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Boring is not a Canadian Auditing Standard!

Foundation course
Very demanding come prepared!
A note about professionalism
Open door policy
Feedback from past students
Heavy workload
Course structure: starts off theoretical, moves into

application in second half


Midterm: tight for time for a reason!

Questions?

Professional Accounting & Auditing


Organizations
Nature of auditing
Review of types of audits
Activities of public accounting firms
Generally Accepted Auditing Standards
Auditing recommendations and standards
The Auditors Report

5 major bodies in Canada providing a


professional designation:
CICA (CA)
Authority by Canada Business Corporations Act and
provincial acts to set accounting and auditing standards for
pubic accountants.
Assurance Standards Board (Assurance and Related
Services Recommendations)
CICA Handbooks

CGAAC (CGA)
SMAC (CMA)
IIA (CIA)
ISACA (CISA)

Must be information in a verifiable form;


Standards or criteria needed for evaluation

GAAP;
Control criteria such as COSO;
Other best practices
Agreed on in advance

Accumulation and evaluation of evidence about information


Competent, independent person
Auditors report
Economic role: reduces information risk

User(s)

Conclusion

Auditor

Subject
Matter

Accountability

Accountable Party

International Federation of Accountants

Publishes its own recommended international standards on auditing (ISAs)

International Auditing and Assurance Standards Board


CICA has adapted the ISA standards as they are, unless specific
customization is required for the Canadian context.
CASs came into effect for audits of financial statements for periods ending

on or after December 14, 2010


Key focus on harmonization

A handy reference source: http://www.cica.ca/CAS/

Financial statement audits


Compliance audits
Following specific procedures/rules

Operational audits

Evaluates efficiency & effectiveness of ops

Comprehensive audit

3 components (FS audit; compliance audit; value for

money)

Audit report on internal controls (based upon


criteria such as COSO or COCO)

Audits (of historical cost financial statements);


Reviews (less assurance)
Compilation (no assurance)
Special report (opinion on compliance, or on
financial information)
Tax services
Management advisory services
Accounting and bookkeeping services

Practice

standards are general guides


for professional work.
Generally accepted auditing standards

(GAAS).
Assurance standards.
General Standards of Quality Control for
Firms Performing Assurance Engagements.
Quality control standards as reflected in
peer reviews and practice inspections.

GAAS

identify the objectives and key


principles of the financial statement
audit.
GAAS provides a framework under which

all auditing standards are applied.


The objectives and key principles are
found in CAS/ISA 200.

Auditing

standards include Canadian


Audit Practice Statements (CAPSs)
and Audit Guidelines (AuGs).
Standards remain the same over time

and for all audits.


Audit Procedures may vary based on the
organization being audited.

Objective of an audit: to express an opinion on whether

General Standard

financial statements are prepared appropriately in all material


respects. Implies Three-party accountability.
Comply with relevant professional ethical requirements.
Competence; Objectivity; Due Care

Examination Standards

Conduct audit in accordance with CASs, and follow CAS to

determine procedures to be performed.


plan and perform the audit to reduce audit risk; reasonable
assurance
Sufficient understanding of internal controls must be obtained
Sufficient appropriate audit evidence

Reporting standards
Skepticism: attitude of professional scepticism

Identify financial statements


Distinguish between management

&

auditor resp.
Scope of auditor examination
Expression of an opinion on F/Ss, or
state that an opinion cant be
expressed
Do the F/Ss present fairly, in all
material respects

What is an auditors report?


Formats
Standard unqualified auditors report
Unqualified with explanatory wording
Qualified
Adverse/denial
Materiality
Conditions requiring a departure

Primary product of the attestation process


CICA Handbook requires public acct. to commn
nature and extent of involvement with the
information audited.
Concept of association
Requirements for issuing auditors report derived
from GAAS.

Report title
Addressee (must be disclosed: often
shareholders)
Introductory paragraph
Lists the F/Ss, and that they were audited.

Responsibilities: States FSs are resp of


mgmt, and auditors resp is to express an
opinion on them.
Description of an audit: An audit was
performed in accordance with GAAS.

Description of an audit.contd
Factual statement about what the auditor did.
Audit designed to obtain reasonable assurance about

whether the F/Ss are free of material misstatement.


