NEW PROVISIONS ON THE DATE OF THE AUDITOR’S REPORT: WHAT ABOUT IN THE CONTEXT OF AN SME AUDIT?
The new provisions of the CAS relating to the date of the auditor’s report will significantly change auditors’ work habits, particularly for audits of SME financial statements.
Under the CAS, the auditor’s report must bear a date no earlier than the date on which the auditor obtained sufficient appropriate audit evidence on which to base his opinion on the financial statements, including evidence that all the statements included in the set of financial statements, including the notes thereto, have been prepared and that those empowered to do so have declared that they accept responsibility for them.
In other words, the financial statements must be fully completed, including the tax charge and all additional notes, and approved by the Board of Directors, before the auditor can date his report. Entities tempted to delegate the power to approve financial statements to an officer or committee of the board of directors should be cautious: certain legislative provisions may prohibit such delegation.
In SMEs, financial statements are generally finalized and approved by the Board of Directors on the date they are about to be published, and this is likely to remain the case in the future. We can therefore expect much tighter deadlines at the end of the mandate, and in particular the fact that the audit procedures linked to the following three elements will have to be implemented within a short timeframe.
Events after the balance sheet date
As the auditors will probably no longer be on site at the reporting date, the timing and scope of audit procedures relating to events after the balance sheet date will need to be carefully planned.
Nevertheless, not all the audit procedures that the auditor is accustomed to performing on a given assignment will necessarily have to be carried out up to the date of the report. Professional judgment and consideration of the risks of material misstatement identified are required in designing the timing and extent of audit procedures. Depending on the case, the implementation of certain procedures may be completed a few days or weeks before the date of the report. However, paragraph 7 of ASC 560 specifies the audit procedures that must be performed up to the date of the auditor’s report, or as close to that date as possible.
As the auditors will probably no longer be on site at the reporting date, the timing and scope of audit procedures relating to events after the balance sheet date will need to be carefully planned.
Nevertheless, not all the audit procedures that the auditor is accustomed to performing on a given assignment will necessarily have to be carried out up to the date of the report. Professional judgment and consideration of the risks of material misstatement identified are required in designing the timing and extent of audit procedures. Depending on the case, the implementation of certain procedures may be completed a few days or weeks before the date of the report. However, paragraph 7 of ASC 560 specifies the audit procedures that must be performed up to the date of the auditor’s report, or as close to that date as possible.
Confirmation from the lawyers
Under the NCA, the auditor is not expressly required to seek confirmation from the lawyers. According to paragraph 10 of NCA 501, this procedure is required only if, as a result of the auditor’s evaluation, the auditor concludes that there is a risk of material misstatement associated with lawsuits or litigation that have been identified, or when the audit procedures performed indicate that there may be other significant lawsuits or litigation.
Under the NCA, the auditor is not expressly required to seek confirmation from the lawyers. According to paragraph 10 of NCA 501, this procedure is required only if, as a result of the auditor’s evaluation, the auditor concludes that there is a risk of material misstatement associated with lawsuits or litigation that have been identified, or when the audit procedures performed indicate that there may be other significant lawsuits or litigation.
However, should this confirmation request prove necessary, given the new provisions regarding the date of the auditor’s report, it will be difficult for the auditor to predict the exact date of his report at the time the confirmation request letter is sent to the lawyers.
However, it is important to remember that the reference date on the confirmation request does not have to coincide exactly with the date of the report. A deviation of five days is quite acceptable in most cases (see AuG-46 to this effect), since the auditor is allowed to devise additional procedures to obtain audit evidence concerning the period between the reference date and the report date, such as, for example, a request for information from members of management. Of course, the tolerable time period between these two dates and the nature and extent of additional procedures are a matter of professional judgment, and depend on the risks of material misstatement associated with lawsuits or litigation. Ultimately, the auditor may send a second letter to the lawyers asking them to update the first letter.
Engagement quality control review (if applicable)
According to GAAS, an engagement quality control review should be completed before the report is issued. According to the NCA, an engagement’s quality control review must be completed before the report date. Once again, this is a major change in our working habits, which we’ll need to take into account and, above all, plan carefully with the mission’s quality control manager.
According to GAAS, an engagement quality control review should be completed before the report is issued. According to the NCA, an engagement’s quality control review must be completed before the report date. Once again, this is a major change in our working habits, which we’ll need to take into account and, above all, plan carefully with the mission’s quality control manager.
This article appeared in :
http://ocaq.qc.ca/pdf/fra/6_presse/infoca/2011/InfoCA1338_cabinet.pdf
http://ocaq.qc.ca/pdf/fra/6_presse/infoca/2011/InfoCA1338_cabinet.pdf
