By Phil Cowperthwaite + Chi Ho Ng
Illustration: Ryan Snook
Forming a plan for NFPO audits under CAS and a few other steps will help improve service to clients and reduce audit risks
Are you ready to implement the Canadian audit standards (CAS)? The standards are effective for audits of years ending after December 14, 2010. The transition from the old standards may not be as onerous as you might expect. To help with implementation there are a number of tips you can follow.
Read and understand the standards
The audit standards are not a sea change in audit practice. The structure of the audit remains the same: engagement-acceptance procedures followed by planning, risk assessment, response to identified risks, forming an opinion and reporting. However, some requirements are phrased differently from before, many allowing for greater audit efficiencies. If you don’t read and understand the requirements, you may miss some or even perform unnecessary procedures. As a result, your fee recoveries could suffer.
Comprised of 36 standards and 572 requirement paragraphs in more than 800 pages, CAS is a weighty tome. That said, in the majority of small not-for-profit organization (NFPO) audits, several standards will likely not be applicable (for example, standards dealing with reliance on experts and internal auditors). In addition, many of the requirements in standards that are relevant will probably apply only infrequently (for example, those dealing with special-purpose reporting frameworks and management-imposed scope limitations).
But you can only know which requirements are not relevant to your NFPO audits if you read and understand the standards. The good news is the CAS structure makes this relatively easy. Open the book; pick a section; read “CAS 300, Planning an Audit of Financial Statements.” You might be surprised how understandable it is.
Implementation as an exercise in change management
CAS pertaining to NFPO audits is likely to provide a stable platform of standards for the foreseeable future. This is the first time in many auditors’ careers that audit standards are not expected to change to any appreciable extent over the next five to 10 years. Investing time now will pay dividends in the future. Auditors could take this opportunity to treat the implementation of CAS as an exercise in managing change as opposed to learning a new skill. Specifically:
A bonus is that you will be able to use the same change-management plan when you implement the new NFPO accounting standards, which are effective January 1, 2012.
Talk with your clients now
CAS has some new and very specific communication requirements; use these to your advantage. For example:
Dating the independent auditor’s report
One thing that has changed considerably is the dating of the independent auditor’s report, and some up-front planning could forestall a difficult situation. Under the old standards, our audit report is dated on substantial completion of fieldwork. The new CAS, however, states: “The auditor’s report shall be dated no earlier than ... those with the recognized authority have asserted that they have taken responsibility for those statements” (CAS 700.41). This requirement raises two issues:
Linking risk assessment with audit procedures
Every year many provincial institutes list, as the No. 1 auditor shortcoming — or very near the top — the failure to document and link audit procedures with identification of areas of risk of material misstatement. This may be an opportunity for every-one to take a critical look at file structure and see if it documents the link in an efficient and effective manner. Specifically:
Implementation of CAS should not be cause for panic. Audits under CAS will probably look and feel quite similar to those carried out in the past. But you need to act now, form a plan of attack, talk to colleagues and, most of all, talk to clients at every opportunity. This may be a chance to improve service to your NFPO clients and to reduce your audit risk. Happy auditing.
Phil Cowperthwaite, FCA, is a partner of Toronto CA firm Cowperthwaite Mehta and an IAASB member since 2006.
Chi Ho Ng, CA, CPA(IL), MBA, is a principal of Auditing and Assurance Standards at the CICA and is currently serving as president of a Legal Aid Ontario clinic
Technical editor: Ron Salole, vice-president, Standards CICA