter paragraphs, appreciating that a
lower threshold for reporting would exist. Firstly, we prefer the proposed section title to the current titles
used (Emphasis of Matter and Other Matter), as it has a more positive connotation to the reader than those
in use today, whilst still serving to draw the users’ attention to the material. That said, we are troubled
Consultation on Auditor Reporting and Auditor Independence

with the prospect of impaired transparency between the auditor and management/those charged with
governance, if such a requirement to include information resulted in these relationships becoming more
closed – which would be counterproductive to that which the proposal is intended to achieve.
The primary premise of an auditor commentary must be to source information already disclosed in the
financial statements, as the emphasis made to users rightly needs to be that such information is the
responsibility of management/those charged with governance. To determine otherwise would result in the
auditor having to perform further audit procedures than those currently required by Canadian Auditing
Standards.
Regardless of the final outcome of these deliberations, cogent guidance would have to be developed
articulating the criteria against which the auditor can make a determination of which issues should be
included in the commentary.
We are likewise concerned with the suggestion that the auditor commentary include reporting on the
auditor’s assessment of risk, procedures performed, and judgements made by the auditor in forming the
audit opinion. It is our view that many users of the auditor opinion are not sufficiently familiar with the
requirements of auditing standards and, therefore, would not understand the implications of this added
information. Thus, an unintended result may be to attribute an even higher level of assurance than
provided by the auditor report, further increasing the expectation and information gap.
We would, however, be supportive of information which provides the user with information such as the
auditor’s obligations to sustain a system of quality control (under ISQC 1/CSQC 1, Quality Control for
Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements
requirements), including meeting competency requirements and prescribed ethical requirements, and
indicating any particular independent oversight regimes that would allow readers to obtain comfort from
the regulatory supervision provided by the profession.
Lastly, we cannot ignore the impact this additional information will have on the timing for release of the
auditor opinion. The information contained within the auditor commentary will need to be closely
reviewed by management/those charged with governance, and agreed upon. This will not only increase
auditor fees, but will delay completion of the engagement.
All of these issues must be carefully deliberated within the context of the added effort required of the
auditor and of the entity, as well as the costs of compliance with any new requirements.
Going concern
It is our opinion that any statements with respect to going concern should be made only if they would
likewise be necessary under the proposed conditions for auditor commentary. If this is not deemed to be
the case, it would appear that a natural extension of this proposal would be to likewise revise ISA/CAS
570, Going Concern to include additional guidance to the auditor. It is our view that there is the danger of
the user interpreting such a statement as an opinion related to the future viability of the entity – a risky
outcome. Furthermore, we are equally unconvinced of the need for the auditor to make a statement on the
existence of any material uncertainties.

Other information
There are challenges in responding to the proposal that the auditor include a statement of auditor's
responsibilities in respect of other information, because the standard for ISA/CAS 720, The Auditor's
Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements,
is not expected to be finalized until 2013. That said, we appreciate that there is ambiguity to the user
about the auditor’s responsibilities, or involvement, relating to that information.
Other Auditors
We are strongly against the proposed disclosure regarding the involvement of other auditors. We do not
believe that such a disclosure is relevant within the auditor report, as such an inclusion runs contrary to
ISA/CAS 600, Special Considerations and the principle of sole responsibility.
Engagement Partner
We fail to appreciate how mandating the disclosure of the name of the engagement partner would lend
itself to the overall objective of improving audit quality, as it will not provide any further useful
information to the user of the audit report, nor will it improve the users’ decision-making process.
Accordingly, we recommend that this determination be left to each jurisdiction.
Auditor Independence:
Auditor independence goes hand in hand with objectivity, professional skepticism and integrity –
characteristics that are integral to the profession. While we recognize, and support the International
Ethics Standards Board for Accountants (IESBA), and indeed require our members to adhere to the CGA
Code of Ethical Principles and Rules of Conduct (CEPROC) that meets or exceeds all of the requirements
of the IESBA’s Code of Ethics for Professional Accountants, this does not mean that we do not have
reservations with respect to certain of the independence provisions, or that we do not debate some of the
requirements.
The demands on the profession, both internationally and domestically, have changed dramatically since
the passage of the Sarbanes-Oxley Act of 2002. The creation of the Canadian Public Accountability
Board (CPAB), the (re)introduction of risk-based auditing standards, the introduction of stringent
independence requirements, including partner rotation, and the introduction of quality control standards at
both the firm and engagement level, are just a few of the recent changes that have served to increase
rigour and accountability within the profession.
The CGA independence requirements currently span some seventy-one pages – and these are expected to
increase with the introduction of the breach of a requirement provisions. These rules require the lead
partner, and other key individuals involved in the engagement, to rotate every five years. They also
require an engagement quality control review for any reporting issuer prior to the release of the auditor’s
report. These provisions command agreement on all significant judgements and conclusions made, while
firms offering services to reporting issuers have the added layer of oversight afforded by the CPAB, in
addition to the oversight afforded through their provincial/territorial Affiliate(s).

The clarified ISAs/CASs make very clear to every audit professional the ethical requirements demanded
of the profession, as articulated in ISQC 1/CSQC 1, Quality Control for Firms that Perform Audits and
Reviews of Financial Statements, and Other Assurance Engagements and ISA/CAS 220, Quality Control
for an Audit of Financial Statements, and these include independence requirements. Our CEPROC
requires the application of a multiplicity of safeguards to mitigate threats to an acceptable level –
otherwise requiring resignation from the audit engagement. We believe that these are adequate to satisfy
the public’s concerns with regard to independence, and that they are sufficient to protect the public
interest.
Mandatory firm rotation is not necessarily in the investing public’s interest for a number of reasons.
Indeed, mandating the term for partner rotation can often be viewed as causing greater harm than the
conditions it intends to protect against. Setting aside for a moment the argument that there is little
empirical evidence suggesting where the bright line of mandatory rotation might reside, problematic
issues related to mandatory rotation include:
identification in recent research that audit quality is diminished by partner rotation, a result that is
contrary to the outcome presumably hoped to be achieved;
loss of efficiency by both audit firms and entities due to the intrinsic learning curve associated with
assessing a new environment and training on client systems and processes;
disruption to both audit firms and entities preoccupied with request for proposal responses and
evaluations; and,
increased costs for both audit firms and clients during the transition period following rotation.
CGA-Canada supports consideration of alternatives to mandatory partner rotation, except in the case of
the largest reporting issuers (for example, the S&P/TSX 60 Index). Excepting these instances, options
such as a comprehensive review conducted by the audit committee of the auditor’s performance might be
one way to address the concerns expressed by securities regulators as they relate to auditor independence.
Such solutions acknowledge the inherent benefits garnered from length of auditor tenure against the costs
of rotation.
Closing Comments:
Should you wish to consult with us further on this matter, we request that the CICA correspond with the
undersigned at rlefbvre@cga-canada.org.
Sincerely,
Rock Lefebvre, MBA, CFE, FCIS, FCGA

Vice-President, Research & Standards

October 25, 2012
Mr. Mark Davies

Chair, Auditor Reporting Working Group
The Canadian Institute of Chartered Accountants
Toronto, ON
M5V 3H2
Dear Mr. Davies:
Re: Canadian Perspectives- The Auditor Reporting Model Discussion Paper
The Canadian Public Accountability Board (CPAB) is pleased to respond to the Auditor Reporting
Working Group (ARWG) Discussion Paper. We commend the ARWG for issuing the Discussion
Paper, it is important for there to be a broad debate in Canada on proposed international changes to
the auditor reporting model and for Canada to contribute to global discussions on this issue.
CPAB supports the need for change and improvement with respect to auditor reporting. Auditors
need to provide greater value by sharing more information, related to the audit, directly with
financial statement Users’ (“Users”). Change needs to be responsive to the needs of Users’, and
should be implemented in a thoughtful, responsible way such that audit quality is enhanced and in
no way diminished.
Auditor Commentary
We agree with the ARWG view to include an auditor commentary in the auditor’s report. The
increased transparency into the audit process will improve audit quality and ultimately lead to
improved disclosures in publicly available financial information. It will also help contribute to the
Users’ appreciation of the relevance of the audit. To be effective the Auditor Commentary should
be targeted at the key risk areas of most importance to the Users’ understanding of the audit. While
we recognize that the identification of those key risk areas requires professional judgment, a
principles-based framework should be developed to identify the matters that, as a minimum, the
auditor must address.
On October 12th, 2012 CPAB responded to the International Auditing and Assurance Standards
Board Invitation to Comment (IAASB ITC) - Improving the Auditor’s report, and we attach a copy
October 25, 2012
Page 2
of our response for your information. Our response to the IAASB ITC covered many of the areas
covered by the ARWG Discussion Paper and so we have not repeated these here.
However, there are certain areas we would like to highlight with respect to transparency where
CPAB’s views may be different to the ARWG views as detailed below.
Involvement of Other Auditors
We believe that disclosure of the involvement of other auditors in the audit would provide Users’
greater transparency with respect to who, other than the group auditor, was involved in the audit
and the extent of that involvement. In its own inspections, CPAB has identified issues with both the
extent the group auditor has used the work performed by component auditors and the extent of
involvement of the group auditor in the work of the component auditor. This is particularly
important when these other participants are not registered firms or when there are legal or other
regulatory barriers to them being inspected by an audit regulator. Without impacting the group
auditor’s sole responsibility for the audit, disclosure of the other participants would enable Users’
to determine the extent of use of component auditors by the group auditor and the degree of
oversight the participants are subject to, including publicly available disciplinary history.
Disclosure of Name of Engagement Partner
We note that the ARWG did not reach a consensus on disclosure of the engagement partner’s name
in the auditor’s report. We understand the basis for the proposals to require disclosure of the name
of the engagement partner in the audit report. However, we would encourage a more holistic
approach to better understand the root causes of lapses in audit quality in developing solutions to
improve accountability for the audit. Greater focus needs to be given to the organizational structure
of audit firms and how this can be improved to build greater quality into the execution of the audit.
Consideration needs to be given to how accountability can be strengthened for audit firms at the
engagement level, office level and national level. A more holistic approach should also consider the
role of the audit committee and explore ways in which audit committees can more effectively
oversee and evaluate the quality of the audit.
Reviews of Interim Financial Statements
The Discussion Paper notes that there is currently no requirement for regulatory filings to disclose
that an interim review has taken place. Users’ are only informed if an auditor has not performed a
review (often by a one-line disclosure in the financial statements). We agree with the ARWG that
the transparency to Users’ needs to be improved and warrants reassessment. At the same time we
encourage The Canadian Securities Administrators to reconsider the appropriateness of auditor
reviews for all reporting issuer quarterly financial statements being optional.
October 25, 2012
Page 3
We appreciate the opportunity to respond to the Discussion Paper, and would be pleased to discuss
further any of our comments.
Yours very truly,
Brian Hunt, FCA

Chief Executive Officer
October 12, 2012
Technical Director
International Auditing and Assurance Standards Board
545 Fifth Avenue, 14th Floor
New York, NY 10017
USA
Dear Sir:
Re: Invitation to Comment – Improving the Auditor’s Report
The Canadian Public Accountability Board (CPAB) is pleased to respond to the International
Auditing and Assurance Standards Board’s (IAASB’s) Invitation to Comment on Improving the
Auditor’s Report (the “ITC”). CPAB is Canada’s independent audit regulator responsible for
overseeing firms that audit Canadian reporting issuers. Our mandate is to promote high quality
independent auditing that contributes to public confidence in the integrity of reporting issuers’
financial reporting. We accomplish our mandate by inspecting audit firms and audit working
paper files which provides us with insights into the application of auditing standards and how
they might be improved.
We recognize the need for change and improvement with respect to auditor reporting. Auditors
need to provide greater value by sharing more information, related to the audit, directly with
financial statement users (“Users’”). Change needs to be responsive to the needs of Users’,
and should be implemented in a thoughtful, responsible way such that audit quality is enhanced
and in no way diminished.
We commend the IAASB for giving the auditor reporting project such high priority in its current
work program. However, it is important for bodies such as the IAASB, European Commission
and United States Public Company Accounting Oversight Board to work together to devise one
global solution to the perceived deficiencies in auditor reporting. Since many audit reports are
read globally; a more coordinated approach will improve consistency and mitigate investor
confusion. Greater divergence in auditor reporting is not in the public interest.
October 12, 2012
Page 2
Auditor Commentary
We believe that the concept of an Auditor Commentary is an appropriate response to the call for
auditors to provide more information to Users’ through the auditor’s report. The increased
transparency into the audit process will improve audit quality and ultimately lead to improved
disclosures in publicly available financial information. It will also help contribute to the Users’
appreciation of the relevance of the audit. To be effective the Auditor Commentary should be
targeted at the key risk areas of most importance to the Users’ understanding of the audit. While
we recognize that the identification of those key risk areas requires professional judgment, the
IAASB should develop a principles-based framework to identify the matters that, as a minimum,
the auditor must address.
The framework the auditor uses to identify the matters to communicate in the Auditor
Commentary should be consistent with that for identifying matters to communicate with those
charged with governance and therefore will likely require concurring amendments to ISA 260,
Communication with Those Charged With Governance. As a starting point for the framework we
support the matters identified in paragraph 45 of the ITC which include: areas of significant
management judgment; significant unusual transactions; and matters of audit significance,
including areas of significant auditor judgment in conducting the audit. However, we are
concerned that the illustrative example of Auditor Commentary in the ITC does not provide the
informational or decision-making value that Users’ seek, although we acknowledge this is
difficult to evaluate fully without knowing the content of the financial statement notes to which
many of the matters are cross referenced. If the Auditor Commentary is to add value to the
auditor’s report it must provide more than a cross reference to a note in the financial statements.
We believe a discussion of why an auditor considered a matter important, an overview of the

audit procedures performed, and the results of those procedures would provide relevant context
to the matter. In addition to addressing the information gap, this may help Users’ better
understand the audit, which might address Users’ expectation gap.
Involvement of Other Auditors
We believe that disclosure of the involvement of other auditors in the audit would provide Users’
greater transparency with respect to who, other than the group auditor, was involved in the audit
and the extent of that involvement. In its own inspections, CPAB has identified issues with both
the extent the group auditor has used the work performed by component auditors and the extent
of involvement of the group auditor in the work of the component auditor. This is particularly
important when these other participants are not registered firms or when there are legal or other
regulatory barriers to them being inspected by an audit regulator. Without impacting the group
October 12, 2012
Page 3
auditor’s sole responsibility for the audit, disclosure of the other participants would enable Users’
to determine the extent of use of component auditors by the group auditor and the degree of
oversight the participants are subject to, including publicly available disciplinary history.
Going Concern
We are concerned that the proposed auditor statements regarding both the appropriateness of
management’s use of the going concern assumption and whether material uncertainties related to
events or conditions that may cast significant doubt on the entity’s ability to continue as a going
concern have been identified will increase, rather than decrease, the Users’ expectation gap.
While we understand why the recent global financial crisis has resulted in greater focus on the
assessment of going concern and related disclosures we do not believe statements by the auditor
based on the work effort of ISA 570 will meet the needs of Users’ in that context.
The long standing issue with going concern is whether the disclosure of certain matters becomes a
self-fulfilling prophecy - a risk that may be significantly higher for particular entities such as
financial institutions. To address the lessons of the global financial crisis there may need to be
different solutions for Systemically Important Financial Institutions (“SIFI”) versus other
commercial entities. Given the significance of SIFIs to the broader economy, CPAB would
encourage consideration of alternative approaches, such as improved communication between
auditors and prudential regulators, as a more effective method of achieving the desired objective.
We support the development of additional guidance for auditors, under ISA 570, with respect to
the identification and response to material uncertainties as it is a complex and judgmental
exercise and our inspections have evidenced that auditors are currently struggling to respond
appropriately.
Format and Structure of the Standard Auditor’s Report
We support the need to improve the format and structure of the existing standard audit report and
to do so in a manner that enhances consistency of reporting at the global level. We, therefore,
agree with the IAASB that there is merit in mandating the ordering of the elements within the
auditors’ reports across jurisdictions, unless otherwise required by law or regulation. We also
believe that the changes to the format and structure proposed should be applied consistently
across all listed entities as the reporting for smaller entities will generally be less complex.
In structuring the format of the audit report the informational value of the content should be a
significant consideration in determining the ordering with entity specific matters being presented
first. Given the value of the “pass/fail” nature of the audit opinion we support increasing its
prominence by moving it to the beginning of the report.
October 12, 2012
Page 4
In concluding we again commend the IAASB for engaging with stakeholders on this important
topic. In a continually changing global business environment, with increasingly complex
financial reporting requirements, it is critical that auditor reporting evolves in a way that better
meets the needs of financial statement Users’ and enhances the relevance and value of the audit.
In addition to our comments above, our responses to the questions posed in the ITC are included
in the Appendix to this letter.
We would be pleased to discuss further any of the above comments.
Yours very truly,
Brian Hunt, FCA

Chief Executive Officer
cc. Mr. Mark Davies, CIA, CA

Chair, Auditing and Assurance Standards Board (Canada)
Mr. Greg Shields, CA

Director, Auditing and Assurance Standards
October 12, 2012
Page 5
APPENDIX
Questions
Since CPAB’s mandate relates to listed entities in Canada our comments apply solely to listed
entities.
Overall Considerations
1. Overall, do you believe the IAASB’s suggested improvements sufficiently enhance the
relevance and informational value of the auditor’s report, in view of possible impediments
(including costs)? Why or why not?
We commend the IAASB for giving the auditor reporting project such high priority in its current
work program and support the overall direction of the suggested improvements. However, we
believe that the auditor commentary should go further in terms of the informational value it
provides on key risk areas. We also recommend the IAASB develop a principles-based
framework to identify the matters that, as a minimum, the auditor must address.
2. Are there other alternatives to improve the auditor’s report, or auditor reporting more
broadly, that should be further considered by the IAASB, either alone or in coordination
with others? Please explain your answer.
Audit committees have a key oversight role to play in ensuring both audit quality and high
quality financial reporting. In our view there is merit in considering having more transparent
public reporting by audit committees on how they have discharged their responsibilities to oversee
the audit. This could include reporting on how the audit committee has assessed the effectiveness
of the external audit process in the current year and/or the results of the audit committee
having performed a mandatory audit firm review. The mandatory audit firm review would be a
formal evaluation by the audit committee, on a periodic basis, of the effectiveness of the auditor,
with justification included in a public filing as to why the existing auditor has been reappointed or
why the audit has been put out to tender or whether a new auditor has been appointed.
October 12, 2012
Page 6
Auditor Commentary
3. Do you believe the concept of Auditor Commentary is an appropriate response to the

call for auditors to provide more information to users through the auditor’s report? Why or
why not” (See paragraphs 35-64.)
The concept of Auditor Commentary is an appropriate response to the call for auditors to provide
more information through the audit report in key risk areas of most importance to the Users
understanding of the audit as we believe the increased transparency into the audit process will
improve audit quality and ultimately lead to improved disclosures in publicly available financial
information.
Users clearly value the pass/fail nature of the current audit report, but the lack of transparency
with respect to the nature and extent of professional judgment exercised by the auditor,
particularly in auditing high risk areas, is a significant contributor to the current information gap
between auditors and Users. As our financial systems become more global and grow in
complexity Users are recognizing the importance of informed decision making. While Users may
still place high value on the auditor’s opinion as to the fairness of the presentation of the financial
statements, they would have a better appreciation for that opinion if they were aware of the
significant matters the auditor considered and how the auditor was satisfied that the matters had
been appropriately addressed.
Audits are conducted using a risk based approach. Auditors spend considerable time and effort
identifying the significant risks of material misstatement within the financial statements, however,
without a discussion of these risks in the audit report Users cannot benefit from auditor insights
to this significant work effort. In our inspection of audit files, we are often surprised at the
inconsistency between the risk identified and the audit approach taken in high risk areas. We
believe that if an auditor had to disclose the significant risks identified and the approach taken to
address those risks it would reduce those inconsistencies and improve audit quality.
A significant concern with the concept of an Auditor Commentary is whether or not it will blur
the lines of responsibility between the auditor, management and those charged with governance
(TCWG). The specific concern is whether, in providing the Auditor Commentary, the auditor
might provide entity specific information that should only be provided by management. While
we recognize the validity of this concern, we believe that the development of the financial
statements is an iterative process concurrent with the audit and so if certain entity specific
information is critical to understand a matter in
October 12, 2012
Page 7
the Auditor Commentary it is highly likely that the auditor is also discussing the need to include
the information in the financial statements or other disclosure documents. We believe these
discussions will ultimately lead to improved disclosures in publicly available financial
information.
4. Do you agree that the matters to be addressed in Auditor Commentary should be left
to the judgment of the auditor, with guidance in the standards to inform the auditor’s
judgment? Why or why not? If not, what do you believe should be done to further facilitate
the auditor’s decision-making process in selecting the matters to include in Auditor
Commentary? (See paragraphs 43-50.)
To be effective the Auditor Commentary should be targeted at the key risk areas of most
importance to the Users’ understanding of the audit. While we recognize that the identification of
those key risk areas requires the use of professional judgment, the IAASB should develop a
principles-based framework to identify the matters that, as a minimum, the auditor must
address.
The framework the auditor must use to identify the matters to communicate in the Auditor
Commentary should be consistent with the framework for identifying matters to communicate
with TCWG and therefore will likely require concurring amendments to ISA 260. As a starting
point for the framework we support the matters identified in paragraph 45 of the ITC which
include: areas of significant management judgment; significant unusual transactions; and matters
of audit significance including areas of significant auditor judgment in conducting the audit.
5. Do the illustrative examples of Auditor Commentary have the informational or decision-

