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The Auditing and Assurance Standards Board (AASB)
Standard Setting in Canada
Due Process — Developing Domestic Standards
Due Process — Adopting International Standards on Auditing The Auditing and Assurance Standards Board (AASB) The AASB is composed of 13 voting and 2 non-voting members — current members are listed here. The AASB has the authority, as reflected in federal and provincial Business Corporations Acts and other legislation and securities regulations, to set generally accepted auditing standards (GAAS) for financial statement audits. The AASB also sets standards for other services performed by public accountants, including assurance services other than audits of financial statements such as reviews of financial statements and audits and reviews of information other than financial statements, as well as related services such as compilation engagements and engagements to perform agreed-upon auditing procedures. - Consistent with its mission as reflected in its Terms of Reference, the AASB’s long-term goals are to:
- set high-quality assurance standards that enable the profession to serve the public interest;
- support and participate in the development of high-quality global assurance standards; and
- maintain a strong Canadian assurance standard-setting capability to ensure public confidence in the assurance process.
The AASB conducts its activities under the oversight of the Auditing and Assurance Standards Oversight Council (AASOC). Members of the AASB are volunteers appointed by the AASOC. The AASB is supported by a staff consisting of a Director, a Secretary, six principals and an administrative assistant. Consultants are also engaged on an as-needed basis. Standard Setting in Canada The AASB is adopting the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) as Canadian Auditing Standards (CASs). The CASs will become GAAS in Canada effective for the audits of financial statements for periods ending on or after December 14, 2010. The AASB will maintain its standard setting capability and will continue its vital role of influencing the future direction of financial statement auditing standards to ensure that the Canadian point of view is effectively presented. The AASB will also continue to develop domestic standards for other types of assurance and related service engagements. Due Process — Developing Domestic Standards The Auditing and Assurance Standards Board (AASB) follows due process to ensure that it meets its strategic objectives and the needs of the public and other stakeholders. The AASB’s strategic objectives, and related activities, are set out in its strategic plan. This strategic plan is developed with input from the Auditing and Assurance Standards Oversight Committee (AASOC) and the AASB’s other stakeholders. - Annually, the AASB develops, with input from the AASOC, an operating plan that specifies the AASB’s priorities and agenda in light of its strategic objectives. This operating plan identifies specific standard-setting projects and other activities aimed at achieving the AASB’s strategic objectives. These other activities include:
- consulting and communicating with stakeholders;
- arranging guidance on the implementation of complex standards;
- providing timely input on projects and other initiatives undertaken by the International Auditing and Assurance Standards Board (IAASB);
- commenting on proposed legislation, and securities and other regulations, that may impact the profession or its ability to serve the public interest;
- monitoring the activities of other standard setters such as the US Public Company Accounting Oversight Board (PCAOB), the US Auditing Standards Board (US ASB) and the Canadian Accounting Standards Board, and of securities regulators, so as to respond in a timely manner to matters arising from their activities; and
- commissioning research studies or participating in discussions and studies relevant to the profession and the means by which it serves the public interest.
With regard to setting these standards, the AASB applies the following process. | 1. | Obtain stakeholder input to identify possible projects
The AASB seeks suggestions of possible projects through periodic stakeholder surveys. Stakeholders may also bring matters to the attention of AASB staff on an ad hoc basis. AASB staff, through relevant monitoring activities, and members of the AASB, through their professional activities, also identifies possible projects.
| | 2. | Identify projects for which project proposals should be prepared
AASB staff researches the issues underlying the suggested possible project to assess the need for, and the usefulness and practicality, of standards or guidance that address the underlying issues. Staff provides the AASB with a list of projects that appear to have merit, based on this initial assessment. The AASB decides the projects for which a project proposal should be prepared.
| | 3. | - Develop a project proposal
AASB staff develops a project proposal for the AASB’s approval. The project proposal identifies: - the objective and scope of the project;
- the underlying issues to be addressed by the project;
- the justification for the project;
- planning and communication issues related to the project;
- the planned timing for the achievement of specific milestones in the project; and
- the project output — usually a Standard or a Practice Statement in the future CICA Handbook – Assurance. (Practice Statement is the new term for an Auditing and Related Services Guideline.)
