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The New Canadian Auditing Standards

11/06/2009


A Step in The Right Direction? 

Generally speaking, the Auditing and Assurance Standards Board (AASB) has agreed with the proposed change to the International Standards on Auditing (ISA) and will adopt them as the new Canadian Auditing Standards (CAS). It is believed the new standards give more direct guidance on the auditing of the significant risk areas of an engagement. Some questions may still exist about this change, so I’ve provided a Q&A.

Who is required to audit under CAS? Well, basically all CAs performing audits!

Is it reasonable to have one set of auditing standards for entities of all sizes? The new International Financial Reporting Standards (IFRS) will only be applicable for “publicly accountable entities” and that there will be a separate set of standards for all other entities. Why? Because one size does not fit all!

Why is there only one set of auditing standards? Because an audit is an audit no matter what type of entity it is or its size. No matter what the size of the audit, the objective is still the same – to obtain reasonable assurance that the financial statements are free of material misstatement.

One of the main differences between the current Generally Accepted Auditing Standards (GAAS) and the CAS is that CAS have ‘requirements’ and GAAS have ‘recommendations’.

Are the new standards removing the “professional judgment” aspect of an audit? No, not necessarily. The new standards are not so prescriptive that they do not allow auditors to use their professional judgment – in fact, the new CAS specifically call for auditors to use their professional judgment when auditing.

Requirements in the CAS will be necessary in order to achieve the objectives of each standard. The requirements will be a minimum and auditors must use their professional judgment to determine whether further procedures are required in order to achieve an objective.

Is this a step in the right direction? Sure it is. Some of the major corporate collapses of recent times have been caused by ‘creative accounting’…. The new auditing standards are attempting to limit the likelihood of further corporate collapses occurring because of negligent auditing.

For more information on the new Canadian Auditing Standards and how they will impact your business, please feel free to contact me or your local MNP advisor.