making value users seek? Why or why not? If not, what aspects are not valuable, or what is
missing? Specifically what are your views about including a description of audit procedures
and related results in Auditor Commentary? (See paragraphs 58-61.)
We believe that the illustrative example of Auditor Commentary in the ITC does not provide the
informational and decision-making value that Users seek, although this is difficult to evaluate fully
without knowing the content of the financial statement notes to which many of the matters are
cross referenced. If the Auditor Commentary is to add value to the auditor’s report it must
provide more than a cross reference to a note in the financial statements.
October 12, 2012
Page 8
We believe a discussion of why an auditor considered a matter important, an overview of the

audit procedures performed, and the results of those procedures would provide relevant
context to the matter. In addition to addressing the information gap, this may help Users better
understand the audit, which might address Users’ expectation gap.
6. What are the implications for the financial reporting process of including Auditor
Commentary in the auditor’s report, including implications for the roles of management and
those charged with governance (TCWG), the timing of financial statements, and costs? (See
paragraphs 38 and 62-64.)
We recognize that any additional disclosure on the part of the auditor will result in more time and
therefore costs for the auditor, management and TCWG due to the need to develop, consider and
discuss the content of the Auditor Commentary as well as the need to subject it to quality control
procedures. However, given the informational value of the disclosure and the fact that it should be
reflective of work already performed by the auditor, we do not see these costs as prohibitive and
believe the related benefits to Users of a meaningful Auditor Commentary outweigh or exceed the
related costs.
7. Do you agree that providing Auditor Commentary for certain audits (e.g. audits of
public interest entities (PIEs)), and leaving its inclusion to the discretion of the auditor for
other audits? Why or why not? If not, what other criteria might be used for determining the
audits for which Auditor Commentary should be provided? (See paragraphs 51-56.)
CPAB’s mandate relates to listed entities in Canada and so our comments are intended to apply
solely to listed entities.
Going Concern / Other Information
8. What are your views on the value and impediments of the suggested auditor statements
relating to going concern, which addresses the appropriateness of management’s use of the
going concern assumption and whether material uncertainties have been identified? Do you
believe these statements provide useful information and are appropriate? Why or why not?
(See paragraphs 24-34.)
We are concerned that the proposed auditor statements regarding both the appropriateness of
management’s use of the going concern assumption and whether material uncertainties related to
events or conditions that may cast significant doubt on the entity’s ability to continue as a
going concern have been identified will increase, rather than decrease, the
October 12, 2012
Page 9
Users’ expectation gap. While we understand why the recent global financial crisis has resulted in
greater focus on the assessment of going concern and related disclosures we do not believe
statements by the auditor based on the work effort of ISA 570 will meet the needs of Users in
that context.
The long standing issue with going concern is whether the disclosure of certain matters becomes a
self-fulfilling prophecy - a risk that may be significantly higher for particular entities such as
financial institutions. To address the lessons of the global financial crisis there may need to be
different solutions for Systemically Important Financial Institutions (“SIFI”) versus other
commercial entities. Given the significance of SIFIs to the broader economy, CPAB would
encourage consideration of alternative approaches, such as improved communication between
auditors and prudential regulators, as a more effective method of achieving the desired objective.
9. What are your views on the value and impediments of including additional information in
the auditor’s report about the auditor’s judgments and processes to support the auditor’s
statement that no material uncertainties have been identified?
As noted in our response to question 8 above, we have concerns with the proposed auditor
statements regarding going concern which would extend to the inclusion of additional information
about the auditor’s judgments and processes.
10. What are your views on the value and impediments of the suggested auditor
statement in relation to other information? (see paragraphs 65-71.)
While we support the identification of the specific other information the auditor has read and the
statement as to whether any material inconsistencies between this information and the audited
financial statements have been identified, we share the concern that an explicit statement
may potentially lead to the misinterpretation by Users that the other information has been
audited. The inclusion of the disclaimer that the auditor has not audited the other information may
reduce the risk of a misunderstanding or it may simply create confusion with respect to the
auditor’s work effort relative to the other information. Further research into the perceptions of
Users would be helpful.
We note that currently the IAASB has a project to revise ISA 720, The Auditor’s Responsibilities
Relating to Other Information in Documents Containing Audited Financial Statements. It is our
understanding that the project is proposing an expansion of the work effort required by the auditor
on the other information but not to the extent that the auditor would be providing assurance. Input
received from that project, including the
October 12, 2012
Page 10
proposed reporting requirements, should be considered before a final decision is made regarding
whether or not to include a statement in the auditor’s report regarding other information.
11. Do you believe the enhanced descriptions of the responsibilities of management,

TCWG, and the auditor in the illustrative auditor’s report are helpful to user’s
understanding of the nature and scope of an audit? Why or why not? Do you have
suggestions for other improvements to the description of the auditor’s responsibilities? (See
paragraphs 81-86.)
We believe the enhanced descriptions of the responsibilities of management, TCWG, and the
auditor are helpful.
12. What are your views on the value and impediments of disclosing the name of the
engagement partner? (See paragraphs 72-73.)
We understand the basis for the proposals to require disclosure of the name of the engagement
partner in the audit report. However, we would encourage a more holistic approach to better
understand the root causes of lapses in audit quality in developing solutions to improve
accountability for the audit. Greater focus needs to be given to the organizational structure of audit
firms and how this can be improved to build greater quality into the execution of the audit.
Consideration needs to be given to how accountability can be strengthened for audit firms at the
engagement level, office level and national level. A more holistic approach should also consider
the role of the audit committee and explore ways in which audit committees can more effectively
oversee and evaluate the quality of the audit.
13. What are your views on the value and impediments of the suggested disclosure
regarding the involvement of other auditors? Do you believe that such a disclosure should be
included in all relevant circumstances, or left to the auditor’s judgment as part of Auditor
Commentary? (See paragraphs 77-80.)
We believe that disclosure of the involvement of other auditors in the audit would provide
Users greater transparency with respect to who, other than the group auditor, was involved in the
audit and the extent of that involvement. In its own inspections, CPAB has identified issues
with both the extent the group auditor has used the work performed by component auditors and the
extent of involvement of the group auditor in the work of
October 12, 2012
Page 11
the component auditor. This is particularly important when these other participants are not
registered firms or when there are legal or other regulatory barriers to them being inspected by
an audit regulator. Without impacting the group auditor’s sole responsibility for the audit,
disclosure of the other participants would enable Users to determine the extent of use of
component auditors by the group auditor and the degree of oversight the participants are subject
to, including publicly available disciplinary history.
14. What are your views on explicitly allowing the standardized material describing the
auditor’s responsibilities to be relocated to a website of the appropriate authority, or to an
appendix to the auditor’s report? (See paragraphs 83-84.)
We believe that the standardized material describing the auditor’s responsibilities should be
retained within the auditor’s report to ensure completeness and accessibility regardless of the
technology available to the user. However to improve the readability of the audit report and to
emphasize entity specific information it would be acceptable to move this standardized material to
an appendix to the auditor’s report.
15. What are your views on whether the IAASB’s suggested structure of the illustrative
report, including placement of the auditor’s opinion and the Auditor Commentary section
towards the beginning of the report, gives appropriate emphasis to matters of most
importance to users? (See paragraphs 17-20.)
We support the need to improve the format and structure of the existing standard audit report and
to do so in a manner that enhances consistency of reporting at the global level. We, therefore,
agree with the IAASB that there is merit in mandating the ordering of the elements within the
auditors’ reports across jurisdictions, unless otherwise required by law or regulation. We also
believe that the changes to the format and structure proposed should be applied consistently across
all listed entities as the reporting for smaller entities will generally be less complex.
In structuring the format of the audit report the informational value of the content should be a
significant consideration in determining the ordering with entity specific matters being presented
first. Given the value of the “pass/fail” nature of the audit opinion we support increasing its
prominence by moving it to the beginning of the report.
October 12, 2012
Page 12
16. What are your views regarding the need for global consistency in auditors’ reports
when ISAs, or national auditing standards that incorporate or are otherwise based on ISAs,
are used? (See paragraphs 21-23 and 87-90.)
It is important for bodies such as the IAASB, European Commission and the United States
Public Company Accounting Oversight Board to work together to devise one global solution
to the perceived deficiencies in auditor reporting. Since many audit reports are read globally;
a more coordinated approach will improve consistency and mitigate investor confusion. Greater
divergence in auditor reporting is not in the public interest. See also response to Question 15.
17. What are your views as to whether the IAASB should mandate the ordering of items in a
manner similar to that shown in the illustrative report, unless law or regulation require
otherwise? Would this provide sufficient flexibility to accommodate national reporting
requirements or practices? (See paragraph 17 and Appendix 4.)
See response to Question 15.
18. In your view, are the IAASB’s suggested improvements appropriate for entities of all
sizes and in both the public and private sectors? What considerations specific to audits of
small- medium –sized entities (SMEs) and public sector entities should the IAASB further
take into account in approaching its standard-setting proposals? (See paragraphs 91-95.)
Changes to the reporting model should be applied consistently across all listed entities. For
SMEs the issues, and therefore the reporting, should generally be less complex. However, the
challenges and costs will vary given differences in corporate governance structure and types of
Users for SMEs.
October 19, 2012
Mr. Eric Turner, CA

Project Manager, Auditor Reporting Working Group
Toronto, ON
M5V 3H2
Dear Mr. Turner:
We welcome the opportunity on behalf of PricewaterhouseCoopers LLP (PwC) Canada to comment on the
discussion paper issued by the Auditor Reporting Working Group (ARWG), a collaborative initiative of the
Canadian Institute of Chartered Accountants and The Canadian Public Accountability Board. We believe
that the time is right to enhance auditor reporting, with the emphasis on effective communication to make
the auditor’s report more informative and relevant, and we are keen to be closely involved in the
discussion and debate.
On October 11, 2012, the PwC network responded to the Invitation to Comment - Improving the Auditor’s
Report issued by the International Auditing and Assurance Standards Board (IAASB). A copy of this
response is appended to this letter. In our response, we considered the following five overarching
principles for effective auditor reporting that we found to be useful guideposts to identifying constructive
changes and avoiding changes that inadvertently do harm. We believe that they are relevant and they have
informed our thinking in developing our views on the various proposals in the Invitation to Comment.
1. Changes made to auditor reporting should:

 Maintain or improve audit quality;
 Enhance the value of audit to users; and
 Increase the reliability of information the entity provides in public reports.
2. Changes should maintain or enhance the effectiveness of the relationships and interactions of
auditors, those charged with governance (e.g., audit committees) and management in the financial
reporting process.
3. Auditor reporting should be sufficiently similar to facilitate users’ comparison of the underlying
economic reality / state of affairs of different entities.
4. Auditor reporting can provide greater insight based on the audit but the auditor should not be the
original source of factual data or information about the entity.
5. In the short term, the adoption of different approaches that achieve the objectives of additional
reporting may be necessary.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member
firm of which is a separate legal entity.
Mr. Eric Turner, CA
October 19, 2012
In reviewing the ARWG’s discussion paper, we believe that the ARWG followed similar guideposts in its
analysis of the proposals contained in the Invitation to Comment and their relevance to Canadian
stakeholders. As a result, the PwC views expressed in our response to the IAASB are generally consistent
with the views expressed by the ARWG in its discussion paper. To aid in review of our comments, we have
included the table below that compares our views to those of the ARWG.
ARWG’s view PwC’s view

Auditor commentary  Supportive of including auditor  Supportive of including a new
commentary in the auditor’s section on significant
report. judgments included in the
 Proposals must ensure that financial statements; however,
auditors have the flexibility to the current descriptions are
use judgment; however, too broad.
guidance must be provided to  Do not believe that matters of a
promote consistency and purely audit focus should be
understandability. included in the new section as
 Subjective views of the auditor they cannot be concisely
should be avoided. described in the auditor’s
report in a meaningful way.
 The auditor should not be the
source of original information
about the entity and should not
provide independent views on
particular positions or
decisions taken by
management.
Going concern  Not supportive of proposals to  Supportive of a conclusion on
provide an auditor’s conclusion going concern, but only in a
on going concern. manner which complements
reporting by management.
Currently, in most situations
under IFRS, management is
not required to provide
disclosure of its going concern
assumptions and conclusion.
 Furthermore, we believe that
the auditor’s statement
regarding going concern
should be part of the new
section on significant
judgments.
2
Mr. Eric Turner, CA
October 19, 2012
ARWG’s view PwC’s view

Other information  Supportive of a proposal to  We concur with the ARWG
include a description in the position, as well as with the
auditor’s report of the auditor’s comment that there will need
responsibility for other to be flexibility to allow for
information in documents localized reporting
containing audited financial requirements.
statements along with the  However, our dialogue with
auditor’s conclusion. investors has shown that there
is a need to go even further,
specifically, with information
that can “move markets,” so we
encouraged the IAASB not to
lose sight of exploring what
more auditors can provide, as
corporate reporting
frameworks evolve, to meet the
needs of users.
Clarification and transparency of  Supportive of proposals that  Our views are consistent with
the audit process clarify the responsibilities of those of the ARWG.
the auditor, management and
the audit committee with new
language that is included in the
auditor’s report.
 Supportive of the proposals to
change the layout of the
auditor’s report.
 Not supportive of disclosing
the names of other auditors
participating in the audit.
 No consensus on disclosure of
the engagement partner’s
name in the auditor’s report.
The ARWG has highlighted considerations relating to Canadian specific participants in its discussion
paper. We believe that the application of these proposals in the Canadian environment should be carefully
considered. Applying these proposals beyond listed entities may result in a cost burden that outweighs the
potential benefit, primarily, as it relates to the auditor commentary proposals. As a result, we believe that
applying the auditor commentary requirements to listed entities only would achieve the desired objectives.
While there may also be a level of impracticability as it relates to Canada’s large number of small listed
entities, we are concerned with proposals that would make auditor commentary optional. There may be
unintended consequences, such as perhaps implying to readers that an audit report without additional
commentary is inferior or of lesser value to a report on a similar entity that has additional commentary.
Furthermore, when considering the applicability of these proposals to other publicly accountable
enterprises there should be cost/benefit considerations as well as a consideration of the involvement of
3
Mr. Eric Turner, CA
October 19, 2012
regulators of those enterprises, such as the Office of the Superintendent of Financial Institutions. The
regulators may be able to engage in direct dialogue with the auditors and obtain information about the
audit through regulatory requirements, such that the benefits of additional auditor reporting might be
achieved through direct communication.
We concur with the position of the ARWG that the proposals relating to other information and
clarification and transparency of the audit process should be required for all entities.
We appreciate the opportunity to engage in this dialogue with you and other stakeholders and would be
pleased to further discuss our views, including those expressed by the PwC network of firms in the
enclosed letter. If you have any questions regarding this letter, please contact Alaina Tennison at
416 814 5784 or alaina.j.tennison@ca.pwc.com.
Sincerely,
Bill McFarland Serge Gattesco

Chief Executive Officer National Audit and Assurance Leader
4
For the attention of Prof Arnold Schilder
Chairman
International Auditing and Assurance Standards Board (IAASB)
529 Fifth Avenue, 6th Floor
New York, New York, 10017
USA
[Submitted via IAASB website]
11 October 2012
Dear Prof Schilder
IAASB Invitation to Comment: Improving the Auditor’s Report
We1 welcome the opportunity to comment on this consultation on the IAASB’s proposals to make the
auditor’s report more informative and relevan
relevantt to users. The responses to the IAASB’s 2011 consultation
showed the need to revisit the current auditor reporting model. We support this aim and applaud the
IAASB for making changes to the auditor’s report its top priority and consulting early in the standard-
sta
setting process on the direction for the future auditor’s report. There are, however, many aspects of
reporting that will need to be considered as stakeholders’ needs and the broader corporate reporting
framework evolve, including more frequent repor
reporting
ting and reporting on other aspects of entities’
performance. We want to be part of that dialogue.
Making changes as significant as those being proposed is challenging and requires all of us to engage, to
listen to alternative perspectives, and to have th
thee courage and confidence to be bold. At the same time, it
would be naive to believe that changes of the nature being proposed will not have consequences. In
determining the way forward, we must all be cognisant of the possible implications when weighing the th
proposed changes – both direct and indirect, intended and unintended. While this consultation may seem
to be only debating the words that might go into the auditor’s report, words drive behaviours. And it is the
impact on behaviours that ultimately matte
matters
rs most. We also need to reflect on how the proposed changes
fit into and support broader corporate reporting reform, because the ultimate aim is having the public
trust in the corporate reporting information system necessary to support healthy, successful and growing
1 This response is being filed on behalf of the network of member firms of PricewaterhouseCoopers International Limited and
references to “PwC”, “we” and “our” refer to the PwC network of member firms.
2 See Assurance Today and Tomorrow
Tomorrow,, a global survey of 104 investors in 14 capital markets at
http://www.pwc.com/gx/en/audit
http://www.pwc.com/gx/en/audit-services/publications/investors-views-survey.jhtml
vey.jhtml
_____________________________________________________________________________
PricewaterhouseCoopers International Limited

1 Embankment Place
London WC2N 6RH
T: 011 [44] (20) 7583 5000, F: 011 [44] (20) 7822 4652
PricewaterhouseCoopers International Limited is registered in England number 3590073.