Justification for the project includes consideration of public interest concerns and whether the project is likely to effectively address the underlying issue(s). Depending on whether specialized knowledge is required for the project, or on the project's complexity, the AASB may decide that an advisory group, task force or standing committee be involved in the project. To varying levels, these volunteer stakeholder groups will deal with the issues underlying the project and will assist in the development of the project output. The volunteers are recruited by staff, sometime with the assistance of AASB members. Alternatively, the AASB may decide that the project be a “staff project.” Using this approach, project work is undertaken by staff who report directly to the AASB. Approval of a project proposal requires a favourable vote of two-thirds of all AASB members having voting rights.
| | 4. | - Approve a statement of principles
The AASB decides whether a statement of principles (SOP) is to be developed for a project. When an SOP is used, it is approved by the AASB and then distributed to the AASB’s associates for their comment. Associates are parties who have indicated that they would be interested in providing preliminary input on a proposed Standard or Practice Statement. The SOP sets out the key principles that will be the basis for developing: - the project output;
- the issues underlying the principles;
- the alternatives for dealing with the underlying issues;
- the pros and cons of each alternative; and
- the reason for having chosen a specific alternative.
An outline of the proposed guidance is also included in the SOP. Approval of an SOP requires a favourable vote of two-thirds of all AASB members having voting rights.
| | 5. | Approve an exposure draft
An exposure draft (ED) is developed for each proposed Standard. An ED consists of a draft of a proposed Standard along with a “Highlights Summary” to explain key aspects of a proposed Standard and draw important matters to the attention of potential respondents. While not required for a proposed Practice Statement, the AASB may decide that an ED should be issued for certain proposed Practice Statements. In developing the ED, comments on the SOP received from the AASB’s associates are considered. - The ED is presented to the AASB for its deliberation and approval. In deliberating an ED, the AASB considers matters such as whether:
- the ED will result in a high-quality standard that will enable the profession to serve the public interest;
- the project continues to be justified with respect to consideration of public interest concerns;
- the proposed Standard or Practice Statement is practicable;
- the ED reflects good practice;
- the Requirements and other material included in the ED are at least equivalent to the standards of the IAASB and other national standard-setters that deal with similar issues; and
- the language of the ED is sufficiently clear and concise to mitigate the risks of misinterpretation, misapplication or inconsistent application by stakeholders.
Once an ED is approved, it is given broad exposure to provide interested parties with the opportunity to provide their comments on the proposed Standard or Practice Statement. A request to respond to an ED is sent to a large number of stakeholders who have indicated an interest in responding to EDs. Continuing efforts are made to keep this list up to date and expand it. All EDs are also placed on the AASB’s website. Approval of the ED requires a favourable vote of two-thirds of all AASB members having voting rights.
| | 6. | Re-exposure considerations
Comments received on an ED are analyzed by staff (and members of any advisory group, task force or standing committee involved in the project) to identify possible revisions to improve the form and content of a proposed Standard or Practice Statement. The analysis of comments received, and proposed revisions to the ED, are presented to the AASB for consideration and approval.
Depending on how substantive or pervasive the proposed revisions are, consideration is given to re-exposing the revised document for further comment by stakeholders and interested parties.
A decision that there has been a significant change from material contained in an ED requires a favourable vote of a simple majority of all AASB members having voting rights.
When the AASB has determined that there has been a significant change, a decision not to issue a re-exposure draft (re-ED) requires a favourable vote of two-thirds of all AASB members having voting rights. Approval of a re-ED follows the same voting requirements as the approval of the ED.
| | 7. | - Approve a Standard or Practice Statement
The Standard or Practice Statement is presented to the AASB for its deliberation and approval. In deliberating the Standard or Practice Statement, the AASB considers matters such as whether: - it will result in a high-quality standard that will enable the profession to serve the public interest;
- it continues to be justified with respect to consideration of public interest concerns;
- it is practicable;
- it reflects good practice;
- the Requirements and other material included are at least equivalent to the standards of the IAASB and other national standard-setters that deal with similar issues; and
- the language is sufficiently clear and concise to mitigate the risks of misinterpretation, misapplication or inconsistent application by stakeholders.
The AASB deems the posting of approved Standards or Practice Statements in the electronic version of the CICA Handbook – Assurance to represent their official issuance.
Approval to issue a new Standard or Practice Statement requires a favourable vote of two-thirds of all AASB members having voting rights.
| | 8. | Basis for Conclusions
A Basis for Conclusions is issued for each standard. This document summarizes how the AASB responded to significant comments received on an Exposure Draft and the reasons underlying the AASB’s decisions on the final wording of a Standard. The Basis for Conclusions, drafted by AASB staff, is reviewed by AASB members for fatal flaws. The AASB Chair and Vice Chair decide on the final wording for each Basis for Conclusions. |
Due Process — Adopting International Standards on Auditing International Auditing Standards (ISAs) are set by the International Auditing and Assurance Standards Board (IAASB). The IAASB follows a rigorous due process for developing ISAs. The IAASB decides (with stakeholder input) what projects to undertake, the timing of development, and all other aspects of developing and issuing ISAs. Consequently, when the AASB is adopting an ISA, some aspects of due process will have been completed, and much of the AASB’s efforts, and related processes, are focused on providing input to the IAASB and deciding, with stakeholder input, whether there should be a modification of an ISA when it is adopted as a CAS and, if so, what that the modification should be. Accordingly, the due process followed in developing a CAS to adopt an ISA differs, in some respects from that used for domestic AASB projects. With regard to adopting these standards, the AASB applies the following process: | 1. | - Develop a project strategy
When a project is initiated by the IAASB, AASB staff prepares a Project Strategy Document (PSD) for AASB approval. The PSD sets out: - significant issues likely to be encountered in adopting the ISA;
- recommended actions;
- influencing activities the AASB may undertake at each stage of the IAASB project;
- staff resources required;
- potential need for appointment of a Canadian Task Force to develop the CAS;
- estimated staff hours and timing of each stage of the project; and
- nature, timing and extent of input to be obtained from Canadian stakeholders.
