August 25, 2010

Avoid audit surprises – communicate with clients now

Unless you’re talking birthday parties or winning lottery tickets – people generally do not like to be surprised. Wise auditors will keep this in mind when thinking about their clients and the new auditing standards for financial statements that will soon take effect.

While practitioners may be well-aware that new Canadian Auditing Standards (CASs) are effective for financial statement periods ending on or after December 14, 2010, it is quite likely that this is brand new information for their audit clients.

To address the issue, many auditors are taking a proactive approach this year. They are issuing an updated engagement letter and using it as an opportunity to talk with their clients about the range of changes that will affect upcoming audits.

The engagement letter, for example, will reference the expected form and content of the new auditor’s report, which itself will look quite different than in previous years. Under the CASs, the new standard auditor’s report will be six paragraphs rather than the current and familiar three, providing a more detailed description of management’s responsibilities and those of the auditor – something clients need to learn more about.

Another important auditor/client conversation involves the dating of the auditor’s report. Under the new standards, ‘signing off’ on the audit cannot happen before the financial statements have been prepared and those with the authority have taken responsibility for them. Under most legislation, this means Board approval of the financial statements. Establishing a schedule for the completion of the audit that coincides with Board meeting dates is best done as early as possible.

An open conversation now can go a long way to building trust between audit firms and their clients – after all, an audit is no time for surprises. These free CICA resources help make auditors and their clients aware of the changes and their implications under the new auditing standards:

• The CICA’s Canadian Auditing Standards Support Tool – an excellent resource that allows you to navigate through the audit process. 
• Audit Reporting Implications of New Auditing and Accounting Standards - a guide that addresses audit reporting issues and provides a series of illustrative reports. This guide is periodically updated.
• Reporting on Financial Statements Under Canadian Auditing Standards - a memorandum that explains the decision-making process followed by the auditor when reporting on financial statements and the form of auditor’s report under CASs.
• Assurance Implications of the Changeover to IFRSs - a publication for auditors of entities that are making the changeover from existing Canadian GAAP to IFRSs. This paper is periodically updated.

Now you’re in the loop.