Registered Office: 1 Embankmentt Place, London WC2N 6RH.
economies. While the positions expressed in this letter reflect our current views on the proposals following
vigorous debate within our own network, we look forward to hearing the views of other stakeholders in
this important process of design
designing
ing an auditor reporting model that will meet the needs of society in the
future.
Overview of our key messages

We continue to believe the time is right to enhance auditor reporting. In designing the auditor report’s for
the future, we believe:
 The overriding aim should be effective communication
communication—making
making the auditor’s report more
informative by adding insight through emphasis, and clarification without excessive detail and
jargon.
 The reporting model should be enhanced by:
o Highlighting significant fin
financial
ancial reporting judgements made by management in preparing
the entity’s financial statements that, in the auditor’s judgement, users should consider as
part of their understanding of the financial statements taken as a whole, including disclosures
relevantt to management’s assessment of going concern.
o Making explicit the auditor’s responsibilities for reading the other information in the annual
report (or equivalent) and whether the auditor is aware of any unresolved material
inconsistencies with the audite
audited financial statements.
o Better explaining the respective responsibilities of auditors, management and those charged
with governance, while at the same time making it easier to find audit-
audit and entity-specific
information by restructuring the report.
 The IAASB
SB should continue to give this project its top priority, progressing it through to
completion as quickly as practicable, whilst being cognizant that the ultimate goal is broader
reform of the corporate reporting model.
Positioning the proposed change in b

broader context
We recognise that the IAASB faces particular challenges in trying to design a common global auditor
reporting model for the future because the starting points differ around the world. Jurisdictions have
different legal and regulatory structu
structures
res and are at different stages in the development of their capital
markets, corporate reporting and corporate governance regimes. Solutions that are workable in one
context may not always transfer well. For that reason, appetites for change, the preferred solutions, and
even perceived impediments to making certain changes, are likely to differ. In developing our positions in
this response, we did so in the context of the following underlying assumptions:
 A robust and well-established

established corporate governance e environment
nvironment exists.
exists It is clear
that even in well-established
established capital markets there is both a need and opportunity to further
develop the role of audit committees. A recent survey we conducted of 104 investment
professionals in 11 major capital markets2, showed
owed that many do not fully understand what audit
2 See Assurance Today and Tomorrow

Tomorrow,, a global survey of 104 investors in 14 capital markets at
http://www.pwc.com/gx/en/audit
http://www.pwc.com/gx/en/audit-services/publications/investors-views-survey.jhtml
vey.jhtml
2 of 24
committees do and how they do it. Yet, the audit committee’s knowledge and insight into the audit
and its oversight of companies’ financial reporting and internal control systems should be
underpinning investor
stor confidence
confidence—representing
representing the interests of investors and serving as an
effective interface between investors and auditors. For these reasons, we strongly support the
initiatives underway in the US, UK, European Union and globally to explore how transparency
transpar
about the audit committee and its oversight of the audit can be enhanced.
 Application of IFRS in the preparation of the financial statements.

statements This is particularly
true with respect to going concern as, even though there is room for improvement in the th
disclosure requirements regarding going concern under IFRS, financial reporting aspects of going
concern are not even addressed explicitly in some other financial reporting framework. In
addition, in our view, some of the insights that investors and othe
otherr stakeholders are seeking would
be best met through complementary changes in both the auditor’s report and entities’ own
corporate reporting. For example, we argue that the preferred solutions regarding going concern
are contingent on changes being made iin n the corporate reporting system at the same time.
 There are appropriate legal framework protections protections,, such as safe harbour provisions or
other liability protections, for participants in the corporate reporting system. There is a risk even
mentioning legal liability will be perceived to be self
self-serving.
serving. However, it would be naive for
anyone to ignore the reality is that some of the proposals will be very difficult to implement as
intended in some jurisdictions because of the lack of appropriate legal framework
framewo protections,
particularly when auditors are being asked to provide transparency into only a snapshot of the
judgements made in the financial reporting process and audit. The proposals may serve to shift
the very foundations on which legal precedents hav havee been based and concerns about the
repercussions are not unmerited.
Clearly, the IAASB cannot address on its own all of these matters, as many are well beyond its remit. It is,
however, important that the IAASB and other standard setters and regulators d doo not lose sight of the
importance of the need for solutions that work together holistically to meet the needs of market-based
market
systems and society as a whole in the future. The IAASB’s Invitation to Comment is an important
contribution to determining the rreforms
eforms necessary. The IAASB can, and should, play a leading role in
promoting the necessary dialogue and collaboration needed to ensure that solutions it is considering are
not designed in isolation, as that risks those solutions being suboptimal to the ca
capital
pital market system as a
whole.
Our overarching principles for effective auditor reporting

In developing our vision for auditor reporting in response to the IAASB’s and PCAOB’s 2011 auditor
reporting consultations, we evaluated various options against the principles summarised below. We found
that these principles were useful guideposts to identifying constructive changes and avoiding changes that
inadvertently do harm. We continue to believe they are relevant and they have informed our thinking in
developing
loping our views on the various proposals in the Invitation to Comment. Further explanation of these
principles can be found in Annexe 1 of our appendix to this letter.
1. Changes made to auditor reporting should:
o maintain or improve audit quality;
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o enhance the value of audit to users; and
o increase the reliability of information the entity provides in public reports.
2. Changes should maintain or enhance the effectiveness of the relationships and interactions of
auditors, those charged with governance ((e.g.,
e.g., audit committees) and management in the financial
reporting process.
3. Auditor reporting should be sufficiently similar to facilitate users’ comparison of the underlying
economic reality / state of affairs of different entities.
4. Auditor reporting can provide
rovide greater insight based on the audit but the auditor should not be the
original source of factual data or information about the entity.
5. In the short term, the adoption of different approaches that achieve the objectives of additional
reporting may be necessary.
Changes that will make the auditor’s report more informative and relevant
As a network, over the last year, we have had a chance to:
 Engage in further dialogue with the investor community to better understand what they value in
auditor reporting
ting and where and how they believe it could be improved.
 Explore wording used in the auditor’s report and consult with communication experts to better
inform our understanding of changes that are likely to be effective and those that are not.
Of particular
ular significance to us as auditors is that the debate on auditor reporting, while challenging us to
examine how the auditor’s report can continue to meet evolving capital market needs, has also reaffirmed
the fundamental importance of audit to capital mar markets.
kets. Our own dialogue with investment professionals
found that they derive a high level of value from the fact that an audit has been undertaken. Most,
however, had an appetite for the auditor’s report to provide more insight. At the same time, they
recognised
nised both practical difficulties and the risk of negative or unintended consequences. Like us, they
understand the tensions in making valuable enhancements to today’s auditor’s report without
inadvertently doing harm.
In our view, the following changes would be responsive to what investors and other users have told us they
would value in the auditor’s report. They are largely consistent with the proposals in the IAASB’s
Invitation to Comment, but some are refined. We aree keen to be closely involved as specific wording is
developed to implement the proposals in the auditing standards, as often that wording brings other
considerations to light.
 Auditor commentary
o We support the introduction of a new section within the audi
auditor’s
tor’s report for listed/public
companies that would provide insight by highlighting the significant financial reporting
judgements made by management in the preparation of the entity’s financial statements.
o In our view, however, the IAASB’s proposed object
objective and criteria for auditor commentary,
commentary
described within
in the ITC, are too broad. This could result in inconsistency in the matters
included in auditor’s reports in similar circumstances and information being included that we
believe could harm capital mar
markets
kets rather than appropriately inform users. As described below,
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however, we believe that the auditor’s report can be enhanced to provide information that would
be valuable to users.
o It is important, in our view, that the auditor not be the original source of factual data or
information about the entity and should not provide independent views on particular positions
or decisions taken by management. Doing so would blur respective responsibilities and
introduce unhelpful uncertainty. However, today’s audito
auditor’s
r’s report can be meaningfully
enhanced by highlighting the significant financial reporting judgements made by management in
preparing the entity’s financial statements that, in the auditor’s judgement, users should
consider as part of their understanding of the financial statements taken as a whole. Such
judgements would represent areas of audit focus.
o To provide insight to the significant financial reporting judgements identified, the auditor’s
report can, depending on the quality of management’s own disc disclosures,
losures, explain why they are
important by summarising key matters from management’s discussion of those matters in the
financial statements. It is important, however, that the description not be seen as a way to “fill in
gaps” in the entity’s own disclosu
disclosures,
res, as the role of the auditor should be one of attestation not
assertion. It is not appropriate for the auditor’s report to be used to usurp management’s
responsibility for the fair presentation of the financial statements, including full and fair
disclosure.
sure. The right response if management’s disclosures are inadequate is to ask management
to make the necessary amendments and, if they are not made, to modify the audit opinion.
o We do not believe that matters of a purely audit focus, in particular lists of audit procedures, can
be concisely described in the auditor’s report in a meaningful way. Any attempt to include such
information is likely to be either excessively detailed and technical if trying to provide a fulsome
picture, or overly simplistic and bo
boilerplate
ilerplate descriptions. For these reasons, we recommend
excluding such matters from the scope of auditor commentary. That said, we believe there are
more effective alternative ways of engaging with users about the audit process outside of an
entity-specificc audit context, such as communications that offer insight into significant matters
in particular industries. We have been engaging with investors in this way in some jurisdictions
and it has been very well received.
o Auditing standards will need to clearly define and provide guidance on the parameters for the
judgements that auditors will need to make in determining which of management’s significant
financial reporting judgements to highlight in this new section of the auditor’s report. For
example, the standard
andard should provide guidance on the factors the auditor would take into
account in selecting which matters to include. We provide some examples in our response to
question 4 in the ITC in the appendix to this letter. Also, given that, in today’s reporting
reporti model,
any emphasis of matter is perceived as being a “problem”, it might be useful, at least during
transition, to manage expectations by explaining that most auditor’s reports would include at
least one matter, but most would typically include 3 3-5. Both
th the standard and the auditor’s
report will also need to clarify that the auditor’s consideration of these matters in the audit is
solely in the context of the financial statements taken as a whole.
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 Going concern
o We support addressing the topic of goi
going
ng concern in the auditor’s report in a manner that
complements reporting by management.
o Rather than make explicit the conclusions the auditor needs to reach in ISA 570, we believe a
better model is for the auditor to draw attention to the disclosures manmanagement
agement has made
relevant to its evaluation of the entity’s ability to continue as a going concern and the outcome of
that evaluation.
o We acknowledge that this model is contingent on management having responsibility for making
appropriate disclosures in th
thee financial statements, including an explicit conclusion on the
outcome of management’s assessment regarding the entity’s ability to continue as a going
concern and their rationale. In this regard, we support the focus in a number of jurisdictions on
how corporate
orporate reporting could be enhanced in this area, such as the UK’s Sharman Inquiry
which issued its recommendations earlier this year, the Financial Stability Board’s initiatives in
relation to banks, and the US Financial Accounting Standard Board’s projects
proje on going concern
and risk disclosures.
o We recommend that, where management has responsibility for making such disclosure, the
auditor’s statements regarding the entity’s going concern disclosures should be an integral part
of the new section highlighti
highlighting
ng management’s significant financial reporting judgements to avoid
any inference that this consideration is distinct or separate from the auditor’s opinion on the
financial statements as a whole.
o The “three category” model3 should be retained as the underlying framework for the trigger
points warranting a difference in auditor reporting on going concern.
 Other information
o We support including in the auditor’s report a description of the auditor’s responsibilities to read
the other information in an entity’s annual report (or equivalent). Stakeholders may not
understand these responsibilities and may presume greater involvement by auditors than is the
case. It is important, therefore, that the description clarify both the nat
nature
ure and limitations of the
auditor’s procedures in order to reduce rather than exacerbate this misunderstanding,
particularly if also including a statement on the outcome of those responsibilities as is proposed
in the ITC.
o We support including an explicit statement as to whether, at the time of signing the auditor’s
report, the auditor is aware of any unresolved material inconsistencies between the other
information and the audited financi
financial statements. In doing so, certain practical issues will need
to be considered: for example, situations when the other information is not available at the time
the auditor’s report is signed or when the auditor’s report may be re
re-produced
produced in a separate
document containing additional or different ‘other information
information’.
3 Situations in which there is no material uncertainty regarding going concern; situations when there
are material uncertainties; and situations when use of the going concern basis is no longer
appropriate and the liquidation basis should be use
used.
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o Such statements will not, however, provide the assurance about the completeness, accuracy or
reliability of the other information that our dialogue with investors has shown is being sought by
some. They expressed an appetite for assurance on information th that
at “move markets”, such as
non-GAAP
GAAP and industry
industry-specific
specific metrics, and management/directors’ remuneration reports. We
therefore encourage the IAASB not to lose sight of the need to explore, as corporate reporting
models and frameworks for reporting by mana management in these areas evolve, whether auditors
should be asked to provide assurance on such matters in order to more fully meet users’
requests. These
hese propositions will require wider changes to the corporate reporting model and the
development of framework
frameworkss for reporting by management, including criteria or benchmarks, as
well as consideration of whether auditor reporting would be cost effective and meaningful.
o Developments in integrated reporting models also need to be monitored closely. Many view
integrated
ed reporting as a solution that can address more comprehensively a broader range of
information needs of users.
 Clarifications and transparency
o The auditor’s report is a form of communication and we support changes that are designed to
better communicate iinformation that is relevant and useful to users.
o We support including enhanced descriptions in the auditor’s report of the respective
responsibilities of management, those charged with governance and the auditor. We believe
more could be done to make this standard wording both easily understood and informative.
o We also support making a clearer distinction between entity
entity- and audit--specific information and
standard wording through more effective structuring and presentation of the report. However,
the descriptions
iptions of respective responsibilities and what an audit involves are important and,
therefore, we believe that they should be part of the auditor’s report itself.
o We do not support identifying the involvement of other auditors because it contradicts the
principles
rinciples underlying the group auditor’s responsibilities in ISA 600 but believe that it could be
useful to include a generic description of a group auditor’s responsibilities. We are also not
convinced that disclosure of the audit partner’s name increases either accountability or audit
quality. However, if users would like this transparency, we are not opposed to disclosing it, but
believe that such requirements are best addressed in national requirements, which can identify
the appropriate vehicles and ad
address legal implications.
o We believe that the core elements should be the same for all auditors’ reports; some limited
accommodation may be needed for national law or regulation. Although we do not support free- free
form tailoring by national standard setters, we believe flexibility should be provided if the
objectives of the IAASB’s auditor reporting may be met in part in a different way under a
national corporate governance and corporate reporting model.
Given the urgency some stakeholders believe is needed, we support the IAASB continuing to give this
project its top priority, as noted earlier. Some of these changes will be easier to implement in standards
and in practice, and others may require more time. That may influence the Board’s strategy on how best to t
move the project forward to meet those expectations.
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In conclusion, we continue to believe that the time is right to enhance auditor reporting. The responses
to the 2011 consultations helped to gain a better understanding of users’ needs and, in our view,
vie
responding to these needs is important. We believe that changes can be made that can genuinely enhance
the auditor’s report, but care is needed to avoid making changes that could inadvertently do harm. The
principles we set out on pages 3 3-4 are importantt in that regard, particularly the importance of the auditor
not being the original source of information about the entity.
We support a reporting model that will work across capital markets. We continue to urge the IAASB to
liaise with the European Com
Commission
mission and work in collaboration with the US Public Company Accounting
Oversight Board to develop solutions that work globally. As noted earlier, given that the starting points
vary across jurisdictions, some flexibility between jurisdictions may be neede
needed,
d, but unintentional and
unnecessary differences in approach should be avoided.
In closing, we reiterate the belief we stated in our 2011 response that responsive enhancements in auditor
reporting can be made in the shorter term and, as noted earlier, we urge the IAASB to progress this project
as quickly as practicable. Longer
Longer-term
term reform of the corporate reporting model will be needed, however, to
fully provide the information and insights that many are seeking. We, therefore, continue to emphasise the
importance
mportance of reform of the corporate governance and reporting model more holistically. The IAASB has a
role to play, and we continue to stand ready to work collaboratively with all interested parties to actively
drive the broader corporate reporting agenda forward. Setting out a long term vision and how the
proposed changes will fit into coordinated broader reforms would be useful to encourage debate on the
broader agenda.
We would be happy to discuss our views further with you. If you have any questions regarding
r this letter,
please contact Diana Hillier, at diana.hillier@uk.pwc.com, or myself, at richard.g.sexton@uk.pwc.com.
richard.g.sexton@uk.pwc.com
Yours faithfully,
Richard G. Sexton
Deputy Global Assurance Leader
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Appendix
Responses to specific questions asked in the Invitation to Comment
Overall Considerations
1. Overall, do you believe the IAASB’s suggested improvements sufficiently enhance the relevance and
informational value of the auditor’s report, in view of possible impediments (including costs)? Why or
why not?
2. Are there other alternatives to improve the auditor’s report, or auditor reporting more broadly, that
should be further considered by the
the IAASB, either alone or in coordination with others? Please explain
your answer.
 We believe that it is possible to genuinely enhance the auditor reporting model to make it more
informative and relevant, without usurping management’s responsibility for ththe fair presentation of
the financial statements or overwhelming users with detail about the conduct of the audit itself.
 In our covering letter, we identify the specific enhancements that we support for the auditor’s
report, including, in some areas, suggested
suggested alternatives that we believe may better meet users’
needs. We used the overarching principles, described in Annexe 1 to this appendix, when
considering the relative merits of the proposed options for change and the specific questions set out
in the ITC – in particular, in evaluating whether or not they would be constructive and would not
inadvertently do harm.
 There are many aspects of reporting that will need to be considered as stakeholders’ needs and the
broader corporate reporting framework evolve,
evolve, including more frequent reporting and reporting on
other aspects of entities’ performance. As we stated in our covering letter, we want to be part of that
dialogue.
Auditor commentary
3. Do you believe the concept of Auditor Commentary is an appropriate response to the call for auditors to
provide more information to users through the auditor’s report? Why or why not?
 We support the concept of including a section within the auditor’s report through which auditors
would highlight the significant
significant financial reporting judgements made by management in the
preparation of the entity’s financial statements that, in the auditor’s judgement, users should
consider as part of their understanding of the financial statements taken as a whole
whole. Such
 Users greatly value the auditor’s opinion on the financial statements,

atements, but as the responses to the
2011 IAASB and PCAOB consultations showed, many users would like auditors to provide them
with greater insight into the entity’s financial reporting. The challenge is to determine what
information can be added without inadvertently doing harm, such as usurping management’s
financial reporting role by using auditor commentary to fill in the gaps in the entity’s own fina
financial
reporting, or introducing subjective views or providing excessive detail that would confuse rather
than inform market participants.
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 In the survey we conducted that we referred to in our covering letter, which was based on in in-depth
interviews with 104 investment professionals from 11 capital markets, many were sceptical about
how the auditor’s report can be expanded in practice to really add value. Most indicated that they
would value additional insights from the auditor. At the same time, however, they recognised both
the practical difficulties and the risk of negative or unintended consequences. Like us, they
understand the tensions in making valuable enhancements to today’s auditor’s report without
inadvertently doing harm. They are concerned aboutabout potential unintended consequences of wellwell-
intended action, such as whether the dialogue and debate between the auditor and management or
the audit committee would become less frank if elements of it could be reported externally. They
also value quality over quantity and did not want disclosure for the sake of it, particularly if the
additional information were to simply become boilerplate over time. These are important pitfalls to
guard against as the IAASB creates the auditor’s report of the future.
 In
n today’s auditor reporting model, auditors are able to include an emphasis of matter paragraph in
the auditor’s report to draw user’s attention to matters presented or disclosed that are “of such
importance that they are deemed to be fundamental to a users’ users’ understanding of the financial
statements”4. However, with the exception of material uncertainties related to going concern, their
use is relatively limited in practice. The ISA itself discourages widespread use of them so that their
effectiveness in highlighting truly fundamental matters is not diminished.
di With the growing
complexity in financial reporting and the ever increasing need for management to exercise
significant judgement in financial reporting, we believe that there is an opportunity to use the
auditor’s report more effectively to highlight
highlight for users the significant financial reporting
judgements made by management in preparing its financial statements.
 In our survey, investment professionals indicated they were interested in information on areas
where there is a risk of material misstatement.
misstatement. We believe that focussing on the significant
judgements made by management in preparing the financial statements would be the most
meaningful way of responding to that need – such judgements would represent areas of audit focus.
 To provide insight
ht to the significant financial reporting judgements, the auditor’s report can,
depending on the quality of management’s own disclosures, explain why they are important by
summarising key matters from management’s discussion of those matters in the financi financial
statements. It is important, however, that the description not be seen as a way to “fill in gaps” in the
entity’s own disclosures, as the role of the auditor is attestation not assertion. It is not appropriate
for the auditor’s report to be a substitute for management taking responsibility for the fair
presentation of the financial statements, including full and fair disclosure. Doing so would breach
the fundamental principle that the auditor should not be an original source of factual data or
informationn about the entity. If the auditor believes that the financial statements are materially
misstated, the appropriate response is to modify the auditor’s opinion, not to correct the financial
statements by including factual data or information about the entity
entity in the new section of the
auditor’s report.
 It would also not serve the public interest to use auditor commentary to provide altern
alternative views
on the entity’s accounting treatments as this will result in either subjective or competing
information to that
at presented by the entity itself.
itsel It is important to avoid unintentionally disrupting
capital markets by introducing competing views of the true picture of the entity’s underlying
financial position and/or performance. As illustration of this point, respondents
ndents to our survey of
4 ISA 706, Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report
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the investment community said they are interested in the auditor’s view of the ‘aggressiveness’ of
the financial statements – for example, in terms of the accounting policies applied and the
judgements made by management. But at the same time, they questioned how feasible that would
be in the absence of a definition or benchmark for ‘aggressiveness’. Preparers and auditors work
with the same set of criteria (the financial reporting framework, e.g., IFRS) in evaluating whether
the financial
ancial statements are a fair presentation. The auditor must be satisfied that the financial
statements are fairly presented or else must modify the auditor’s opinion. The model is not geared
to being able to objectively judge “shades of grey” or a scale of the extent to which the financial
statements are fairly presented.
 In our view, the current Other Matter model in extant ISA 706 needs to be retained for factual
matters regarding the audit that are required to be disclosed in the ISAs today (e.g., identification
of a predecessor auditor). We do not believe that including such matters in the new section of the
auditor’s report is useful and, in fact, would detract from the objective of that section. The Other
Matter paragraphs concept works well for that sort of information.
 We encourage the IAASB to design its reporting model to facilitate