AASB staff also develops a project communication plan, including a project summary which is placed on the AASB website and updated as the project progresses. The approval of a PSD requires a favourable vote of a simple majority of all AASB members with voting rights.
| | 2. | Review material presented at IAASB meetings and consider possible Canadian modifications to draft ISAs for adoption as CASs
AASB staff analyzes material, including draft ISAs, to be discussed at IAASB meetings. The AASB meets to deliberate staff’s analysis of the IAASB material and briefing notes are subsequently prepared by staff. The briefing notes are provided to CICA’s representative on the IAASB for discussion at IAASB meetings. However, matters raised by this representative are at his or her discretion. The Director, Auditing and Assurance Standards, who acts as technical advisor to CICA’s representative on the IAASB, reports back to the AASB on developments and discussions at IAASB meetings. AASB staff monitors whether comments provided in the briefing notes are reflected in subsequent IAASB material. The AASB considers possible Canadian modifications to draft ISAs for adoption as CASs according to the AASB’s modification criteria. For more information on the ISA adoption process in Canada, including the modification criteria, please click on “Adopting ISAs”
| | 3. | Approve an exposure draft
When the IAASB approves a draft ISA for exposure, the AASB develops and publishes an exposure draft (ED) of a corresponding CAS, including proposed Canadian modifications to the draft ISA. These EDs go through the same due process as domestic standard. However, the focus of these EDs is on seeking comments on proposed Canadian modifications and responding to the IAASB. Approval of an ED, including any Canadian modifications, requires a favourable vote of two-thirds of all AASB members having voting rights.
| | 4. | Re-exposure considerations
The IAASB may decide to re-expose a draft ISA if it feels this is warranted. However, the IAASB does not necessarily re-expose material when significant changes are made to a proposed ISA in response to comments received on an ED. - The AASB issues a CAS re-exposure draft in the following circumstances:
- when the IAASB issues a re-exposure draft of the corresponding ISA; or
- when the IAASB decides not to issue a re-exposure draft of the corresponding ISA but the AASB determines that the amendments made to the exposure draft have a significant impact on Canadian stakeholders (for example, when a significant change is likely to result in an addition, deletion or amendment to a Canadian modification).
When a re-exposure draft is issued in the latter case, the AASB asks stakeholders to comment only on the potential addition, deletion or amendment of the Canadian modification to the CAS. The determination is decided by a simple majority of all AASB voting members having voting rights. When the AASB has determined that the amendments made by the IAASB have significant impact on Canadian stakeholders, a decision not to issue a re-exposure draft (re-ED) requires a favourable vote of two-thirds of all AASB members having voting rights. Approval of a re-ED follows the same voting requirements as the approval of the ED.
| | 5. | Approve a Standard
Comments from Canadian stakeholders are reviewed and the AASB provides this input to the CICA IAASB member. When the IAASB approves the ISA as a standard, the AASB reviews the final ISA, taking into consideration disposition by the IAASB of issues raised by Canadian stakeholders. Pending the final adoption date, the completed CASs are placed in a special section of the electronic version of the Handbook called “Canadian Auditing Standards.”
Approval for the CAS to be issued requires a favourable vote of two-thirds of AASB members having voting rights.
| | 6. | Bases for Conclusions
The IAASB issues a Basis for Conclusions for each Standard. This document summarizes how the IAASB responded to significant comments received on an Exposure Draft and the reasons underlying the IAASB’s decisions on the final wording of a Standard. The AASB refers Canadian stakeholders to the IAASB’s Basis for Conclusions for each Standard. - AASB staff also drafts a Basis for Conclusions to explain:
- the AASB’s conclusions on any modification of ISA wording contained in a CAS; and
- the reasons for any significant differences between the final standard compared to wording in the related ED, when the IAASB decided that such differences did not warrant re-exposure.
This Basis for Conclusions is reviewed by AASB members for fatal flaws. The AASB Chair and Vice Chair decide on the final wording for each Basis for Conclusions. |
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