Auditor believes evidence accumulated was appropriate
to express the opinion; Test basis.

Opinion paragraph
The phrase in our opinion professional

judgement.
Opinion on the F/Ss, taken as a whole, and
conclusion about whether company followed an
approp disclosed basis of accounting (usually
GAAP).
Dont blindly rely on GAAP look @ substance of
transaction

presents fairly auditor cannot check every

transaction!

Name of public accounting


Place of issue
Auditors report date

firm

Completion date, not date of substantial

completion.
No earlier than when sufficient
appropriate audit evidence obtained.
After those with recognized authority
(such as the board) have approved the
F/Ss.

INDEPENDENT AUDITOR'S REPORT


[Appropriate Addressee]
Report on the Financial Statements
We have audited the accompanying financial statements of ABC
Company, which comprise the statement of financial position as at
December 31, 20X1, and the statement of comprehensive income,
statement of changes in equity and statement of cash flows for the
year then ended, and a summary of significant accounting policies
and other explanatory information.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with
International Financial Reporting Standards, and for such internal
control as management determines is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit in accordance with Canadian
generally accepted auditing standards. Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about
the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor's judgment, including the assessment of the
risks of material misstatement of the financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient


and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all
material respects, the financial position of ABC Company as at
December 31, 20X1, and its financial performance and its cash
flows for the year then ended in accordance with International
Financial Reporting Standards.
Report on Other Legal and Regulatory Requirements
[Form and content of this section of the auditor's report will
vary depending on the nature of the auditor's other reporting
responsibilities.]
[Auditor's signature]
[Date of the auditor's report]
[Auditor's address]

Expanded reporting options under CAS


Emphasis of matters paragraph (such as going concern

or change in accounting policy). Appropriately presented


in the financial statements, but needs to be drawn to the
users attention.
Typically:

Consistency (of accounting principles applied)


Accounting Uncertainty
Emphasis
Going Concern

Preceeds the opinion paragraph.


Other matters paragraph (matters other than those
presented or disclosed in the FSs)

Only where:
Scope limitation, but restriction confined to a

specific area;
GAAP departure: effect can be quantified or
isolated

If the condition being reported on is very


material Adverse opinion.
Auditor must either use the term except
for, or except that, or except as.
Fairly rare.

[TO FOLLOW SECTION ON AUDITOR RESPONSIBILITES]


Basis for Qualified Opinion
The company's inventories are carried in the statement of financial
position at xxx. Management has not stated the inventories at the lower of
cost and net realizable value but has stated them solely at cost, which
constitutes a departure from International Financial Reporting Standards.
The company's records indicate that had management stated the
inventories at the lower of cost and net realizable value, an amount of xxx
would have been required to write the inventories down to their net
realizable value. Accordingly, cost of sales would have been increased by
xxx, and income tax, net income and shareholders' equity would have been
reduced by xxx, xxx and xxx, respectively.
Qualified Opinion
In our opinion, except for the effects of the matter described in the
Basis for Qualified Opinion paragraph, the financial statements present
fairly, in all material respects, the financial position of ABC Company as at
December 31, 20X1, and its financial performance and its cash flows for the
year then ended in accordance with International Financial Reporting
Standards.

Overall F/Ss are SO materially


misstated or misleading that they do
not present fairly the financial
position, results of operation, or
changes in cash flow in accordance
with GAAP.

[TO FOLLOW SECTION ON AUDITOR RESPONSIBILITES]


Basis for Adverse Opinion
As explained in Note X, the company has not consolidated the financial
statements of subsidiary XYZ Company it acquired during 20X1 because it
has not yet been able to ascertain the fair values of certain of the
subsidiary's material assets and liabilities at the acquisition date. This
investment is therefore accounted for on a cost basis. Under International
Financial Reporting Standards, the subsidiary should have been consolidated
because it is controlled by the company. Had XYZ been consolidated, many
elements in the accompanying financial statements would have been
materially affected. The effects on the consolidated financial statements of
the failure to consolidate have not been determined.
Adverse Opinion
In our opinion, because of the significance of the matter discussed in
the Basis for Adverse Opinion paragraph, the consolidated financial
statements do not present fairly the financial position of ABC Company and
its subsidiaries as at December 31, 20X1, and their financial performance
and their cash flows for the year then ended in accordance with
International Financial Reporting Standards.