facilitate different approaches that may
be adopted by different jurisdictions that achieve the IAASB’s intended objective of this new section
of the auditor’s report. For example, we believe the model the United Kingdom is proposing –
where audit committees will ill report, in the entity’s annual report, on matters discussed with the
auditors, with the auditor then including a statement within the auditor’s report on whether the
audit committee’s report was a fair and balanced summary of those discussions – is a viable
alternative to the auditor highlighting those matters directly within the auditor’s report. This is one
example of where, as we describe in our covering letter, flexibility between jurisdictions may be
needed.
4. Do you agree that the matters to be addressed in Auditor Commentary should be left to the judgement
of the auditor, with guidance in the standards to inform the auditor’s judgement? Why or why not? If
not, what do you believe should be done to further facilitate the auditor’s decision
decision-making process in
selecting the matters to include in Auditor Commentary?
 Although supportive of a principles-based

principles approach, we believe the objective as drafted, and
illustrative matters to consider, are too broad. This is problematic. It could result in in
inconsistency
in the matters included in auditor’s reports
orts in similar circumstances and information being
included that we believe could harm capital markets rather than appropriately inform users.
However, we do believe that the auditor’s report can be enhanced
enhanced to provide information that
would be valuable to users, but more clearly articulated parameters are needed.
 To successfully implement the proposed new reporting model in a meaningfully way, we believe
auditing standards will need to define, and provide
provide guidance on, the parameters for the judgements
auditors will need to make in determining which of management’s significant financial reporting
judgements to highlight in the new section of the auditor’s report.
 Greater consistency would be achieved in in the first instance by clearly defining that the matters the
auditor would highlight are the significant financial reporting judgements made by management in
preparing the entity’s financial statements that, in the auditor’s judgement, users should consid
consider
as part of their understanding of the financial statements taken as a whole. As noted earlier, such
11 of 24
 Those significant financial reporting judgements would typically be in areas in which management
had to exercise significant judgement in determining an appropriate accounting treatment and/or
in dealing with significant measurement uncertainty. This could also include judgements made in
relation to the treatment and disclosure of significant or unusual transactions. Some judgements
may be grounded in industry specific matters, while others will be unique to individual companies.
In developing the standard, and providing guidance, we believe it would be helpful to reflect these
factors.
 As such matters are important to the fair presentation of the financial statements they should, as
required, be disclosed in the financial statements. By drawing users’ attention to those disclosures,
and, depending on the quality of management’s own disclosures, explaining
explaining why they are important
by summarising key aspects of management’s disclosure of those matters in the financial
statements, auditors would be providing the type of insight that users are seeking.
 We also believe that, particularly in managing transition to a new reporting model, it would be
useful for the IAASB to provide guidance that would manage expectations around the extent of
matters to be disclosed. Investors and other users will need a period
period of adjustment to learn how to
interpret the additional information being provided – since in the past any such matters
(highlighted as emphases of matter in the auditor’s report) might have been indicative of a problem
in the financial statements. Therefore,
Therefore, helping them to understand what to expect will be
important. For example, in addition to our views expressed in our response to question 8 on going
concern that we believe would be one of the matters to be highlighted, it might be helpful to explain
that there should ordinarily be at least one other matter that would be highlighted to avoid
confusion around how to interpret a report with no matters identified (if the auditor had deemed
there to be no matters to highlight or had simply not complied). Because
Because the focus would be on
significant financial reporting judgements, we believe that the matters identified might typically be
in the range of 3 to 5. Providing this sort of guidance indicating what might represent a reasonable
expectation will help auditors in exercising judgement on which matters to include, and help
prevent misinterpretation that could arise if there were differences in the number of matters
included simply because of different auditors making different judgements about what to include in
similar circumstances.
 As explained
ed in our response to question 8, when financial reporting frameworks have been
enhanced to require disclosures relevant to going concern, we envisage that one of the matters that
would be included as an integral part of the new section of the auditor’s report
report would be the
significant financial reporting judgements disclosed in the financial statements relevant to the
entity’s ability to continue as a going concern. As this is a fundamental judgement underlying the
appropriate basis of preparation of the financial
financial statements, we believe that the auditor’s
highlighting of going concern disclosures would be best positioned together with the identification
of other significant financial reporting judgements, as opposed to a distinct section of the report.
 As a general principle, we believe that the focus should be on disclosures in the financial
statements. We recognise that contextual information relevant to significant financial reporting
judgements may be included in management or directors’ commentary elsew elsewhere in an entity’s
annual reporting. However, in most jurisdictions today, the audit is restricted to opining on the
financial statements and related disclosures.
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5. Do the illustrative examples of Auditor Commentary have the informational or dec
decision-making value
users seek? Why or why not? If not, what aspects are not valuable, or what is missing? Specifically,
what are your views about including a description of audit procedures and related results in Auditor
Commentary?
 We describe in our response

ponse to question 3 what we believe represents the appropriate nature and
extent of matters to be included in the new section of the auditor’s report and why we believe that
would provide the type of useful information users seek. We also describe what asp
aspects of the
IAASB’s proposals for auditor commentary would not be appropriate or valuable.
 We do not believe that matters of a purely audit focus, in particular lists of audit procedures, can be
concisely described in the auditor’s report in a meaningful
meaningfu way. Any attempt to include such
information is likely to become either excessively detailed and technical, if trying to provide a
fulsome picture, or overly simplistic and boilerplate descriptions. In particular, identifying only
certain procedures, in the absence of sufficient context regarding the audit approach and
methodology, could diminish users’ perception of the auditor’s work effort, which may increase the
expectations gap. That, coupled with the potential for lack of comparability of matters hi highlighted
across entities, could exacerbate, rather than reduce, perceived misconceptions of audits. Some
argue if something is communicated to audit committees, it should be included in the auditor's
report. However, reports to audit committees are just oneo ne part of the dialogue between auditors and
audit committees that provides necessary context regarding the audit and the work of the auditor.
There is a danger that in trying to distil the complexity of this dialogue, its meaning would be lost.
There is also
lso a considerable risk that the descriptions could easily become either too technical or
boilerplate descriptions of “standard” procedures. In this regard, it is useful to reflect on the
experience in France regarding the “justification of assessments”. In In a survey of users of reports in
France, users commented that such disclosures have become excessively standardised, reiterating
procedures performed without sufficient context and using language that is not easily understood.
Feedback from investment professionals
professionals in France to our recent survey indicated that they found
that the discussion of audit procedures provides, in their view, only limited additional value.
 That said, we believe there are more effective alternative ways of engaging with users abou
about the
audit process outside of an entity-specific
entity specific audit context, such as communications that offer insight
into significant matters in particular industries. We have been engaging with investors in this way
in some jurisdictions and it has been very well received.
r
 As we note in our response to question 4, for the enhanced model of auditor reporting to provide
information users seek, it will be critical that the objective and nature of the new section of the
auditor’s report is well explained to users in advance
advance of, and during the period of transition to, the
implementation of the revised auditor’s report format so that such reporting is not perceived in a
similar light to the existing emphasis of matter reporting model, which can often be interpreted by
users
rs as representing some form of ‘qualification’ of the auditor’s opinion on the financial
statements.. One of the fundamental goals of enhanced auditor reporting is to close aspects of the
expectations gap and education of users about the changes made is a vital part of that process.
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6. What are the implications for the financial reporting process of including Auditor Commentary in the
auditor’s report, including implications for the roles of management and those charged with
governance, the timing of the financial statements, and costs?
 As we explain in our overall principles and in our response to question 3 above, the auditor should
not be the originator of factual data or information about the entity. To do so would blur the
responsibilities of auditors
ditors and management.
 In addition, the audit model depends on effective communication among the players. Scepticism
and challenge are key elements of an audit. Audit effectiveness also depends on the ability of the
auditor to have effective communication
communication with, and obtain information from, management and
those charged with governance. Care needs to be taken, therefore, that the proposals regarding the
nature and extent of matters that would be highlighted in the new section of the auditor’s report
would notot inadvertently negatively affect the openness of that dialogue. If it did, it could have a
negative effect on audit quality because, for example, it could impede the auditor's ability to obtain
sufficient appropriate evidence.
evidence As we note in our response to question 3, a number of respondents
to our survey of the investment community were concerned about the dialogue and debate between
the auditor and management or the audit committee becoming less frank if elements of that
dialogue could end up being reported
repo externally.
 As we have previously noted, respondents to our survey also acknowledged difficulty in asking
auditors to provide meaningful insight into the ‘aggressiveness’ of a company’s accounting policies
and estimates in the absence of a definition or benchmark for ‘aggressiveness’ – a view we share.
 During the period of transition, we anticipate that there will inevitably be dialogue between
auditors and management and those charged with governance, including robust discussions around
the proposed content, as all parties adjust to the new reporting regime. However, we view this
dialogue positively and we do not foresee any significant implications for the roles of management
and those charged with governance as long as the auditor does not become tthe originator of
information about the entity.
 Similarly, it is likely that incremental time and costs will be incurred, as a result of the additional
dialogue with the client, and also internally within audit firms through the need for additional
qualityy control mechanisms. This may provide pressure on already restrictive reporting timetables
for listed entities, although in the longer term, consideration of auditor reporting would become
part of the normal planning processes that take place in an audit and built into existing timetables
to which clients currently report. However, in moving forward with the revised model, all
stakeholders should be aware that there are likely to be implications for both timing and costs.
7. Do you agree that providing Auditor

uditor Commentary for certain audits (e.g., audits of public interest
entities (PIEs)), and leaving its inclusion to the discretion of the auditor for other audits is appropriate?
Why or why not? If not, what other criteria might be used to determining the audits for which Auditor
Commentary should be provided?
 Calls for change are coming predominantly from shareholders and investors of listed/public
companies. We believe it is appropriate to target the new section of the auditor’s report at this
sector.
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 Given their unique characteristics of ownership and governance, we do not believe that the
proposed new section of the auditor’s report would have relevance for non-public
non public and small to
medium-sized
sized entities (SMEs). The relative cost/benefit justifies a differential
differential reporting model for
that sector.
 We do not support allowing this new section of the auditor’s report to be optional for auditors of
SMEs. Doing so may give rise to unintended consequences, for example, audits for which the
auditor elected not to include this new section being perceived as ‘lowerr quality’. Instead, for such
entities, retention of the Emphasis of Matter paragraph model might remain preferable.
 As we note in our response to question 5, education of users about the intended nature and purpose
of the new auditor reporting model will
will be an important aspect of the IAASB’s role, particularly if
adopting a differential reporting model for different types of entities.
 If IAASB is proposing to extend the new section of the auditor’s report to PIEs, we would advocate
further consideration
n of the definition of public interest entity and the relative merits in providing
exemptions for wholly-owned
owned subsidiaries of public interest entities, although recognising, as the
IAASB does, that the definition of public interest may need to be a jurisdictional
jurisdictional matter.
Going Concern/Other Information
8. What are your views on the value and impediments of the suggested auditor statements related to going
concern, which address the appropriateness of management’s use of the going concern assumption and
whether
hether material uncertainties have been identified? Do you believe these statements provide useful
information and are appropriate? Why or why not?
 We support the objective of providing users of financial statements with enhanced information on
the key judgements
dgements and considerations around going concern.
 We believe the information on going concern in financial reports could be improved, primarily
though enhanced management reporting, though as we explain further below the current
patchwork of requirements around the world may preclude ‘quick fix’ solutions that can be applied
globally. In any event, we do not believe that a ‘step-change’
‘step change’ in the quality of information on going
concern provided to users could be achieved solely through amending the auditor’s report. To the
extent there is an ‘expectations gap’
gap’ with respect to going concern, it will not simply be closed
though the proposals in this ITC. In this regard, we support the focus in a number of jurisdictions
on how corporate reporting could be enhanced in this area, such as the UK’s Sharman Inquiry
which
ich issued its recommendations earlier this year, the Financial Stability Board’s initiatives in
relation to banks, and the US Financial Accounting Standard Board’s projects on going concern and
risk disclosures.
 While the entity’s ability to continue as a going concern is a fundamental assumption underlying
the decision to use the going concern basis of preparation in many financial reporting frameworks,
including IFRS, most financial reporting frameworks do not require
require explicit disclosure by
management regarding their conclusion and their rationale in reaching that conclusion. We do not
believe that auditors should be required to conclude independently of management as to whether
an entity is a going concern – a principle
rinciple that already underlies the focus in ISA 570 on the auditor
evaluating management’s assessment of the entity’s ability to continue as a going concern.
Similarly, while we are open to the concept of addressing the matter of going concern in the
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auditor’s
tor’s report, we believe this should complement reporting by management. Consistent with our
principle that auditors should not be the source of original information about the audited entity, we
believe that the focus should be on enhanced reporting and disclosure
di by management of the key
judgements and considerations around going concern.
 The need to focus, in the first instance, on improved disclosures in the financial statements is borne
out in the feedback we received in our survey of investment professionals.
professionals. Respondents were
relatively content with the information available to them from auditors regarding going concern
(i.e., drawing attention to material uncertainties), but they did see room for improvement in
company disclosures around, for example,
exampl covenant information.
 In our view, users’ understanding of an entity’s ability to continue as a going concern will be
enhanced if management includes a clear explanation as to why they concluded that it is
appropriate to prepare the financial statements
statements on a going concern basis. For example, this could
be linked to enhanced disclosures by management on the company’s business model, its financing,
and liquidity and solvency risks. Recommendations along these lines were made in the report of the
UK Sharman n Panel of Inquiry on Going Concern.
 Such disclosures could usefully make clear that the assessment made by management is in the
context of supporting the fair presentation (or true and fair view) of the financial statements and
that future events cannot
not be predicted with certainty. It is not intended to be, and should not be
viewed as, a self-standing
standing guarantee as to the entity’s future viability. Nor, are auditors able to give,
or be seen as giving, a guarantee of the future viability of the entity.
 Hence, rather than making explicit in the auditor’s report the conclusions the auditor needs to
reach in ISA 570, as proposed in the ITC, we support the model of the auditor drawing user’s
attention to those parts of management's disclosures that are relevant
relevant to their assessment and the
basis on which the accounts are prepared.
 We believe that the reference to going concern by the auditor should be included within the new
section of the auditor’s report highlighting significant financial reporting judgements,
judgements, rather than a
separate section on its own – recognising that it is one of the key judgements made in the context of
the fair presentation of the financial statements as a whole. Providing a separate and distinct
conclusion on going concern, in our
our view, risks confusion with, or detraction from, the auditor’s
overall opinion on the fair presentation of the financial statements – of which the going concern
assumption is an integral part.
 Further, we consider that the discussion of going concern in the auditor’s report should be
complete, that is, it should include a description of the concept and management’s responsibilities,
to provide necessary context, together with an explanation that it is not possible to provide a
guarantee as to future viability.
viability. Describing these elements separately from where the auditor
highlights the entity’s going concern disclosures would make the report, in our view, more
disjointed and difficult for users to read. Importantly, if readers do not make the connection
between
tween the auditor’s highlighting of management’s going concern disclosures and the necessary
context to those disclosures that is elsewhere in the report, they could draw inappropriate
conclusions. We believe it is important for the auditor’s report to deal
deal comprehensively with going
concern all in one place.
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 This suggested approach presumes that management is required to provide certain disclosures
regarding going concern in the financial statements. As we note above, we recognise that
requirements for such
ch disclosures differ across jurisdictions. In most countries, the disclosures
required around going concern are driven by the financial reporting framework. In the case of
IFRS, for example, disclosure is only required when there is a material uncertainty
uncertainty, or where it is no
longer appropriate to prepare the accounts on a going concern basis.
 While improved and more ‘joined up’ narrative reporting on going concern would be desirable in all
jurisdictions, achieving consistency and comparability of such reporting
reporting around the world may take
many years. Many factors impinge on the landscape for reporting in the area. The liability and safe
harbour regimes applicable to both management and the auditors may differ significantly and act
as an impediment to reporting
reporting solutions that could work globally. Conventions regarding the
appropriateness of making such disclosures in the annual report elsewhere than in the financial
statements, and the extent to which auditors can refer to disclosures outside the financial
statements,
tements, also differ markedly.
 The IAASB is certainly not in a position to solve all of these issues, nor to direct the disclosures that
management provides in the financial statements and annual report. The Board is, however, able to
input to the debatee about corporate reporting and corporate governance together with other
standard setting and regulatory bodies. Therefore, we encourage the IAASB to continue to engage
with those parties to help drive international thinking to a holistic corporate governa
governance/corporate
reporting/auditing approach that would best meet users’ needs for additional information about
going concern rather than opt for a short term solution through the auditor’s report alone.
 Finally, we note that going concern has been a topic of debate during the financial crisis in relation
to banks and other financial institutions. We suggest that any solutions proposed for auditor
reporting on going concern be assessed for their operability and suitability in relation to banks and
other deposit
sit taking institutions. The unique characteristics of the sector may necessitate applying
the model (or at least the trigger points for disclosure where there are indicators of uncertainty)
differently. For example, if a bank is in difficulties and is considering
considering seeking government support,
disclosure around that fact would need to balance the need for transparency against the legitimate
objective of financial stability and the need to avoid precipitating a bank failure. The tension
between these objectivess was recognised, for example, in the Sharman Inquiry report. This is
something the IAASB may wish to explore further with prudential and other regulatory authorities.
9. What are your views on the value and impediments of including additional information in the auditor’s
report about the auditor’s judgements and processes to support the auditor’s statement that no material
uncertainties have been identified?
 In our view, the current ‘three category’ model of auditor reporting on going concern
(straightforward
rward case with no material uncertainty; emphasis of matter in case of material
uncertainty; liquidation basis where going concern no longer appropriate) has worked relatively
well, including, in our view, through the recent years of financial crisis. We therefore see no
compelling need to move away from the current ‘three category’ model in ISA 570.
 Paragraph 30 of the ITC suggests that additional commentary around the auditor’s judgements and
processes might be provided in the case of “near misses”, that
that is, situations where the possibility of
a material uncertainty was considered but it was ultimately concluded that a material uncertainty
requiring disclosure did not exist. We would not favour an approach that would, in effect, create a
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‘fourth category’.’. First, this would require another series of borderline judgements around what
might constitute a ‘near miss’ situation. Second, in the absence of an equivalent reporting
obligation on the part of management, it would lead to the auditor becoming the tr trigger for this
category of disclosure (and, as acknowledged in paragraph 30, providing entityentity-specific
information that is not disclosed by management – contrary to our strongly held view that the
auditor should not be the original source of information). Finally, once the auditor is satisfied that
there is no material uncertainty, it would seem illogical to then introduce commentary that may of
itself generate uncertainty. Doing so may create unnecessary confusion in the mind of users and, in
the extreme, generate adverse reactions to an entity’s situation that would precipitate conditions of
material uncertainty.
 Hence, unless and until financial reporting or other disclosure requirements change, we would not
favour the proposal in paragraph 30.
10.. What are your views on the value and impediments of the suggested auditors statement in relation
other information?
 We support including a description in the standard auditor's report that clarifies the auditor's
responsibilities regarding other information
information in documents containing audited financial statements,
based on the auditor’s extant responsibilities in ISA 720 to read other information for material
inconsistencies. Stakeholders may not understand these responsibilities and may presume greater
involvement
lvement by auditors than is the case. Some stakeholders may even currently believe that the
other information has been audited. It is important, therefore, that the description clarify both the
nature and limitations of the auditor’s procedures, in order to
to reduce rather than exacerbate this
misunderstanding, particularly if also including a statement on the outcome of those
responsibilities as is proposed in the ITC.
 We support including an explicit statement as to whether, at the time of signing the audi
auditor’s
report, the auditor is aware of any unresolved material inconsistencies between the other
information and the audited financial
financi statements.. For example, the auditor could state, ""Based
upon reading it, we are not aware of any unresolved material inconsistencies,
inconsistencies, at the time of signing
this report, between this information and the audited financial statements".
statements". We prefer this
language over what is included in the ITC as the auditor may identify inconsistencies that are
resolved before the financial statements
statements and annual report have been released, potentially making
the proposed language ("We did not identify any such inconsistencies") confusing. If
inconsistencies remain, the auditor could state, "We identified the following inconsistencies…".
Where inconsistencies
onsistencies have been found that were resolved before the financial statements and
annual report have been released, wewe believe users’ interests would not be served by the auditor
drawing attention to them.
 The proposals we support and in the ITC are based on a presumption of the continued application
of extant ISA 720. We are aware that the IAASB is currently considering proposed changes to ISA
720 that would extend the auditor’s responsibilities in this area.
area. Where the existing ISA 720
requirements are proposed to change, the thresholds for, and merits of, public reporting aspects of
those changes will need to be carefully considered.
 There are also some practical implementation issues the IAASB needs to consider.
consider. For example,
consideration needs to be given as to how the situation of the other information not being available
at the date on which the auditor signs their report would be dealt with in the report – this scenario
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is common in some jurisdictions.
jurisdictions. Similarly, when the auditor’s report is included in a subsequent
document, for example a prospectus, there may be both risk of confusion about the auditor’s
responsibilities for other information in the subsequent document, and also possible legal
implications
cations (e.g., if the original other information could be considered to be included within the
scope of the subsequent document because of the reference to it in the auditor’s report).
 While supporting the proposals regarding other information, we are aware

