Canada Adopts ISAs 

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Canada Adopts ISAs

Changes to Handbook sections will reflect new international standards and conventions.

FROM: MAY-JUN 2007 ISSUE | BY STEPHEN SPECTOR

CICA’s Auditing and Assurance Standards Board (AASB) has announced that as part of the move to international harmonization, it is adopting International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB). Specifically, the AASB is adopting ISAs that have been issued by the IAASB as part of the latter’s Clarity Project. As a result, the CICA Handbook – Assurance will be changing; material currently in the 5000, 6000, and 7000 series of sections will be renamed Canadian Auditing Standards (CAS).

The adoption of ISAs will also mean a change to the format of the Handbook sections. The Clarity Project changed the conventions used by the IAASB; accordingly, those changes will spill over into the CAS. Future standards will consist of five parts:

• Introduction: This will explain the subject matter of the standard; its purpose, scope, and how it relates to other standards; the specific expectations of the auditor and others; the context in which the standard is set; and its effective date.
• Objectives: The auditor will use the objectives to judge whether, having complied with the requirements of the standard, sufficient appropriate audit evidence has been obtained to provide reasonable assurance about whether the financial statements are free from material misstatement – whether due to fraud or error – and to report on the financial statements in accordance with the findings.
• Definitions: When or where necessary, the CAS will provide the meanings attributed to certain terms to assist in consistent application and interpretation of the standards. These are not intended to override definitions that may be established in law, regulation, or otherwise.
• Requirements: Requirements will be expressed using the words “the auditor shall” and are to be applied in the context of the other material included in the CAS.
• Application and Other Explanatory Material: This material will become an integral part of the CAS as it provides further explanation of, and guidance for carrying out, the requirements, along with background information on the matters addressed in the CAS. It may include examples of procedures, some of which the auditor may judge to be appropriate for the circumstances. However, such guidance is not intended to impose a requirement on the auditor.

The adoption of ISAs will mean more than just a change in the structure of an individual standard. The IAASB’s Clarity Project was intended to reduce the potential for miscommunication or misinterpretation of a particular ISA. The adoption of ISAs will affect the manner in which the CAS are put together:

• Current Handbook sections do not include an objective. CAS will state the objective to be achieved by the auditor in applying the section.
• Professional standards currently included within each Handbook section and referred to as “Recommendations” will be pulled out of each section and appear separately under the heading “Requirements.”
• Recommendations used the phrase “the auditor should” to communicate professional standards. Requirements will use the phrase “the auditor shall.”
• Guidance on the application of recommendations immediately followed the relevant paragraph(s) in a Handbook section, but in the CAS it will be included under the heading “Application and Other Explanatory Material.” Cross-references will be provided.
• The present tense was used when discussing the auditor’s actions or audit procedures in guidance on the application of recommendations of a particular Handbook section but will be avoided in Application and Other Explanatory Material.

Finally, the new Handbook will look quite different from the current one:

• The structure of the Handbook – Assurance will be the same as that of the auditing and assurance segments of the Handbook of International Auditing, Assurance, and Ethics Pronouncements (IFAC HB).
• For each ISA there will be a corresponding Canadian standard that has the same number and title. The number and title of Canadian standards that are the result of adopted ISAs will be the same as the number and title of the equivalent ISAs. Canadian standards for which there are no equivalent ISAs will be identified by a
  “-C” following the number.
• The scope of certain Canadian “assurance” standards will change to deal separately with financial statement audits and audits of other subject matter.
• “Guidelines” in the current Handbook will be called “Practice Statements” to adopt IFAC terminology.

A diagram from AASB’s February 2007 document Adopting International Standards on Auditing shows how the structure of the Handbook will change. Access it on page 10 at: http://www.cica.ca/index.cfm/ci_id/36185/la_id/1/document/1/re_id/0

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Stephen Spector, MA, FCGA, is the proprietor of Spector and Associates and teaches Financial and Managerial Accounting at Simon Fraser University. He also serves on CGA-BC's board of governors. E-mail shspector@shaw.ca.