Auditor

is unable to satisfy
himself/herself that the overall F/Ss
are fairly presented.
Often arises due to severe limitation
on scope.
Can only arise from a lack of
knowledge by the auditor about
whether or not the F/Ss are fairly
stated.

Basis for Disclaimer of Opinion


The company's investment in its joint venture XYZ (Country X)
Company is carried at xxx on the company's statement of financial
position, which represents over 90% of the company's net assets as at
December 31, 20X1. We were not allowed access to the management and
the auditors of XYZ, including XYZ's auditors' audit documentation. As a
result, we were unable to determine whether any adjustments were
necessary in respect of the company's proportional share of XYZ's assets
that it controls jointly, its proportional share of XYZ's liabilities for which it
is jointly responsible, its proportional share of XYZ's income and expenses
for the year, and the elements making up the statement of changes in
equity and statement of cash flows.

Disclaimer of Opinion

Because of the significance of the matter described in the Basis for


Disclaimer of Opinion paragraph, we have not been able to obtain
sufficient appropriate audit evidence to provide a basis for an audit
opinion. Accordingly, we do not express an opinion on the financial
statements.

Auditors scope has been restricted


Caused by client vs beyond control of auditor or client
Effect on auditor report the same, but diff interpretations

of materiality
Client imposed: mgmt trying to prevent discovery of
misstmt? Likely denial of opinion.
If beyond clients control: either qualification of scope or
opinion.
Reservation paragraph needed to describe restriction.

Statements not in conformity with GAAP

A qualified or adverse opinion depending on materiality

and pervasiveness.

If more than once condition requiring qualification qualify


opinion for each condition.
Report involving reliance on another auditor
Primary auditor takes resp for the opinion;
Primary auditor must assess secondary auditors qualifications,

competence and integrity;


If a qualified or denial of opinion is necessary due to inability to
rely on secondary auditors work the secondary auditor may
be named.

Negative assurance: inappropriate

Nothing came to our attention that would lead us to

question

Essential for determining appropriate type of


audit report to issue;
Pervasiveness of scope limitation or GAAP
departure must also be considered.
Would the decision of a person who is relying on
the F/Ss be changed???
If material, but does not overshadow F/Ss as a
whole, qualified.
qualified
If amounts material and pervasive: auditor must
issue a denial of opinion or adverse opinion.

GAAP departure
Misstmts must be compared with a measurement base

before materiality decision can be made


% of net income before taxes, total assets, current
assets, etc.
Consider combined effect of all unadjusted errors.
SAD

If measurability uncertain: must disclose this.


Scope Limitation
Look at the size of potential misstmts.

Required to be added to the audited financial statements


by SOX;
Limited to internal controls over financial reporting
Controls related to the accuracy of accounting/ recordkeeping,

and safeguarding of assets

Typically performed as part of the audit engagement.


These controls do NOT guarantee the financial statements
are free of material misstatement. Current evaluation will
not necessarily apply to the future.
Conformity with an established criteria must be referenced,
as well as concepts of materiality and a fairly stated
management assessment.

Management:

Sound accounting policies


Maintaining adequate internal controls
Making fair representations in the F/Ss
Stated right in annual report

Auditors

Perform audit with an attitude of professional

skepticism
Seek reasonable assurance, not absolute
assurance
Responsibilities relating to errors, frauds or
other irregularities?

Decision to accept or retain the client


Understand the clients business
Plan and design audit approach
Aim: sufficient, appropriate audit evidence; minimize cost of
accumulating evidence
Understand clients internal controls and assess risk

Required by examination standard ii of GAAS


Allows auditor to evaluate how effective controls will be in preventing and
detecting errors, frauds, or irregularities

Perform the audit tests and evaluate results

Perform test of controls


If control risk assessed below maximum, auditor can reduce the extent to
which accuracy of F/S amounts related to these controls must be validated;

Substantive procedures (analytical and tests of details and balances)


Analytical procedures: assess overall reasonableness of transactions or
balances
Tests of details: specific procedures testing for monetary misstatement

Form an opinion and issue audit report