aware that they will not
provide the assurance about completeness, accuracy, or reliability of other information that our
dialogue with investors has shown is being sought by some.
some To be able to do so, it would be
necessary to consider whether the auditor’s responsibilities could be expanded to accomplish
providing that sort of separate assurance in a cost effective manner. Our research with the
investment community showed that many would value assurance over metrics that “move
markets”, such as non-GAAP
GAAP and industry-specific
specific metrics, and management/ directors’
remuneration reports – information and metrics that inform their investment decision
decision-making.
The proposals in the ITC will not meet that need. Another area in which additional auditor
assurance could be explored includes key performance indicators related to nonnon-financial measures
of entities’ performance, certain aspects of entities’ corporate governance arrangements and risk
management systems or other internal controls.
 Therefore, while we support expanding

expanding the auditor’s report to provide a statement based on today’s
limited responsibilities to read the other information to identify material inconsistencies with the
audited financial statements, we encourage the IAASB not lose sight of the need to ex explore whether
auditors could be asked to provide assurance on such matters, separately, as corporate reporting
models and frameworks for reporting by management in these areas evolve.
 These propositions will, however, require wider changes to the corporate

corporat e reporting model,
including the development of appropriate benchmarks and sufficiently robust criteria, which may
include industry-focussed
focussed measures, to provide consistency, both in management reporting and the
auditor’s procedures thereon. One potential risk associated with this approach is if management
perceive any imposed criteria as overly restricting their ability to discuss the entity’s performance
using their own views. Investment professionals in our survey understood the potential for
unintended consequences of having a more formalised reporting and assurance model for this
information, as it could result in a reduction in the volume of disclosures. Therefore, further
consultation between management, users and corporate reporting standard setters may be
necessary to identify an appropriate way forward in this area. Because it would involve increased
cost, users would need to be convinced that the benefits of the additional assurance exceed the
costs.
Clarifications and transparency
11. Do you believe

ieve the enhanced descriptions of the responsibilities of management, TCWG, and the auditor
in the illustrative auditor’s report are helpful to users’ understanding of the nature and scope of an
audit? Why or why not? Do you have suggestions for other improvements
improvements to the description of the
auditor’s responsibilities?
 We fully support including enhanced descriptions of the responsibilities of management, those

charged with governance and auditors in the auditor’s report. Clearly defining the relevant
responsibilities of the parties helps address misconceptions amongst users,
users, for example, in relation
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to the basis for and decisions regarding the appropriateness of preparing the financial statements
using the going concern assumption.
 The aim should be to have the descriptions in the standardised wording as clear and accessible as
possible. We believe that more could be done to make this standard wording both easily understood
and informative.
 The primary purpose of the auditor’s report

report is the expression of the opinion on the financial
statements. That is what users are most interested in. It is important not lose sight of this when
considering the nature and extent of addition contextual material to be included in the auditor’s
report.. Excessive detail could distract attention from the opinion. Therefore, we encourage the
IAASB to give further consideration to the relative merits of the extent of, and alternative ways of
organising and presenting, this “standard” text.
12. What are your

our views on the value and impediments of disclosing the name of the engagement partner?
 The disclosure of the audit engagement partner’s name and/or the name of the firm’s ultimate
responsible partner is common practice in many jurisdictions today. Howev
However, in our view, such
disclosure does not enhance accountability or audit quality, but we acknowledge that some would
like this transparency. We also recognise that there are jurisdictional legal considerations that need
to be taken into account. There may be, for example, other vehicles for disclosing this information
that would be preferable in particular legal environments. In addition, jurisdictions with such
disclosure requirements have often found it necessary to include appropriate safeguards to mitimitigate
the risk of personal threats to individuals. For these reasons, we believe that it would be better to
have this matter addressed at a national level rather than in the ISA.
13. What are your views on the value and impediments of the suggested disclosure
disclosure regarding the
involvement of other auditors? Do you believe that such a disclosure should be included in all relevant
circumstances, or left to the auditor’s judgement as part of Auditor Commentary?
 We do not support the proposals relating to identifying

identifying the involvement of other auditors. In our
opinion, such disclosure would contradict the principles underlying ISA 600 – the group auditor is
responsible for the audit and therefore for the work of other firms. We also believe such disclosures
do not aid
d transparency and may actually increase rather than reduce the expectations gap by
introducing confusion over responsibility for the audit.
 We would support including a generic description of the responsibilities of a group auditor in a

group audit engagement.
ement. As this would be a standardised description, we do not believe it belongs
in the new section of the auditor’s report – which should be entity and audit specific – but rather
could be a conditional paragraph that forms part of the standard description
descriptio n of an audit.
14. What are your views on explicitly allowing the standardized material describing the auditor’s
responsibilities to be relocated to a website of the appropriate authority, or to an appendix to the
auditor’s report?
 We believe that the overarching principle should be that information relevant to user’s
understanding of the auditor’s report must be accessible.
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 We support making a clearer distinction between entity-
entity and audit-specific
specific information and
standard wording through more effective structuring and presentation of the report. Differentiation
of entity specific matters from standardised language is clearly useful from a communications
perspective.
 However, we believe that the standardised material should be an integral part of the auditor’s
report. Including standardised material within the body of the report has the advantage that the
information accompanies the other elements of the report and is easily identifiable. While it does
extend the overall length of the auditor’s report with, what some might call, “boilerplate” wording,
those descriptions contain information important to users’ understanding of the auditor’s opinion,
and should therefore be part of the auditor’s report. We do not, therefore, believ
believe that the use of a
website to ‘host’ standardised information is a viable option.
Form and structure
15. What are your views on whether the IAASB’s suggested structure of the illustrative report, including
placement of the auditor’s opinion and the Auditor
Auditor Commentary section towards the beginning of the
report, gives appropriate emphasis to matters of most importance to users?
 We are supportive of proposals that will improve the communicative value of the auditor’s report.
 We believe there is merit in placing the auditor’s opinion at the beginning of the report as this is
what users tell us is of greatest importance to them. Indeed, this has been a common reporting
practice in certain territories for a number of years (for example, the PwC firm in the US has used
that format).
 Taking into consideration our recommendations in question 8 (in relation to location of going
concern statements within the report) and question 14 (how standardised text might be presented),
it follows that the new section highlighting the significant financial reporting judgements made by
management would be presented following the auditor’s opinion in the report. This is entity
entity-
specific information that is of relevance to users understanding of the financial statements an
and so
prominent placement within the report is warranted.
16. What are your views regarding the need for global consistency in auditors’ reports when ISAs, or
national auditing standards that incorporate or are otherwise based on ISAs, are used?
 In line with
ith our overarching principles, we believe that auditor reporting should be sufficiently
similar to facilitate users’ comparison of the underlying economic reality/ state of affairs of
different entities. To the extent possible, therefore, the content of the
the ‘core’ elements should be the
same for all auditors’ reports.
 We acknowledge that some limited accommodation may be needed in circumstances when law or
regulation or national auditing standards dictate particular wording. However, we believe this can
be accommodated within an overall consistent structure of the report. We, therefore, support the
extant practice, whereby any additional reporting imposed as a result of local law or regulation is
presented in a separate part of the report after the main body of the report on the financial
statements.
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 We do not support permitting free-form
free form tailoring by national standard setters, where there is not a
jurisdictional legal or regulatory basis for doing so, as this would detract from global consistency.
The public
ublic interest will be best served by different standard-setters
standard setters working collaboratively to
ensure that, as far as possible, consistent auditor reporting models are developed.
 However, while we do not support widespread tailoring of the ISA auditor’s repo
report at a national
level, we do believe that the IAASB needs to anticipate and allow sufficient flexibility to
accommodate different approaches to achieving the same objectives of some of the proposed
changes. In the UK, for example, the proposed Effective Company
Company Stewardship model could result
in some of the information the IAASB is proposing be included in auditor’s report being included in
the audit committee report. That model would not work in jurisdictions in which the corporate
governance regime is not yet as developed, or has not developed in this way, and, therefore, we
understand why the IAASB is not pursuing that approach as the preferred global model. However,
where the reporting objectives can be achieved, how the relevant information is reported should not
be an impediment to national adoption. See the last bullet in our response to question 3.
17. What are your views as to whether the IAASB should mandate the ordering of items in a manner similar
to that shown in the illustrative report, unless law or regulation require otherwise? Would this provide
sufficient flexibility to accommodate national reporting requirements or practices?
 Consistent with our response to question 16, we are supportive of measures that enhance the
consistency of auditor’ss reports across jurisdictions. To that end, we share the IAASB’s belief that
there is likely to be merit in mandating the ordering of elements of the report, unless otherwise
required by law or regulation.
18. In your view, are the IAASB’s suggested improvements

improvements appropriate for entities of all sizes and in both
the public and private sectors? What considerations specific to audits of small-
small and medium
medium-sized
entities (SMEs) and public sector entities should the IAASB further take into account in approachin
approaching its
standard-setting proposals?
 We support a single set of principles-based

principles based auditing standards that are scalable to all entities.
Measures which reduce administrative burden on entities are welcomed but only where they do not
reduce audit quality. Audits, no matter the size of the entity, are intended to provide a similar level
of assurance. For that reason, the ‘core’ content of the standard auditor’s report and opinion on the
financial statement should be the same for all entities.
 However, the unique characteristics of ownership and governance of some entities, and the relative
cost/benefit, may justify limiting auditor commentary to listed/public companies. See our response
to question 7.
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Annexe 1
Principles from PwC 2011 IAASB Auditor Reporting

Reporting Consultation Response Letter
Our overarching principles for effective auditor reporting

As we evaluated various options for additional reporting, we assessed them against the following
principles. We found them to be useful guideposts to identifying
identifying constructive changes and avoiding
changes that inadvertently do harm.
 Changes made to auditor reporting should:

 Maintain or improve audit quality. Audit quality is paramount and could be negatively
affected if auditors were asked to report on matters beyond their competence, or if the
proposed solution inadvertently affected the auditor’s ability to obtain sufficient
appropriate audit evidence.
 Enhancence the value of the audit to users.users. Users should see substantive value from the
changes. To be sustainable, they must also believe that the incremental benefits of that
additional information exceed the costs involved.
 Increase the reliability of information
information the entity provides in public reports.
Providing assurance on information that was not previously subject to audit/a
audit/assurance
directly affects its reliability. Some of the options may also have an indirect positive impact
if they serve to increase the attention
attention that management and those charged with governance
pay to those elements of their corporate reporting.
 Changes should maintain or enhance the effectiveness of the relationships and

interactions of auditors, those charged with governance (e.g., audit committees) and
management in the financial reporting process. proce The audit model depends on effective
communication among the players. Scepticism and challenge are key elements of an audit. Audit
effectiveness also depends on the ability of the auditor to have effective communication with and
obtain information from management and those charged with governance. The impact of the
proposed solutions on the finely balanced interrelationships between auditors, those charged with
governance and management needsneeds to be considered so that they don’t impede the auditor’s ability
to obtain sufficient appropriate audit evidence.
 Auditor reporting should be sufficiently similar to facilitate users’ comparison of the

underlying economic reality / state of affairs of different entities.. Any move away from a
completely standardised report and opinion will inevitably introduce some variation. Financial
reporting and auditing also require significant exercise of professional judgement. To be viable, the
solutions proposedd must result in information that can both inform economic decisions and
contribute to market confidence. Including in auditor reporting information that is subjective or
variable (such that two auditors given the same fact pattern and information could cocome to different
conclusions and issue substantively different reports) will not meet this criterion.
 Auditor reporting can provide greater insight based on the audit but the auditor
should not be an original source of factual data or information about th the entity.
Factual data or information about the entity should be reported by the entity, i.e., by management
and/or those charged with governance, to avoid blurring the responsibilities of auditors,
management and those charged with governance. This is also
also important to avoid unintentionally
23 of 24
confusing investors and disrupting capital markets by providing competing views of the true picture
of the entity’s underlying financial position and/or performance.
 In the shorter term, the adoption of different approaches

approaches that achieve the objectives
of additional reporting may be necessary. To the extent possible, the content of the “core”
elements and auditor’s opinion on the financial statements should be the same for all auditors’
reports. Some limited accommodation
accommodation may be needed in circumstances when law or regulation or
national auditing standards dictate particular wording or structure (as is recognised in the ISAs
today). For any proposed additional auditor reporting, however, the focus may need to be on the
objective
ective or aim of that reporting rather than the way that it must be done because of underlying
differences in financial reporting, corporate reporting and corporate governance frameworks.
24 of 24
TRANSLATION
Montreal, October 19, 2012
Eric Turner, Principal

Auditing and Assurance Standards
Toronto, ON M5V 3H2
Dear Sir:
Please find enclosed the comments the Ordre des comptables professionnels agréés du
Québec received from members who were consulted on “Enhancing Audit Quality:
Canadian Perspectives – The Auditor Reporting Model,” published by the Canadian
Institute of Chartered Accountants and the Canadian Public Accountability Board.
We would appreciate receiving a copy of the English translation of our comments.
Please note that neither the Ordre des comptables professionnels agréés du Québec
nor any of the persons involved in preparing the comments shall have any liability in
relation to their use and no guarantee whatsoever shall be provided regarding these
comments, as specified in the following disclaimer.
Yours truly,
Annie Smargiassi, CPA, CA

Advisor
Assurance and financial accounting standards
Ordre des comptables professionnels agréés du Québec
Encl.: Disclaimer and comments

DISCLAIMER
Subject to the conditions described herein, the documents prepared by the Ordre des
comptables professionnels agréés du Québec (the Order), hereinafter referred to as the
"comments," provide the Order’s opinion on statements of principles, documents for
comment, associates' drafts and final exposure drafts published by the CICA Accounting
Standards Board, Auditing and Assurance Standards Board, Public Sector Accounting
Board, Risk Management and Governance Board and by other organizations.
These comments should not be relied upon as a substitute for engagements entrusted to
professionals with specialized knowledge in their field. It is important to note that the
legislation, standards and rules on which the comments are based may change at any
time and that, in some cases, the comments may be controversial.
Neither the Order nor any person involved in preparing these comments shall have any
liability in relation to their use and no guarantee whatsoever shall be provided regarding
these comments. These comments are not binding on the Order or the Office of the
Syndic in particular.
Users of the comments shall take full responsibility for, and assume all risks relating to,
their use. They agree to release the Order from any claim for damages that could result
from a decision they made based on these comments. They also agree not to mention
the comments received by members consulted in the opinions they express or the
positions they take.
COMMENTS OF THE ORDRE DES COMPTABLES PROFESSIONNELS AGRÉÉS ON
“ENHANCING AUDIT QUALITY: CANADIAN PERSPECTIVES – THE AUDITOR
REPORTING MODEL,” PUBLISHED BY THE CANADIAN INSTITUTE OF
CHARTERED ACCOUNTANTS AND THE CANADIAN PUBLIC ACCOUNTABILITY
BOARD
PURPOSE
One of the responsibilities of the the Ordre des comptables professionnels agréés du
Québec is to collect and channel the views of practitioners and members in business,
industry, government and education, as well as those of other persons working in related
areas of expertise.
For each exposure draft or other document reviewed, the Order consolidates the results
of the members’ analyses. The comments below reflect the views expressed, and unless
otherwise specified, were the result of a consensus.
The Order has not acted upon and is not responsible for the comments expressed by the
members.
GENERAL COMMENTS
For some of the people consulted, mainly financial statement users, the report in its
current form is not very useful because it is fairly standard overall. Therefore, the idea of
tailoring the report is interesting. However, concerns were raised about the proposals, as
indicated in the specific comments.
SPECIFIC COMMENTS
AUDITOR COMMENTARY
The persons consulted indicated that the auditor commentary could undermine
relationships with clients and ultimately result in stormy negotiations with them.
Some also expressed concerns about the additional costs that could result from the
inclusion and negotiation of auditor commentary in the report, which is not desirable for
audits of smaller entities, public sector entities and not-for-profit organizations. They
indicated that the benefits of these additional disclosures would not outweigh the higher
costs.
A number of members stated that some of the proposed disclosures in the auditor’s
report should be adequately disclosed in the notes to the financial statements and that
adding these types of disclosures in the report could cause users to spend less time
reading the notes and create redundancy. They indicated that financial statement users
could misunderstand the auditor’s responsibilities in relation to these disclosures. In fact,
the proposed additions are normally the responsibility of those charged with governance
Some members worry that the auditor will be perceived as an informer. Also, adding
auditor insights will require practitioners to exercise a great deal of judgment, which will
result in increased liability exposure. Others worry that information will be presented in a
summarized format and thus become standardized. Auditors have indicated that the
proposed disclosures are very subjective and the project lacks structure and guidance.
The syndic of the Ordre des comptables professionnels agréés du Québec (hereinafter
the syndic) points out that by disclosing the essentials of the audit approach, auditors
could increase their liability exposure. If everything were not disclosed, readers could
infer that the auditor is hiding information or was negligent in certain undisclosed areas.
This stems from the fact that current lawsuits are often tied to incomplete information
and misunderstanding by financial statement users about audit risk and the procedures
performed by the auditor. Adding summary information could therefore increase their
exposure.
Furthermore, the syndic believes that disclosing the audit approach could lead certain
individuals to circumvent it and hide information from the auditor.
Members indicated that reservations included in the reports could go unnoticed or be

misunderstood due to their lengthiness. The length of the proposed report is a concern
for most of the people consulted. There is a risk that users will only read the Opinion
paragraph.
Some representatives of financial institutions indicated that they can obtain all the
information they feel is necessary from the companies themselves and that the
commentary might be of no use to them in some cases.
Members wonder about the limits of these disclosures; the project is not clear in this
regard. For example, should cases of non-compliance with regulations be disclosed
even when there is no monetary impact? Where does the auditor’s responsibility for the
additional disclosures end?
To conclude, most of the persons consulted are not in favor of the proposed
additions.
ENTITIES AFFECTED AND APPLICATION IN CANADA
Users of public sector entities [financial statements] are not in favor of this project to
enhance audit quality and would therefore like these entities to be excluded from the
eventual application of these proposals. They are also concerned about the additional
audit costs in these times of budget cuts.
Representatives of the local government regulator are not in favor of the proposed
additions. They indicate that Quebec municipalities operate in a very specific context
compared to other entities because they cannot go bankrupt.
Representatives of regulators indicated that they can obtain additional information not
provided in general purpose financial statements (special purpose reports) and therefore
do not support this project.
Some members were concerned that our main economic partner (the United States)
might choose not to apply these specific recommendations concerning the report. They
noted that there was a risk that analysts would misunderstand the situation and that our
market could be negatively affected as a result.
Overall, those consulted would prefer some flexibility in applying the

recommendations rather than having a standard report for all sectors. They
indicated that if the new standards are approved, they should only apply to listed
entities.
GOING CONCERN
Most of the members indicated that this information is relevant but that it should already
be included in the financial statements and that the auditor must disclose it (Emphasis of
Matter paragraph) in his report. Thus, the additional disclosures suggested may confuse
the users as to whether there is a going concern issue if all the reports include this
disclosure.
The auditors questioned the additional procedures that might be required to present this
commentary.
The proposed form, i.e. a negative conclusion, was poorly understood and many
seemed to think it similar to a review engagement report conclusion.
For users of pension plans [financial statements], the additional paragraphs would lead
auditors to make judgments on the financial statements of enterprises that sponsor such
plans, which would entail additional costs.
In an assessment context, the period covered by the auditor’s judgment is unclear and
members would like further clarification.
Most of the members consulted are therefore not in favor of these additions.
INVOLVEMENT OF OTHER AUDITORS
The members consulted are not in favor of disclosing the involvement of other
auditors.
They explained that there is a risk of giving the impression that the responsibilities of the
group engagement partner are transferred those in charge of auditing the components.
MEASUREMENT UNCERTAINTY AND OTHER AUDIT GUIDANCE
The majority of people consulted are not in favor of these additions.
Some explained that this information may give false assurance to the readers regarding
information already presented in the financial statements. Others indicated that sufficient
information should be obtained by reading the financial statements and the annual
reports (for listed entities).
They mentioned that the separation of roles and responsibilities between the auditor and
those charged with governance is blurred regarding these elements and that this could
discredit the auditor’s opinion.
A number of people believe that adding more disclosures could result in readers
misunderstanding the financial statements if the auditor’s opinion is positive but a
commentary is included in the report.
AUDIT APPROACH
Most of the members consulted are not in favor of these additions.

