Standards for Review Engagements

Status: Deliberation of comments received on Exposure Draft in progress

Objective and Scope of this Project
Background
Issues
Activities to Date
Next Steps
Related Information
Contact Information

Objective and Scope of this Project

The objective of this project is to revise the standards for review engagements to:

• improve the robustness of the standards by reflecting current practice; and
• appropriately address the needs expressed and issues raised by practitioners and other Canadian stakeholders.

The scope of this project is expected to include revising or replacing the following Sections:

• Section 8100, General Review Standards;
• Section 8200, Public Accountant’s Review of Financial Statements; and
• Section 8500, Reviews of Financial Information Other than Financial Statements.

Background

The AASB has decided to undertake this project now for the following reasons:

• Performance of review engagements has evolved over the 20 years since the existing standards were issued.
• There is variation in practice as to whether and how practitioners take risk of material misstatement into account when performing review engagements. The existing review engagement standards do not explicitly address risk and it is not clear as to the extent to which risk considerations are relevant in reviews.
• The existing standards are not comprehensive and, it seems likely that additional guidance would enhance the consistent application of good practice. For example, when practitioners seek guidance in areas not addressed in the standards, they may look to the auditing standards for help. However, it is not clear as to the extent to which auditing standards are relevant in a review engagement context.
• There is an inappropriately wide range of interpretation among practitioners regarding the level of assurance provided by the three types of engagements (audit, review and compilation).
• Anecdotal evidence suggests that the wording of review engagement reports (reflecting the concept of negative assurance) is not well understood and may be inconsistent with users’ expectations.

For many of the same reasons, the International Auditing and Assurance Standards Board (IAASB) is undertaking a project to revise International Standard on Review Engagements (ISRE) 2400, Engagements to Review Financial Statements. The AASB has not decided whether to adopt revised ISRE 2400. However, adopting such standards has some appeal because it would enable the AASB to adopt future IAASB review engagement standards with minimal amendments should it so wish. The AASB will conduct its own research and monitor the progress of the IAASB’s project before deciding whether to adopt revised ISRE 2400. Any decision to adopt international standards would be subject to public comment from Canadian stakeholders. To assist the AASB in making this decision, some of the research activities that will be undertaken include:

• developing a consultation paper that sets out key issues on which the AASB would like stakeholder input; and
• holding roundtable discussions with key stakeholders to solicit their input on key issues.

At each stage of review of the IAASB material, the AASB provides input to the IAASB member nominated by the CICA regarding the international review engagement project for discussion at the upcoming IAASB meeting.

Issues

Key issues that this project plans to address include:

The need for a set of review engagement standards that “stand alone” (i.e., the standards would contain complete guidance so that users need not refer to other standards in the Handbook for guidance)

• Is the guidance in the existing standards complete, or should additional guidance be added?

Determining the nature and extent of review engagement procedures

• Is the concept of “plausibility” useful in helping practitioners assess the nature and extent of work effort?
• Should practitioners consider internal controls when performing review engagements and, if so, to what extent?
• What factors should practitioners consider when determining the nature and extent of procedures to perform?
• Should practitioners perform procedures other than enquiry, analysis and discussion?

Considering the form and content of the practitioner’s report

• Does the current Review Engagement Report appropriately communicate to users the work undertaken by the practitioner?
• Does the negative assurance wording in the current Review Engagement Report appropriately communicate to users the conclusion reached by the practitioner on the financial statements?

Activities to Date

In June 2010, the AASB reviewed analyses of issues pertaining to the revision of International Standard on Review Engagements (ISRE) 2400, Engagements to Review Financial Statements.

The AASB also reviewed comments received on the Exposure Draft Guideline, “Dating of the Review Engagement Report”. The AASB did not approve the Guideline as matters were identified that require further consideration at a future meeting.

In March 2010, the AASB reviewed the results of the initial consultations with stakeholders (roundtable discussions and survey responses) and discussed its implications for this project.

The AASB also reviewed analyses of issues pertaining to the revision of ISRE 2400.

In February 2010, the AASB approved an Exposure Draft (ED), Dating of the Practitioner’s Report for Review and Other Assurance Engagements, seeking comments on its proposal to:

• issue a new Assurance and Related Services Guideline, “Dating of the Review Engagement Report;” and
• revise certain standards for assurance engagements and applicable Guidelines.

The purpose of this proposed Guideline is to assist the public accountant to address his or her responsibilities relating to dating of the review engagement report by providing guidance on the application of the concept of “substantial completion” in a review engagement.  For more detailed information related to the proposed changes for assurance engagements and applicable Guidelines, please refer to the project summary for Standards for Assurance Engagements.

In September 2009, the AASB reviewed analyses of issues pertaining to the revision of ISRE 2400.

In July 2009, A task force was formed to assist the AASB with this project.

In June 2009, the AASB reviewed analyses of issues pertaining to the revision of ISRE 2400.

The AASB approved a project proposal to revise the Canadian review engagements standards.

In March 2009, the AASB reviewed the project proposal to revise ISRE 2400.

IAASB’s Discussions to Date
Background papers that are the basis of the IAASB’s discussions, along with meeting summaries and audio recordings of the actual discussions, can be accessed on the IAASB’s website by clicking here and then on the date of the meeting at which matters pertaining to a project were discussed.

Next Steps

The following summarizes the AASB’s planned activities.

The AASB’s planned activities beyond this point are dependent on whether or not the AASB decides to adopt revised ISRE 2400 or develop a unique Canadian standard(s) for review engagements.

Related Information

• Responses to the AASB on its Exposure Draft are available here.
• Exposure Draft, Dating of the Practitioner's Report for Review and Other Assurance Engagements
    

Contact Information

Staff contact: Svetlana Berger, CA
Phone no.: +1 (416) 204-3231