Are you and your firm’s accountants ready to implement the stricter standards for audits and reviews in 2015’s Canadian Standard for Review Engagements 2400? These AASB standards apply to fiscal years ending after Dec. 14, 2017, and now that the date has passed, it’s important to brush up on the new review engagement standards. In many ways, the guidelines take common best practices and make them explicit requirements. You may find you’re already in compliance with many of the updates, but you can never be too careful.
If you’re reviewing financial statements, it’s likely you’re already taking materiality into account, even if you’re not conscious of it. That is to say, you’re paying attention to the importance and significance of each amount and transaction. Immaterial amounts aren’t likely to have invested parties, such as banks and investors, make different decisions about a company. Material amounts, on the other hand, are critical to understanding the financial health of a company. This is why you must explicitly make this distinction and identify any areas where you’re more likely to find material misstatements under the new guidelines. You can design your auditing procedures in a way that focuses on those areas and spares you from putting unnecessary efforts into other areas where you’re more likely to find immaterial amounts and transactions.
Communication With Management
Keeping communication lines open with the management of the company you’re auditing has always been a good business practice, but now it’s a requirement. It’s not enough to just submit your report with your findings at the end of the audit. If you discover a material misstatement, process concern, or unidentified risk, don’t wait to tell the client. As soon as you identify something that requires the attention of management or a governing body, such as a board of directors, you must notify them in a timely manner. This applies not just to the performance phase of the audit, but to the engagement acceptance, conclusion, and reporting phases as well.
The guidance is not strict about how you choose to communicate this information, though it never hurts to have things in writing. If you do pass along information orally, the guidance requires to you document in writing that you had the conversation or meeting.
Don’t Take Their Word for It
If you’ve audited companies in the past, it won’t surprise you that CPA Canada is concerned about the accuracy of the data a company provides. Identifying errors and reporting weaknesses is a major part of any audit, so you know that sometimes you have to take accounting reports with a grain of salt. On the other hand, it can be difficult to tell whether the reporting is accurate when it seems all you have to go on is the company’s word for it. CSRE 2400 doesn’t allow for that excuse. It’s your job as an auditor to dig deeper into the accounting to verify that the data behind the reporting reinforces it. This is a reason for identifying areas that are at a higher risk for material misstatements and designing extra auditing procedures and analysis for them. This way, if a business misrepresents its finances, whether unintentionally or not, you’re not on the hook for failing to identify that misrepresentation. That’s why it’s important to familiarize yourself with the requirements in CSRE 2400. Doing so not only helps ensure compliance with the new standards but also helps you deliver quality engagement and reduce audit risk.