INFORMATION BEYOND THE FINANCIAL STATEMENTS
Auditors and preparers see timing issues regarding the production of the financial
statements and MD&As. Currently, MD&As are not yet issued at the time the audits of
the financial statements are completed.
In the members’ opinion, users could also believe that additional audit procedures were
performed on disclosures published in the MD&As and the annual reports. This situation
would create undue expectations on the part of the public and could transfer to the
auditor responsibilities that are in fact incumbent upon the audit committee.
Most of the people consulted are not in favor of these proposals.
AUDITOR’S RESPONSIBILITIES
Additional disclosures about the auditor’s responsibilities were well received by

members.
They added, however, that items on going concern and the appropriateness of the
accounting policies should be included in the paragraph on the auditor’s responsibilities.
LOCATION OF THE AUDITOR’S OPINION
Some respondents showed an interest in the proposal to place the audit opinion at the
beginning of the report while others felt that users would limit themselves to reading this
paragraph and not the other items, especially considering the potentially discouraging
length of the report.
DISCLOSURE OF THE AUDITOR’S NAME
Members indicated that according to the rules respecting the practice of public
accountancy in Quebec, members are already required to present the engagement
partner’s name in the report or the auditor’s permit number.
Thus, those persons consulted did not have any issues with this disclosure.
Montréal, le 19 octobre 2012
Eric Turner, directeur de projets

Normes d’audit et de certification
L’Institut Canadien des Comptables Agréés
277, rue Wellington Ouest
Toronto (Ontario) M5V 3H2
Monsieur,
Vous trouverez ci-joint les commentaires que l’Ordre des comptables professionnels
agréés du Québec a obtenu des membres qui ont été consultés, concernant le projet
« Amélioration de la qualité de l'audit : un point de vue canadien – Modèle de rapport de
l'auditeur » publié par l’Institut Canadien des Comptables Agréés et le Conseil Canadien
de la reddition de comptes.
Nous vous serions reconnaissants de nous faire parvenir une copie de la traduction
anglaise de nos commentaires.
Veuillez prendre note que ni l’Ordre des comptables professionnels agréés du Québec,
ni quelque personne que ce soit ayant participé à la préparation des commentaires ne
peuvent être tenus responsables relativement à son utilisation et ils ne sont tenus à
aucune garantie de quelque nature que ce soit découlant de ces commentaires, comme
décrit dans le déni de responsabilité joint à la présente.
Veuillez agréer, Monsieur Turner, l’expression de nos sentiments distingués.
Annie Smargiassi, CPA, CA

Conseillère
Normes en certification et en comptabilité financière
Ordre des comptables professionnels agréés du Québec
p. j. Déni de responsabilité et commentaires

DÉNI DE RESPONSABILITÉ
Les documents préparés par l’Ordre des comptables professionnels agréés du Québec
(Ordre) ci-après appelés les «commentaires», sont fournis selon les conditions décrites
dans la présente, pour faire connaître leur opinion sur des énoncés de principes, des
documents de consultation, des exposés-sondages préliminaires ainsi que des exposés-
sondages publiés par le Conseil des normes comptables, le Conseil des normes d’audit
et de certification, le Conseil sur la comptabilité dans le secteur public, le Conseil sur la
gestion des risques et la gouvernances et d’autres organismes.
Les commentaires fournis ne doivent pas être utilisés comme substitut à des missions
confiées à des professionnels spécialisés. Il est important de noter que les lois, les
normes et les règles sur lesquelles sont émis les commentaires peuvent changer en tout
temps et que, dans certains cas, les commentaires écrits peuvent être sujets à
controverse.
Ni l’Ordre, ni quelque personne que ce soit ayant participé à la préparation des

commentaires ne peuvent être tenus responsables relativement à l’utilisation de ces
commentaires et ils ne sont tenus à aucune garantie de quelque nature que ce soit
découlant de ces commentaires. Les commentaires donnés ne lient pas, par ailleurs,
l’Ordre ou, de façon plus particulière, le Bureau du syndic de l’Ordre.
La personne qui se réfère ou utilise ces commentaires assume l’entière responsabilité

de sa démarche ainsi que tous les risques liés à l’utilisation de ceux-ci. Elle consent à
exonérer l’Ordre à l’égard de toute demande en dommages-intérêts qui pourrait être
intentée par suite de toute décision qu’elle aurait pu prendre en fonction de ces
commentaires. Elle reconnaît également avoir accepté de ne pas faire état de ces
commentaires reçus des membres consultés dans les avis exprimés ou les positions
prises.
COMMENTAIRES DE L’ORDRE DES COMPTABLES PROFESSIONNELS AGRÉÉS
SUR LE PROJET « AMÉLIORATION DE LA QUALITÉ DE L'AUDIT : UN POINT DE
VUE CANADIEN – MODÈLE DE RAPPORT DE L'AUDITEUR » PUBLIÉ PAR
L’INSTITUT CANADIEN DES COMPTABLES AGRÉÉS ET LE CONSEIL CANADIEN
DE LA REDDITION DE COMPTES
MANDAT DE L’ORDRE
L'Ordre des comptables professionnels agréés du Québec a comme mandat notamment

de recueillir et de canaliser le point de vue des praticiens exerçant en cabinet et de
membres œuvrant dans les affaires, dans les services gouvernementaux, dans
l'industrie et dans l'enseignement ainsi que le point de vue d’autres personnes
concernées œuvrant dans des domaines d’expertise connexes.
Pour chaque exposé-sondage ou autre document étudié, l’Ordre met les analyses des
membres en commun. Les commentaires ci-dessous reflètent les points de vue
exprimés et, sauf indication contraire, ces commentaires ont fait l'objet d'un consensus.
Les commentaires formulés par les membres de l’Ordre ne font l'objet d'aucune sanction
de l'Ordre. Ils n'engagent pas la responsabilité de celui-ci.
COMMENTAIRES GÉNÉRAUX
Pour certaines personnes consultés, principalement des utilisateurs des états financiers,
le rapport dans sa forme actuelle n’est pas très utile car il est assez uniforme en général.
Ainsi, la perspective d’ajouts personnalisés est intéressante. Par contre, ils ont soulevé
des préoccupations relativement aux propositions. Les commentaires spécifiques ci-
après en font état.
COMMENTAIRES SPÉCIFIQUES
COMMENTAIRES DE L’AUDITEUR
Les personnes consultées ont indiqué que l’ajout de commentaires au rapport de

l’auditeur pourrait miner les relations avec les clients et amener des négociations
houleuses avec ceux-ci.
Certains ont également exprimé des préoccupations concernant les coûts additionnels
qui pourraient être engendrés par l’ajout et la négociation des commentaires au rapport,
ce qui n’est pas souhaitable pour les audits de petites entités, d’entités du secteur public
et d’organismes sans but lucratifs. Ils ont indiqué que les avantages qui pourraient être
retirés des informations additionnelles ne surpasseraient pas les coûts supplémentaires
engendrés.
Plusieurs membres ont indiqué que plusieurs des informations qu’il est proposé d’ajouter
au rapport de l’auditeur devraient faire l’objet de divulgation adéquate dans les notes
aux états financiers et que le fait d’ajouter ce type d’informations dans le rapport pourrait
amener les utilisateurs à moins lire les notes aux états financiers et créer de la
redondance. Ils indiquent que les utilisateurs des états financiers pourraient se
méprendre sur les responsabilités de l’auditeur en rapport à ces informations. En effet,
les ajouts proposés relèvent normalement des responsabilités des responsables de la
gouvernance.
Certains craignent que l’auditeur soit perçu comme un « délateur ». De même, l’ajout
d’observations nécessitera l’utilisation d’une très grande part de jugement des
professionnels en exercice avec pour conséquence un accroissement des risques de
poursuite à leur égard. D’autres craignent que les informations présentées soient
sommaires et deviennent standardisées. Les auditeurs ont indiqué que les informations
proposées en ajout sont très subjectives et que le projet manque d’encadrement et de
lignes directrices.
Le syndic de l’Ordre des comptables professionnels agréés du Québec (ci-après nommé

le syndic) souligne qu’en divulguant les grandes lignes de la stratégie d’audit, les
auditeurs pourraient accroître les risques de poursuites à leur endroit. En effet, en ne
dévoilant pas tout, un lecteur pourrait juger qu’on lui cache de l’information ou juger qu’il
y a eu manquement de la part de l’auditeur sur certains aspects non divulgués. Ceci
découle du fait que les poursuites actuelles sont souvent liées au manque d’information
et de compréhension des utilisateurs des états financiers sur les risques liés à l’audit et
aux procédures effectuées par l’auditeur. L’ajout d’informations sommaires pourrait ainsi
accroître ces risques.
De plus, le syndic est d’avis que le fait de divulguer la stratégie d’audit pourrait inciter
certaines personnes à contourner cette stratégie et à cacher de l’information à l’auditeur.
Les membres ont indiqué que les réserves aux rapports pourraient passer inaperçues
ou être incomprises dans un rapport aussi long. La longueur du rapport proposé est
préoccupante pour la majorité des personnes consultées; ceci risque d’amener les
utilisateurs à limiter leur lecture au paragraphe opinion.
Certains représentants d’institutions de financement ont indiqué qu’ils peuvent obtenir

toute l’information qu’ils jugent nécessaires aux entreprises visées et que les
commentaires pourraient, dans plusieurs cas, ne pas leur être utiles.
Les membres se questionnent sur les limites relatives à cette divulgation d’informations,
le projet n’est pas clair à ce sujet. Par exemple, est-ce que les cas de non-respect à la
réglementation (conformité) devront être divulgués même dans les cas où il n’y a pas
d’impact monétaire? Où s’arrête la responsabilité de l’auditeur concernant les
informations additionnelles à fournir?
En conclusion, la majorité des personnes consultées ne sont pas favorables aux

ajouts proposés.
ENTITÉS VISÉES ET APPLICATION AU CANADA
Les utilisateurs d’entités du secteur public ne sont pas favorables au projet

d’amélioration et aimeraient par conséquent que ces entités soient exclues de
l’application éventuelle de ces propositions. Ils sont également préoccupés par les coûts
additionnels des audits dans un contexte de resserrement des budgets.
Les représentants de l’autorité de réglementation liée aux municipalités ne sont pas

favorables aux ajouts proposés. Ils indiquent que les municipalités du Québec opèrent
dans un contexte très particulier par rapport au reste des entités car elles ne peuvent
faire faillite.
Les représentants d’autorités de réglementation consultés indiquent qu’ils peuvent

obtenir des informations supplémentaires non prévues dans les états financiers à
vocation générale (rapports spéciaux à usage particulier) et ne sont ainsi pas favorables
au projet.
Certains membres ont fait état de préoccupations dans l’éventualité où notre principal
partenaire (États-Unis) d’affaires n’appliquerait pas ces recommandations relatives au
type de rapport. Ils précisent que les analystes risquent de ne pas comprendre la
situation et que par conséquent, notre marché pourrait être affecté de façon négative.
En général, les personnes consultées préfèreraient une certaine flexibilité

d’application, plutôt qu’une uniformité dans les rapports pour tous les secteurs.
Ils ont indiqué que l’application des nouvelles propositions devrait se limiter aux
entités cotées, si elles sont approuvées.
CONTINUITÉ D’EXPLOITATION
La majorité des membres indique que cette information est pertinente mais qu’elle
devrait déjà se trouver dans les états financiers et que l’auditeur doit déjà prévoir une
mention (paragraphe d’observation) dans son rapport à cet égard. Ainsi, les ajouts
supplémentaires suggérés risquent de causer de la confusion pour l’utilisateur sur le fait
qu’il y ait ou non un problème de continuité d’exploitation si tous les rapports portent
cette mention.
Les auditeurs se questionnent sur les procédés additionnels qui pourraient être requis
afin de présenter ces commentaires.
La forme proposée, i.e. une conclusion de forme négative, a été mal comprise et
semble, pour plusieurs, s’apparenter à une conclusion de rapport de mission d’examen.
Pour les utilisateurs des régimes de retraites, les paragraphes supplémentaires

devraient amener les auditeurs à porter des jugements sur les états financiers des
entreprises qui mettent en place de tels régimes, ce qui engendrerait des coûts
supplémentaires.
Dans un contexte d’évaluation, la période couverte par le jugement de l’auditeur n’est

pas claire et les membres ont demandé des éclaircissements.
La majorité des membres consultés ne sont ainsi pas favorables à ces ajouts.
INTERVENTION D’AUTRES AUDITEURS
Les membres consultés ne sont pas favorable à la mention concernant

l’intervention d’autres auditeurs.
Ils expliquent que ceci risque de donner l’impression d’un transfert des responsabilités
de l’auditeur responsable de l’audit de groupe, vers les responsables de l’audit des
composantes.
INCERTITUDES DE MESURE ET AUTRES PRÉCISIONS RELATIVES À L’AUDIT
La majorité des personnes consultées ne sont pas favorables à ces ajouts.
Certains expliquent que ces informations risquent de donner une fausse assurance au
lecteur concernant les informations déjà présentées dans les états financiers. D’autres
indiquent que l’information devrait être suffisante à la lecture des états financiers et des
rapports annuels (pour les entités cotées).
Ils indiquent que la répartition des rôles et responsabilités entre l’auditeur et les
responsables de la gouvernance est floue sur ces éléments et que ceci pourrait
discréditer l’opinion de l’auditeur.
Plusieurs sont d’avis que l’ajout d’information supplémentaire pourrait causer une
incompréhension de la part des lecteurs d’états financiers, si l’opinion de l’auditeur est
positive mais que des commentaires sont inclus au rapport.
STRATÉGIE D’AUDIT
La majorité des personnes consultées ne sont pas favorables à ces ajouts.
INFORMATIONS PUBLIÉES AUTRES QUE LES ÉTATS FINANCIERS
Les auditeurs et préparateurs prévoient des problèmes liés au « timing » de publication

des états financiers et des rapports de gestion. Actuellement, les rapports de gestion ne
sont normalement pas publiés lorsque les audits des états financiers sont terminés.
Les membres sont également d’avis, que les utilisateurs pourraient croire que des
procédures supplémentaires d’audit ont été mises en place sur les informations publiées
dans les rapports de gestion et les rapports annuels. Ainsi, cette situation créerait des
attentes indues du public et pourrait transférer à l’auditeur des responsabilités qui
incombent en réalité au comité d’audit.
La majorité des personnes consultées ne sont pas favorables à ces propositions.
RESPONSABILITÉS DE L’AUDITEUR
L’ajout d’information supplémentaire sur les responsabilités de l’auditeur est

assez bien accueilli par les membres.
Ils ajoutent par contre, que les éléments concernant la continuité d’exploitation et le
caractère approprié des méthodes comptables devraient être inclus dans le paragraphe
sur les responsabilités de l’auditeur.
EMPLACEMENT DE L’OPINION DE L’AUDITEUR

Certains répondants ont manifesté un intérêt à la proposition de situer l’opinion d’audit
au début du rapport alors que d’autres ont indiqué que les utilisateurs risquent de limiter
leur lecture à ce paragraphe et ne pas lire les autres éléments, surtout considérant la
longueur du rapport qui risque d’en décourager la lecture.
PRÉSENTATION DU NOM DE L’AUDITEUR
Les membres ont indiqué qu’au Québec, selon les règles entourant l’exercice de la
comptabilité publique, les membres doivent déjà présenter le nom de l’auditeur
responsable dans le rapport d’audit ou son numéro de permis.
Ainsi, les personnes consultées n’ont pas manifesté d’enjeu entourant cette
divulgation.
. Deloitte. Deloitte & Touche LLP
2 Queen Street East
Suite 1200
Toronto ON MSC 3G7
Canada
Tel: 416-874-4424
Fax: 416-874-3889
www.deloltte.ca
October 12, 2012
Mr. Eric Turner

Project Manager,
Auditor Reporting Working Group
Canadian Institute of Chartered Accountants,
Toronto ON MSV 3H2
Dear Mr. Turner:
We appreciate this opportunity to provide comments on the paper entitled Enhancing Audit Quality:
Canadian Perspectives - The Auditor Reporting Model (the "ARM"), which has been developed by the
Auditor Reporting Working Group ("ARWG"), organized pursuant to the collaborative initiative of the
Canadian Institute of Chartered Accountants and the Canadian Public Accountability Board. We have
also considered the underlying discussion document, Improving the Auditor's Report (the "ITC"), which
was developed by the International Auditing and Assurance Standards Board ("IAASB").
We welcome the ARWG efforts and the CICA/CPAB initiative to provide a forum for expression of
Canadian perspectives on aspects of the deliberations related to improving the usefulness of the auditor's
report and potential changes to the reporting by auditors, all with the goal of enhancing auditor reporting.
It is clear that the information sought by users of audited financial statements has evolved over time. As
such, reporting to such users by auditors, management and Audit Committees (AC) also need to evolve.
In our evaluation of each of the areas or topics addressed by the IAASB and the ARWG to enhance the
auditor's report, we considered whether the suggested improvement:
• Appears to have value to users through either:

o Enhancing the communicative value of the auditor's report (i.e., narrowing the
information gap) by providing useful information to users and focusing them towards the
most important areas of the financial statements; or
o Enhancing the transparency about the audit (i.e., narrowing the expectations gap) by
better explaining the nature and purpose of an audit, including explaining what an audit
is intended to achieve and how it is executed.
Membre de I Member of DeiOitte Touche Tohmatsu Um1ted

