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Communications with Law Firms
| The summary of Auditing and Assurance Standards Board (AASB) projects has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further deliberations by the AASB. Decisions to publish Handbook material are final only after a formal voting process. |
Status: Guideline issued. Further project activities deferred.
Objective and Scope of this Project
Background
Issues
Activities to Date
Contact Information
Objective and Scope of this Project
The objective of this project is to revise and replace the Appendix to CAS 501, Audit Evidence — Specific Consideration of Selected Items, which contains the Joint Policy Statement (JPS) Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements. The project also involves developing an Assurance and Related Services Guideline to address urgent issues relating to communications with law firms resulting from changes to both accounting and auditing standards.
Accounting standards
When the accounting for contingencies differs between two financial reporting frameworks, the nature of the evidence the auditor needs to obtain with respect to those contingencies may differ. The existing JPS is based on the terminology and the accounting requirements in CICA Handbook – Accounting Section 3290, Contingencies (now in Parts II and V of that Handbook). However, this Section will not necessarily be the accounting standard that entities will follow in the future. For entities that adopt IFRSs, the accounting standard will be IAS 37, which is quite different from Section 3290. IAS 37 is currently undergoing revision by the International Accounting Standards Board. It is expected the revised IAS 37 will be effective for financial statement periods commencing no earlier than January 1, 2012.
Auditing standards
The adoption of the International Standards on Auditing (ISAs) as Canadian Auditing Standards (CASs) has resulted in a change in when the auditor can date the auditor’s report. Under CAS 700, Forming an Opinion and Reporting on Financial Statements, the auditor is required to date the report no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the auditor's opinion on the financial statements, including evidence that:
| (a) | all the statements that comprise the financial statements, including the related notes, have been prepared; and |
| (b) | those with the recognized authority have asserted that they have taken responsibility for those financial statements. |
In many cases, this means that the auditor’s reports will be dated much closer to the date of issuance of the report than under existing standards. The JPS is based on the dating conventions in place in auditing standards prior to the adoption of the CASs.
- Key issues that this project proposes to address include:
- How to provide flexibility in the JPS to enable financial statement preparers (clients)/auditors/lawyers to appropriately communicate with respect to financial statements that may be prepared using a variety of possible Canadian financial reporting frameworks, including publicly accountable, private, pension plan and not-for-profit.
- What the form of communication would be with respect to legal claims under the proposed revised IAS 37. How does this differ from existing IAS 37, and can flexibility be built into the JPS to accommodate both? If not, what are the decision points as to whether the AASB should plan for a near-term, second amendment or what are the implications of deferring until IAS 37 is revised?
- What the practical implications on the timing of responses to inquiry letters are with respect to the change in the date of the auditor’s report.
- Whether the JPS needs to be reflective of the North American environment by providing guidance when dealing with financial statements prepared in accordance with accounting frameworks for other jurisdictions such as US GAAP, or other foreign GAAPs.
The AASB is currently monitoring practical experience of auditors, lawyers and their clients with Assurance and Related Services Guideline AuG-46, Communications with Law Firms Under New Accounting and Auditing Standards, issued in August 2010. Based on the results of this monitoring, the AASB may make revisions to AuG-46. The AASB is also monitoring the project to revise IAS 37, which has been delayed. As such, the AASB has no planned activities for this project.
In June 2010, the AASB approved the Assurance and Related Services Guideline.
In January 2010, the AASB asked the task force to develop an Assurance and Related Services Guideline to address the form and content of communications with respect to audits of financial statements prepared in accordance with IFRSs, and to provide guidance on the timing of inquiry and response letters when audits are performed in accordance with the CASs. The task will also continue to develop a revised JPS based on the revised IAS 37.
In December 2009, the AASB received an update from the task force on issues raised and provided input to the task force on those issues.
In September 2009, the AASB approved the project proposal. A task force was appointed that includes members of the Canadian Bar Association, the Vice Chair of the AASB, a practitioner and a member from industry. Staff support is provided by both auditing and accounting standards staff.
Staff contact: Eric Turner, CA
Phone no.: +1 (416) 204-3240