October 12, 2012
Page2
• Preserves the line of responsibility between (i) the auditor (who is engaged to perform an audit
and express an opinion that provides reasonable assurance on financial statements) and (ii)
management (who are the original providers of information included in the financial
statements and are responsible for the preparation of the financial statements and for such
internal controls as they determine necessary to enable the appropriate preparation of the
financial statements).
• Enhances the quality of financial reporting.
• Can be implemented effectively and efficiently, considering potential costs and benefits. In
this regard we note that financial reporting, corporate governance and legal regimes vary
considerably among jurisdictions. As a result, some recommendations can be implemented
without significant change to these regimes in certain jurisdictions. Others, in our view,
require change to these regimes as a prerequisite to implementation regardless of whether or
not we support the suggested improvement. We have considered these differences in financial
reporting, corporate governance, and legal regimes in our responses.
The views expressed in this submission are those of the Canadian member firm to the Deloitte Touche
Tohmatsu Limited global network. Other member firms may have views that are divergent from those
expressed herein.
Based on our evaluation of the suggested improvements to the auditor's report, we support the following
aspects of the IAASB proposals as discussed in the ARM issued by the ARWG as further described in our
detailed responses:
• Auditor commentary that

o Identifies and draws attention those disclosures in the financial statements (including the
related notes) that, in the auditor's judgment, may be most important to users'
understanding of the financial statements: and
o Highlights the significance of these matters to the performance of the audit when in the
auditor's judgment, it would be important to users' understanding of the audit.
• The suggested auditor statement that addresses the identification of material inconsistencies in
other information included with audited financial statements, based on the auditor's reading of
the other information for such purpose.
• The enhanced descriptions of the responsibilities of management, AC, and the auditor.
• The reorganization of the form and structure of the auditor's report, including placement of
the auditor's opinion, the auditor commentary section, and other information related to entity
specific matters towards the beginning of the report.
• The building blocks approach that helps to achieve comparable auditors' reports while still
allowing jurisdictions the ability to further tailor auditor reporting requirements in the context
of national environments.
We have addressed these matters and additional comments below in our response.
October 12, 2012
Page3
RESPONSE TO SPECIFIC COMMENTS
We have constructed our comments to conform to those matters raised in Chapter 2 of the ARWG paper,
with relevant paragraph references included.
Auditor commentary Chapter 5
1. (paragraph 6) - We believe that the concept of an auditor commentary .is an appropriate response to
the call for auditors to provide more information to users through the auditor's report. Specifically,
we support the concept of auditor commentary through the inclusion of information within the
auditor's report that (i) would identify and draw attention to those disclosures in the financial
statements (including the related notes) that, in the auditor's judgment, may be most important to
users' understanding of the financial statements, and (ii) would highlight the significance of these
matters to the performance of the audit when, in the auditor's judgment, it would be important to
users' understanding of the audit.
We believe that, in most cases, this information would refer to those disclosures in which the entity has
identified and discussed its significant management judgments and estimates, including areas involving
significant measurement uncertainty. We believe the type of auditor commentary preserves the line of
responsibility between (i) the auditor and (ii) management and AC.
While we agree with the ARWG's recognition of the potential benefit to incorporate a discussion
within the auditor's report of how an audit was conducted and the areas on which the audit focused in
light of the assessment of risks, including the procedures, results, judgments, and conclusions specific
to the audit performed, we believe that it would be impracticable to do so in a succinct and
meaningful way, particularly as the size and complexity of the audit engagement increase. There are
numerous significant issues that an auditor addresses on large, complex engagements involving
multiple jurisdictions: and, accordingly, there are a multitude of audit procedures that an auditor
performs. Highlighting only a sampling from among the many procedures that may be performed is
potentially misleading and wi11 not be reflective of the extensive procedures an auditor performs to
obtain sufficient appropriate audit evidence to support the auditor's opinion.
As an alternative to incorporating what could be a very lengthy description of specific audit
procedures and the related results we believe the following approach has merit:
• Indicating within the preface to the auditor commentary section of the auditor's report that the
matters highlighted by the auditor within the auditor commentary section represent some of the
most difficult and subjective areas of the audit; and, accordingly, the auditor designs additional
procedures to address significant risks that are identified.
• Including a reference within the preface to the auditor commentary section to the Auditor's
Responsibility section.
2. (paragraph 7)- We agree that the matters to be addressed in the auditor commentary should be left to
the judgment of the auditor with guidance in the standards to inform the basis of the auditor's
judgment. To effectuate the provision of auditor commentary (as described in our response to point
1 above) and to promote consistency in practice, we believe that robust guidance that includes a
framework to guide the auditor's decision-making process will be necessary. Any related guidance
or a framework to assist the auditor with determining those matters that, in the auditor's judgment,
may be most important to users' understanding of the financial statements, should emphasize that
auditors should consider matters including a) areas of significant management judgment, and b)
significant or unusual transactions.
3. (Paragraph 8)- Generally we see the proposed information to be included in an auditor's commentary
to be a logical extension of the role of the auditor rather than the role of the AC. If the nature of the
information to be disclosed changed to be more in the nature of insight into financial information or
managements processes in determining the appropriate financial reporting then this might better be
addressed by the AC. Prior to concluding our position on this question, we would need to have the
opportunity to consider the recommendations of the Role of the Audit Committee Working Group.
October 12, 2012
Page4
Going Concern Chapter 6

4. (paragraph 9)- We agree with the ARWG that this is a significant issue for management and the auditor
to ensure that there is clarity and transparency in public reporting, and that this is an area where the
expectation gap is significant. However we note that going concern is an area where existing
accounting and financial reporting frameworks differ. Many financial reporting frameworks do not
explicitly require management to:
• Assess and disclose that the going concern basis is appropriate. For example, although
International Accounting Standard 1, Presentation of Financial Statements, requires
management to perform an assessment as to whether the going concern basis is appropriate, it
does not require an explicit statement be included by management in the financial statements
of the basis used and its appropriateness.
• Assess and disclose whether material uncertainties related to going concern have been
identified. For these reasons, mandatory auditor reporting requirements in this area may result
in the auditor providing original information in certain jurisdictions and, as a result, may lead
to confusion regarding the responsibilities of the auditor and management.
5. (paragraph 10) - We consider that it is important to have consistent and transparent reporting within an
accounting framework and across as many frameworks as possible. We consider this to be particularly
important in Canada given the multiple frameworks promulgated by the CICA. We would not support
a variation of disclosure standards that would be determined with reference to either an entities stage
of development or industry. We consider that any such variation would be confusing to users of
financial statements and introduce a complexity to financial reporting that
would not be warranted.
6. (paragraph 11)- Agreed
7. (paragraph 12) -As indicated by the ARWG it is likely beneficial that additional consideration be
given to reporting by auditors of financial institutions to best protect the public interest. However
such concerns should not overshadow the rights and expectations of investors and stakeholders who
rely on general use financial statements for capital market related decisions. Careful consideration
would have to be given to balancing the public interest to that of the capital markets.
Other Information Chapter 7
8. (paragraph 13)- We are generally supportive of the ARWG's position with respect to inclusion
within the auditor's report of the auditors' responsibility for other information contained in
documents containing the audited financial statements. However, we see some complexity with
respect to current securities legislation and foresee a need to make certain amendments to the
securities regulations. Such amendments may impact an entities ability to quickly complete
regulatory filings and therefore impact their ability to complete market transactions on a timely
basis. We also concur with the ARWG's observation for the need for development of guidance as to
the responsibility of management and the auditors, and potentially the AC.
9. (paragraph 14)- We believe that it is important that the auditor statement in relation to other
information remain consistent with the audit procedures required by ISA 720, The Auditor's
Responsibilities Relating to Other Information in Documents Containing Audited Financial
Statements, or any revisions to ISA 720.
10. (paragraph 15)- We believe the inclusion of the description of the responsibilities of management,
AC, and the auditor in the auditor's report would be an enhancement to the audit reporting process.
We note the ARWG's comment on the limits to the benefits that may be derived from this
enhancement, however we consider the proposal still has merit.
October 12, 2012
Page5
11. (paragraph 16) We agree with the ARWG's observation and are not supportive of allowing the
standardized material describing the auditor's responsibilities to be relocated to a website of the
appropriate authority or to an appendix to the auditor's report. To the contrary, we believe it is
critical that this material remain within the auditor's report and be enhanced to more fully explain
the concept of a risk-based audit.
12. (paragraph 17)- We believe the IAASB's suggested placement of the auditor's opinion, the auditor
commentary section, and other information related to entity-specific matters (e.g., Going Concern,
Other Information) towards the beginning of the report and before more standardized language
related to audits in general (e.g., the description of the respective responsibilities of management,
AC and the auditor) gives appropriate emphasis to matters of most importance to users.
13. (paragraph 18)- We believe that disclosure of the engagement partner's name may foster a
misperception about how an audit is conducted and is not indicative that, although the engagement
partner is responsible overall, the performance of the audit requires the work of many professionals.
For example, the audit will often include:
• The work of large engagement teams that include auditor's experts within or outside the audit
firm.
• Consultation with accounting, auditing, and other experts within the audit firm's network of
consultation resources.
We recognize however that disclosure of the engagement partner's name is already required in many
jurisdictions. While we agree that disclosure of the engagement partner's name in the auditor's
report for all entities may make the identity of the engagement partner more transparent, we are
skeptical of the benefit of such transparency to the users of audited financial statements.
We are not convinced that this recommendation will enhance the quality of an audit. Also there are
significant differences in the regulatory and legal implication in various jurisdictions. Accordingly,
we believe that disclosure of the engagement partner's name in the auditor's report is an issue that
would be better addressed by national standard setters and national regulators.
14. (paragraph 19)- We believe that the inclusion of a description of the extent of the involvement of
other auditors undermines the principle of ISA 600, Special Considerations- Audits of Group
Financial Statements (Including the Work of Component Auditors}, that there is no divided ·
responsibility and that the group auditor is solely responsible for their report on the group financial
statements. ISA 600 imposes significant requirements on the group auditor relating to the group
auditor's understanding of component auditors, involvement in the group audit planning by
component auditors and consideration of their findings. For significant components this requires,
among other things, significant participation in the component auditor's risk assessment and a
review of their documentation.
We also believe a significant barrier exists with respect to developing an appropriate, understandable,
and transparent approach to measuring the involvement of other auditors in an audit. For example, an
approach based solely on audit hours may not reflect the varying significance of the audit hours of
other auditors to the audit engagement as a whole (e.g. audit hours spent addressing an area of
heightened risk of material misstatement versus hours spent addressing routine transactional testing).
We understand that some investors have expressed the desire for additional insight regarding the
other auditors involved in the performance of the audit. For that reason the following approaches
may warrant consideration:
October 12, 2012
Page6
• To remain consistent with ISA 600, the auditor may consider whether an unusual circumstance
exists related to the involvement of other auditors, and if so, the auditor may consider
disclosing the involvement of other auditors consistent with the suggested disclosure in the
illustrative report.
• I n c l u d i n g the standardized description of the auditor's responsibilities in a group audit
suggested in the Auditor's Responsibility section of the illustrative auditor's report. This will
remind readers that the involvement of other auditors does not reduce the group auditor's
responsibility for the direction, supervision, and performance of the group audit engagement or
the group auditor's sole responsibility for the group audit opinion.
Expanding the Information on which Auditors Can Provide Assurance Beyond the Financial
Statements Chapter 9
15. (paragraph 20-22)- We believe that there is a lack of understanding of the expectations and needs of •
users with respect to auditor provided assurance on Information Beyond the Financial Statements. We do
not believe that the pace of consideration and determination of changes required to the auditor reporting
model should be hindered by this facet of capital market reporting.
With respect to quarterly financial statement reporting for reporting issuers we consider that
mandatory reviews by the entities auditor would improve the quality and reliability of the
information. However there would obviously be a cost to the entity and the broader market
participants of such a change. We concur that it is worthwhile for the Canadian Securities
Administrators to critically review the current requirements.
Application of Auditor Reporting Proposals in the Canadian Environment Chapter 10
16. (paragraph 23) - As the demands for auditor commentary have come primarily from institutional
investors and analysts evaluating financial statements of listed entities we agree that providing auditor
commentary (as described in our response to Question 1) for certain audits (e.g., audits of PIEs), and
leaving its inclusion to the discretion of the auditor for other audits is appropriate. Additionally, we
agree with the IAASB that users of the financial statements of entities other than PIEs are likely to
have access to this type of information through direct interaction with management and AC, thereby
obviating the need for audit commentary.
17. (paragraph 24)- See point 16 above.
19. (paragraph 26) - See point 8 above.
21. (paragraph 28)- Given the global nature of capital markets and the economy at large we believe that
. consistency in auditors' reports is important beyond just North America.
We agree with the IAASB that the building blocks approach, whereby jurisdictions are able to build
upon an enhanced global foundation that improves auditor reporting, helps to achieve comparable
auditors' reports while still allowing jurisdictions the ability to further tailor auditor reporting
requirements in the context of national environments. By allowing for this national tailoring, through
national law, regulation or standard setting, we believe the IAASB can achieve the appropriate balance
between the need for consistency in auditor reporting and the need for auditors' reports that are
relevant in the context of law or regulation in individual jurisdictions, including the United States of
America.
October 12, 2012
Page7
We would be pleased to discuss our letter with you or your staff at your convenience. If you have any
questions, please contact Thomas Kay, National Professional Practice Director at+ 416-874-4424.
Very truly yours,
Signed
National Professional Practice Director

Deloitte & Touche LLP
Mr. Kevin J. Dancey
President & CEO
The Canadian Institute of Chartered
Accountants
277 Wellington St. West
Toronto ON M5V 3H2
Canada
eaq.ar@cica.ca
10 October 2012
Ref.: AUD/PRJ/HBL/NRO/SHA
Dear Mr. Dancey,
Re: FEE Comments on the CPAB Discussion Paper “Enhancing Audit Quality:
Canadian Perspectives— The Auditor Reporting Model”
The Federation of European Accountants1 (FEE) read with great interest the Discussion
Paper published by the Canadian Public Accountability Board (CPAB) and the Canadian
Institute of Chartered Accountants (CICA) in August 2012: “Enhancing Audit Quality:
Canadian Perspectives – The Auditor Reporting Model”. We are delighted to share some
views on key areas, as well as a copy of the FEE Policy Statement “Improved Auditor
Reporting”2 we published in July 2012.
Following the normal legislative process3, the Draft Reports of the European Parliament
(EP) Legal Affairs (JURI) Committee on the proposed European Commission (EC)
Regulation4 and EC Directive5 on Statutory Audit have been issued. The JURI Committee
proposes significant changes, which, in our view, shift the primary focus to striking a proper
balance between excessive intervention and today’s needs of stakeholders.
1
FEE (Fédération des Experts comptables Européens - Federation of European Accountants) is an international non-
profit organisation based in Brussels that represents 45 institutes of professional accountants and auditors from 33
European countries, including all of the 27 European Union (EU) Member States.
FEE has a combined membership of more than 700.000 professional accountants, working in different capacities in
public practice, small and big accountancy firms, businesses of all sizes, government and education, who all contribute
to a more efficient, transparent and sustainable European economy.
2
See in annex of this letter.
3
The EC can propose legislation, but only the European Parliament together with the Council of Ministers of the
Member States, can decide on European legislation. We are currently in the middle of this legislative process in the
European Parliament and the Council.
4
See http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fNONSGML%2bCOMPARL%2bPE-
494.551%2b02%2bDOC%2bPDF%2bV0%2f%2fEN
5
See http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fNONSGML%2bCOMPARL%2bPE-
494.556%2b02%2bDOC%2bPDF%2bV0%2f%2fEN
Avenue d’Auderghem 22-28 • B-1040 Brussels • Tel: +32 (0)2 285 40 85 • Fax: +32 (0)2 231 11 12 • secretariat@fee.be • www.fee.be
Association Internationale reconnue par Arrêté Royal en date du 30 décembre 1986
Page 2 of 4
1. Auditor commentary
FEE agrees that what users need is more added-value information on the entity audited in
the auditor’s report as we are convinced that auditors have a key role to play within the
financial reporting chain.
FEE does not agree with proposals to give the auditor a role in navigating the users
through increasingly complex financial statements. FEE is much more in favour of giving
insights into the audit work performed, based on the significant risks identified and
assessed during the audit. FEE believes this will create more entity-specific information in
the auditor’s report as well as enhance audit quality.
In this respect, we ask for principles-based criteria to indicate:
 What kind of information the auditor has to disclose in the “Auditor Commentary”
section;
 How the auditor has to structure this information in his/her report.
Please refer further to:
 The section on Audit Approach on Page 3 of the enclosed FEE Policy Statement on
auditor’s reporting;
 Amendment 103 on Page 53 of the Draft Report of the EP JURI Committee on the
proposed Regulation.
2. Going concern
FEE believes that the profession should focus more on what can be done in the area of
communication on going concern. Stakeholders need information on the appropriateness
of management’s use of going concern, and the audit profession should respond to this
need.
However, in relation to this matter, it is essential to attribute the right role to the auditor: the
auditor has secondary responsibility after management to provide information about the
entity. The auditor should not be enforced to give information not given by management in
the financial statements.
Therefore, we have encouraged the International Auditing and Assurance Standards Board
(IAASB) to initiate discussions with the International Accounting Standards Board (IASB) in
order to coordinate such financial reporting enhancements.
Page 3 of 4
Please refer further to:
 The section on going concern commencing on Page 2 of the enclosed FEE Policy
Statement on auditor reporting;
 Amendment 108 on Page 57 of the Draft Report of the EP JURI Committee on the
proposed Regulation.
3. Other information
Like CPAB, FEE believes that the requirements included in ISA 720 could be further
extended to make the auditor’s report more informative and comprehensive.
Therefore, we propose that auditors also report on the consistency of other information
with the financial statements, based on his/her knowledge and understanding of the entity
and its environment. However, we concur with the CPAB’s analysis that the responsibilities
of both parties – management and auditors - should be defined more precisely to avoid
creating an expectation gap in this respect.
4. Reporting internally to management and to those charged with governance
Further to the Discussion Paper on the “Auditor Reporting Model”, but linked to the overall
project on “Enhancing Audit Quality”, FEE would like to draw CPAB’s attention to some key
positions about reporting on internal controls.
Creating more interaction with the audit committee is the right step forward. Such
interaction will be fed by more communication of added-value information on the audit work
performed.
In the attached policy statement, on Page 4, FEE proposes providing additional information
to the audit committee regarding:
 The audit approach;

 The identified audit significant risks;
 The concept of materiality;
 The audit procedures performed on significant audit areas.
FEE truly thinks that European legislation should avoid incorporating a Sarbanes-Oxley Act
(SOX) approach, but should aim at enhancing efficient communication between the auditor
and management on key information related to the entity.
Additionally, in this area, the EC proposed Regulation has been amended by the EP Draft
Report: the requirement to assess the entity’s internal control in the auditor’s report has
been removed (amendment 109 on Page 58). Instead, amendment 127 on Page 65
Page 4 of 4
introduces additional reporting to the audit committee. These requirements appear to be in

line with current practice.
This Draft Report should be seen as a positive first step6 in the legislative process. It is
more reasonable than the EC Proposals and takes better account of market reality, the
public interest and the practical input provided by the profession. But, the report is likely to
change again during the legislative process. It is not time to reduce our attention and the
profession needs to continue objectively and reasonably informing the debate in the public
interest.
For further information on this letter, please contact Mrs. Hilde Blomme at +32 2 285 40 77
or via email at hilde.blomme@fee.be from the FEE Secretariat.
Yours sincerely,
Philip Johnson
President
Enclosed annex: FEE Policy Statement on Improved Auditor Reporting
6
The deadline for amendments by other Members of the JURI Committee is 7 November 2012 and a vote in the JURI
Committee is expected at the very earliest in December. The reports will then be tabled for vote in the plenary session
of EP. This vote will conclude the first reading and express the opinion of the EP and its amendments to the EC
Proposals. The Council of Ministers (working group) is still discussing the Proposals. The discussion is said to be
controversial and Member States will have to agree. The Council common position will also propose amendments. To
be adopted, EP and the Council have to agree on exactly the same text (i.e. same amended Proposals). If this is not
the case at first reading (likely), a second reading will have to take place.
Federation of European Accountants
Fédération des Experts comptables Européens
Policy Statement
Standing for trust and integrity
July 2012
FEE Policy Statement on Improved Auditor Reporting

The informative value of public audit reports and the auditor communications with the audited entity should be enhanced. Widely accepted
general principles for the content of future auditor communications will benefit all stakeholders.
As far as public auditor reporting is concerned, this can be done through providing more information in the audit report regarding the auditor’s
view on the use of the going concern assumption by management. In addition, information in relation to the audit approach used in respect of
the entity’s specific significant audit risks should be included. The audit report accompanies the entity’s financial statements and the additional
auditor reporting will help to add credibility to those financial statements.
This forms part of the initiatives to enhance financial reporting from entities and supports investors in making better informed investment decisions.
Principles-based initiatives that support these objectives, including improving auditor communication, are a high priority of the audit profession.
With the unfolding of the financial crisis, an assessment of how audit services transparency to and provide comfort on the reliability of financial reporting.
can continue to enhance their contribution to the economy and to society Recent debate has highlighted the need to provide the public with more details
is appropriate and timely. An important role of the audit profession is to add about what an audit is and what the output of an audit is.
European Commission proposals and international initiatives

The European Commission published in November 2011 its proposals to two different instruments, a Directive and a Regulation, as this may increase
reform the European audit market. The proposals include suggested changes barriers to entry on the public interest entities audit market.
to the way auditors communicate externally in the public audit report and
internally to the entity’s audit committee or supervisory board for audits of Our recommendations below are therefore not aimed at endorsing the legal
public interest entities. instrument of a Regulation, but intend to encourage a common approach on
auditor reporting by other legislative means.
Auditor reporting should not be dealt with by Regulation
FEE fully supports initiatives that will lead to having an audit report that
As the representative organisation of the European accountancy profession, is more user friendly, easier to understand and more informative. With
FEE is committed to advancing audit policy across the EU and globally. this in mind, FEE supports the European Commission’s aim of enhancing auditor’s
This would require striking a proper balance between the need to provide public communication for public interest entities. Especially the proposal for
consistent common principles and requirements while acknowledging the more disclosures regarding the auditor’s view on the use of the going concern
(sometimes significant) differences in size, structure, complexity and type assumption by management is relevant. With regard to some of the details of
of economies of EU Member States. While we recognise the importance the proposals, FEE believes that they could be made more practicable and useful
of fostering harmonisation in accordance with the EU legal competences, by making them less prescriptive and allowing the auditor to use judgement on
we believe that EU intervention in these matters and especially as regards what information about the individual entity should be reported.
company law, needs to continue complying with the principles of subsidiarity
and especially proportionality. The European Commission also regulates the content of the audit report for
non-public interest entities in the fourth company law Directive on financial
Therefore, FEE recommends the European Institutions to reassess the choice statements. FEE agrees that information needs of users of audit reports for
of a European Regulation as the legal instrument to change statutory audit public interest and non-public interest entities differ. However, as most of the
of public interest entities. In line with the choice made regarding the current additional matters proposed for public interest entities audit reports are not
Statutory Audit Directive (2006/43/EC), it would be more appropriate and proposed for audit reports for non-public interest entities, the comparability
proportionate to continue dealing with the provision of statutory audit services between audit reports in different segments of the market will be severely
to companies which are public interest entities in a European Directive. diminished. FEE believes that there should be a single audit report for all
Furthermore, in view of the objective – that FEE supports – of enabling new entities that is scalable to provide for the differing information needs.
entrants on the market of statutory audit services for public interest entities, For instance, the statutory auditor could do more, especially in relation to the
it does not appear opportune to split the legislation of statutory audit in management report of public interest entities, and not only perform a consistency
FEE • Avenue d’Auderghem 22-28, 1040 Bruxelles • Tel: +32 (0) 2 285 40 85 • Fax: +32 (0) 2 231 11 12 • Email: secretariat@fee.be
Policy Statement
check between the management report and the financial statements, but also (IAASB) is currently developing a new international approach to audit reports
state whether the management report as a whole is suitable in the context of which aims at enhancing the communicative value of auditor reporting to
the auditor’s knowledge and understanding of the company’s business obtained its users. This work has been accelerated in order to meet the demands of
during such audit. wider stakeholder groups1. Furthermore, the US Public Company Accounting
Oversight Board (PCAOB) is also considering these issues. FEE believes that
International solutions for auditor reporting are preferable global solutions for audit reports are preferable and will benefit investors
and other users. FEE therefore supports cooperating internationally
FEE notes that the International Auditing and Assurance Standards Board towards a solution regarding auditor reporting.
Audit and financial reporting

Audit has become more complex over recent years as the complexity of entities’ Similar to users’ expectations with regard to financial statements, users are
business models and financial reporting has increased and will continue to do looking for entity specific information on the audit rather than the current
so. New solutions for auditor communication should be sufficiently standard “one size fits all” audit report, following from an audit which is each
flexible to allow for further developments in financial reporting. This time based on the same sound audit principles. Any improvements made
would ensure that the core service of the audit profession, the audit, continues should ensure that the quality of auditor’s communication meets user needs.
to be valued by its users as relevant and of quality.
Communication flow
It is the responsibility of the governing body of an entity to provide information In supporting the audited entity in delivering financial information of quality,
about the entity to users. After the auditor has issued the audit report to the the auditor already communicates regularly and frequently with the audited
audited entity, the entity makes the audit report available to the public together entity based on the current requirements in the International Standards on
with the financial statements. In this regard, the public represents existing and Auditing ISA 260 and 2652. The concept of the internal report to the audit
potential shareholders, as well as other users that have an interest in the committee proposed by the European Commission is appropriate and
audited financial information of a particular entity. The function of the audit will, alongside other communications and discussions between the auditor and
report is to accompany the financial statement information provided the audit committee, contribute to strengthening the communication between
by the audited entity itself and add credibility to that information. the two parties.
Furthermore, the entity provides other financial information to the public that
may or may not be accompanied by an independent opinion from an auditor. The public as well as the audit committee receive information from numerous
sources. To avoid information overload and duplication of information, the
Some information gathered by auditors during the audit is more suitable information provided should be as specific as possible and should aim at
for internal purposes than for publication in the audit report, for instance increasing the knowledge about the audited entity.
information that supports the audit committee in its monitoring responsibilities
of an effective accounting and related internal control system.
Key areas in auditor reporting: tailored to the information needs of stakeholders

The key issues raised by the European Commission regarding auditor The primary responsibility to provide information about an entity, such as
communication deal with the auditor’s view as to the entity’s own assumption financial statements and the reasons underlying management’s use of the
that it is going concern, the audit approach and the auditor’s assessment of going concern assumption, belongs to its management. Unlike Credit Rating
relevant internal control deficiencies within the entity, as proposed in Article Agencies, the auditor is not an information provider in this respect. The audit
22 of the Regulation. These are all issues that are important to users. The level report is therefore not by itself an indication for an investor on whether
of detail provided in the audit report will differ from one entity to another with a particular entity will continue as a going concern. The audit report
the entity specific information focusing on the work that the auditor has done, is based on the information included in the financial statements by
and ordinarily not on the business risks the entity has identified although they management and must be read in conjunction with these financial
might be linked. statements that it accompanies.
In this respect, the EC proposals should be made more principles-based Currently, there is no Europe-wide requirement for the entity to explicitly include
and practical. These key topics are further discussed below. comments on its going concern assumptions in the financial statements. With
the growing interest in additional information on going concern assessments
Going concern from investors, entities should be required to provide more information on the
assumptions and other information they have used to support management’s
The auditor can be more explicit regarding the audit work performed in the area assertion that the entity would be able to continue its activities in the
of going concern within the external audit report and in its communications to foreseeable future, currently normally for a period of at least one year. This
the audit committee. is especially important in situations where there may be concerns about
1
An IAASB Invitation to Comment on Improving the Auditor’s Report was issued on 22 June 2012, https://www.ifac.org/sites/default/files/publications/files/Auditor_Reporting_Invitation_to_Comment-final_0.pdf
ISA 260 Communication with Those Charged with Governance and ISA 265 Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
2
Policy Statement Standing for trust and integrity
the impact of future events. Additionally, the information provided should in statements and could for instance be related to revenue recognition, use of
general be proportionate to the size and complexity of the entity. fair value measurements including measurement of financial instruments,
sovereign debt exposures, etc.
Disclosures in the financial statements should be categorised in three
categories: Under the current framework for audit reports, auditor comments on specific
items in the financial statements can risk giving the impression that an
• No going concern problems: only brief disclosures. auditor expresses piecemeal audit opinions. In order to maintain the clear
• Potential going concern problems: more extensive disclosures. pass/fail nature of the audit report, it will be essential to clearly specify in
• Clear going concern problems: significantly more details to be provided. the audit report which significant audit risks the auditor has identified and
– without expressing an individual opinion on individual areas of significant
With this additional information from management on going concern, the auditor risk - provide users with clear information about the work done on each of
would be well placed to give a view regarding the conclusions drawn during these specific areas in support of the overall audit opinion on the financial
the audit in respect of management’s use of the going concern assumption. statements as a whole. In this way, misconceptions about piecemeal audit
This additional information would be based on information and audit work that opinions on parts of the financial statements could be mitigated.
is already included in the audit file. The disclosure in the audit report should
be as entity specific as possible. Compared to the European Commission Audit work based on ISAs already addresses potential fraud risks. Such risks
proposals in Article 22, 2 (l), FEE suggests highlighting even further exist in all entities and can never be removed completely but can be mitigated
that the auditor is required to provide a statement on management’s by performing audit procedures that respond to the fraud risks identified.
assessment and disclosure of the audited entity’s ability to meet its Although fraud risks are significant risks from an ISA audit perspective, the
obligation in the foreseeable future and therefore continue as a going fraud risks in a particular entity might turn out to be low. Therefore, there
concern. This should help mitigate the risk of widening users’ expectation gap would be little merit in including them as significant audit risks in the audit
regarding the auditor’s work on going concern assumptions. report of this particular entity.
An example on how the disclosures in the audit report could be displayed is set Based on this, FEE proposes to simplify and make the European Commission
out below. This example is only indicative and iterative as it is expected to be proposals on describing the audit methodology used more practical. This
subject to much debate and refinement: could be done by replacing the European Commission proposals to
report on matters related to “methodology” with reporting on matters
related to “audit approach” and “significant audit risks”, replacing
Example of auditor disclosure and merging Article 22 paragraphs 2 (h), (i), (k), (m) and (n). In practice,
on going concern assumptions in the audit report: details regarding audit work performed to address specific significant audit
risks identified during the audit of the entity in question are more useful than
“As part of our audit of the financial statements, we have concluded a generic description of the audit approach.
that management’s use of the going concern assumption is appropriate.
The number of significant audit risks will vary from one audit to another. In
Based on the audit evidence we have obtained, we have not identified less complex audits, there may be only one significant audit risk, but in audits
material uncertainties related to events or conditions not already of more complex entities with complex business models, more significant
disclosed in the financial statements that may cast significant doubt audit risks could be expected to be identified.
on the entity’s ability to continue as a going concern and we have
not proposed any changes be made to the disclosures included in the Examples of how the auditor might comment on significant audit risks in the
financial statements regarding going concern. audit report follow. These examples are only indicative and iterative as they
are expected to be subject to much debate and refinement:
However, future events or conditions may change the assumptions that
this statement is based upon and therefore may also affect the entity’s
ability to continue as going concern”. Examples of auditor disclosure
on significant audit risks in the audit report:
Example 1: Sovereign Debt
Audit approach The accounting estimates used in the preparation of the financial
statements as per 31 December 2011 were made in a context of uncertainty
The audit report should be more entity specific. This could be done by arising from the sovereign debt crisis in some Eurozone countries.
providing information on the audit approach for that specific entity,
including commenting on significant audit risks that the auditor has This has led to lack of visibility concerning economic prospects and to
identified and addressed during the audit. At the beginning of the audit, volatility in financial markets during 2011, details of which are provided in
the auditor identifies areas that appear to be significant audit risks. This note 15 regarding sovereign debt exposures (in total € 53 billion) in some
enables the auditor to focus the audit work on those areas where the risk Eurozone countries.
of material misstatement of the financial statements is the highest. These
significant audit risk areas may need to be readjusted as the audit work We have tested the control procedures implemented to measure such
evolves. Significant audit risks will relate to various items in the financial
Policy Statement
exposures and to assess the credit risk associated with these exposures. Internal controls
The test of controls was supplemented by substantive audit procedures
to confirm that items were appropriately recorded and measured. Based Reporting on deficiencies in internal controls within the entity as
on the results of this audit work, we did not propose any adjustment be identified during the audit is more relevant to management and to the
made to the control procedures used, the recording of impairment and write audit committee than to the public. Management is responsible for the
downs by the company or the disclosures provided in note 15. internal control systems and thus they need to understand where deficiencies
have arisen so that they can develop action plans to mitigate these deficiencies.
Example 2: Revenue Recognition
On a transaction basis, the group recognises revenue in full on receipt of The information needs of users of audit reports should focus on understanding
cash. A deferred income adjustment is then calculated to take account of whether any significant deficiencies in internal financial controls identified by
subscription payments received in advance. management and/or the auditor have been resolved (or not) and whether they
have impacted the audit work performed.
Our audit work was designed and performed in order to assess the
adequacy of the systems and controls in place for recognising revenue The European Commission proposals for disclosures regarding internal control
and to substantively review revenue recognised during the year using IT deficiencies in the audit report would require the auditor to assess the internal
based audit techniques. This included reconciling revenue recognised to control system. This would involve significantly increased costs for entities to
cash received and an assessment of compliance, or otherwise, with IAS 18 document all their internal control procedures and significantly increased work for
on Revenue. As a result of our audit procedures, audit adjustments were auditors to audit them to be able to assess their effectiveness. Such requirements
identified and recorded in the financial statements to ensure that revenue appear to add little value. For instance, Section 404 of the Sarbanes-Oxley Act
is recognised evenly over the subscription period. (SOX) in the US did not prevent the financial crisis. The current risk-based audit
approach forms the basis for communication of deficiencies in internal control
Based on the audit work performed, we did not propose that further that the auditor has identified during the audit of the financial statements. This is
adjustment be made to revenue recognition as reflected in the statement of in our view sufficient and incorporating a SOX approach in European legislation
comprehensive income. should be avoided.
Example 3: Valuation of Investment Properties To mitigate this misunderstanding, FEE suggests that the following is
In the statement of financial position as at 31 December 2011 the carrying explicitly required to be reported by the auditor in the audit report:
amount of Investment Properties is € 238 million. There is continued “Significant internal control deficiencies in relation to the financial
uncertainty in the commercial property market and as a result commercial reporting process including bookkeeping and accounting systems
property values have fallen by varying levels in various locations. Movement identified during the statutory audit of the entity, where relevant to
in these revaluations could result in potential losses for the company and significant risks” instead of the European Commission proposal in
the group. Therefore, we identified this area as a significant risk for our Article 22, 2 (m).
audit and performed specific audit procedures. As stated in note 18, the
investment properties were written off by € 22 million as at 31 December Information on deficiencies in internal control in the internal report will be of
2011. benefit to the audit committee in discharging its monitoring responsibilities of the
audit and of internal control in general. This is already required under the current
The audit work performed included detailed testing of the valuations Statutory Audit Directive and by ISA 265.
carried out by management. This involved testing the assumptions made by
management and corroborating these with comparable data in the industry.
Based on this work, we did not propose any adjustment be made to the
Other issues
valuation of investment properties or the disclosures provided in note 18.
A few additional issues brought up by the European Commission regarding
auditor communication have attracted some attention. Among these are for
Although not proposed by the European Commission, FEE proposes instance the proposal to identify each member of the entire engagement team
that the auditor provides additional information to the audit committee in the audit report (Article 22, 2 (q)) and the requirement regarding the length of
regarding the audit approach and identified significant audit risks. This the audit report of maximum 10.000 characters or 4 pages long (Article 22, 2
would also include more details regarding the concept of materiality and the audit (u)). Such disclosures and prescriptive requirements appear disproportionate and
procedures performed on the significant audit areas. neither necessary nor appropriate.
About FEE
FEE (Fédération des Experts-comptables Européens – Federation of European Accountants) represents 45 professional institutes of accountants and
auditors from 33 European countries, including all of the 27 European Union (EU) Member States. In representing the European accountancy profession,
FEE recognises the public interest. It has a combined membership of more than 700.000 professional accountants, working in different capacities in public
practice, small and big firms, government and education, who all contribute to a more efficient, transparent and sustainable European economy.
Facey, Laura J. (CA - Toronto)
From: Eric.Turner@cica.ca
Sent: Wednesday, October 24, 2012 7:05 AM
To: BRIAN LUTHER
Cc: Langlois, Melissa (CA - Toronto)
Subject: Response to discussion papers
Brian
Thanks for taking the time to send me your comments. I am involved with the auditor reporting project and will make sure the
working group receives your feedback
By copy of this email I am passing your comments on the independence DP to the auditor independence project manager.
Eric Turner, CA
Principal
Auditing and Assurance Standards
416 564 2440 Blackberry

416 204 3240 Office
From: BRIAN LUTHER [b.luther@mowbreygil.com]

Sent: 10/23/2012 04:19 PM CST
To: Eric Turner
Subject: Conversations about Audit Quality: Musical Chairs Anyone?
Dear Eric,
We have reviewed the proposals related to audit report models and auditor independence as they would apply in Canada
and have just a very brief response.
Audit Report
We agree in general with the conclusions and commentary of ARWG however we have some reservations requiring
auditor commentary for NPO’s, pension plans and benefit plans. We audit several smaller NPO’s and I would say that
their primary concern is to see a “clean” audit opinion. They are not interested in a lot of verbiage that they or their
members would probably not understand and they are certainly not interested in anything that would increase the cost of
an audit. Small and medium sized NPO’s are already looking at alternatives to audits because of rising costs and we feel
that this is not something to be encouraged. Audits should be seen to have value to these kind of organizations and we,
as a profession, need to ensure that we are not making them unaffordable or too complex. I am all in favour of the
recommendations for publicly accountable enterprises as the readers need additional information from their auditors and
will see it as valuable.
We feel essentially the same about our pension and benefit plan audits. The Boards of Trustees that we report to are also
mainly interested in whether or not we did an audit and whether or not we have given our opinion on the fair presentation
of the statements. As with NPO’s, a great deal of further information is already required to be communicated and/or
discussed with the audit committees so they already have a really good grasp of what happened during the audit and
what the statements say. Members of the plans we audit do not receive copies of the financial statements unless they
ask for them, only a summary, so they would not get the benefit of an expanded audit report in any case, and even if they
did, I really doubt whether it would help them understand the state of their pension plan, for instance.
1
Maybe in the case of NPOs, pension and benefit plans, size could be looked at as a determining factor as to whether the
audit report should have commentary added. I do see the benefit in larger NPO’s and plans where there is greater public
scrutiny and interest.
Independence
We agree entirely with the conclusions summed up as “extensive safeguards already exist in Canada to maintain auditor
independence and objectivity…” Again, for external audits to be continued to be seen to be valuable we must be continue
to be practical and continue to “sell” the advantages of having an independent look. But when we make this difficult for
clients it can become a very cynical process in which we sacrifice the value of client knowledge and relationships for an
illusion of increased independence. Automatic rotation of firms and tendering does not necessarily lead to greater
independence. In fact, it could lead to the opposite in some cases. Where we have been involved in the tendering
process and lost to someone who quoted a very low fee we really wonder if the process served the client and the quality
of the audit. The close scrutiny of the audit and auditors by audit committees and boards is something we would welcome
and that we feel would help to increase independence to an acceptable level.
Eric, is there somewhere else I should be sending these comments or can you forward for me?
Thank you,
Brian
BRIAN E. LUTHER CA CFP

Partner
MOWBREY GIL LLP
Chartered Accountants & Business Advisors
Direct 780.421.5928
Main 780.461.3800
Facsimile 780.462.4536
Web www.MowbreyGil.com
Your business is our only business

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Auditor Reporting Model Comment Letters (PDFDrive)

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Canadian Public Accountability Board

Date November 28, 2012

Phone +31 (0)20 79 72 837

Concerning AFM Comments on Discussion Paper

Netherlands Authority for the Financial Markets

Clarification and Transparency of the Audit Process

Janine van Diggelen Martijn Duffels

(the “ICD Roundtable”)

Views of the ICD Roundtable

Members of the ICD Roundtable:

1. Purpose of the ICD Roundtable

2. Discussion of Auditor Independence Discussion Paper

(b) Views on Mandatory Rotation and Mandatory Tendering

(c) Views on Mandatory Comprehensive Audit Firm Review

(d) Other Views on the Auditor Independence Discussion Paper

The ICD Roundtable also noted the following:

More clarity is required from CPAB/CICA regarding the statement in paragraph

prohibited, but it should be left up to audit committees to decide whether a joint

3. Discussion of Auditor Reporting Model Discussion Paper

(a) Views on Going Concern Disclosure

(b) Views on the Auditor’s Report

(c) Views on an Auditor’s Discussion and Analysis

(d) Views on an Audit Committee Report to Shareholders

November 27, 2012

Subject: Discussion Paper - Enhancing Audit Quality: Canadian Perspectives

Moreover, as mentioned by the working group, we agree that if additional information

André Miville, CPA, CA Vicky Lizotte, CPA, CA

Enhancing Audit Quality: Canadian Perspectives – The Auditor Reporting Model

Dear Auditor Reporting Working Group:

Changes to auditor reporting should be perceived to narrow, or to at least not expand,

Result in conflicts, either actual or perceived, between information provided by

Result in subjective information or commentary provided by the auditor that

Summary of our perspectives on the views of the ARWG

Areas of significant management judgment

Clarifications and Transparency of the Audit Process

Clarifications/definitions of reasonable assurance, materiality and material

Application of Auditor Reporting Proposals in the Canadian Environment

Mr David A. Brown C.M., Q.C.

• In Australia the audit partner is required to sign the auditor’s report.

The Internationaal Auditing and

I reffer to the Invvitation to Coomment issueed by the Intternational Audit

Pleaase feel free to contact me

The recommendations in this submission may be summarised as follows:

• The Australian Financial Reporting Council (FRC) supports the development

• The FRC supports the industry’s attempt at self-regulation to better

The FRC monitors the development of international accounting standards by the

Clarifications and Transparency

Form and Structure

1. As an investor, on which of the following sources of information do you rely? (please

1.1 Investment advisors 29.4% 115

1.2 Financial planners 13.6% 53

1.3 Brokers 39.4% 154

1.4 Auditor's Report 25.6% 100

1.5 Annual Report to shareholders 69.6% 272

1.6 Accountants 14.8% 58

1.7 Newspapers 73.1% 286

1.8 In-house investment teams 10.7% 42

1.9 None of the above 1.8% 7

1.10 Other please specify 23.8% 93

Other (please specify)

answered question 391

2.1 Chairman's letter 60.5% 46