QUESTIONS & ANSWERS RELATING TO REPORTING ON NEW ACCOUNTING FRAMEWORKS

Q&A 1(a) Application of Auditing Standards to the Opening
Statement of Financial Position

Which auditing standards does the auditor apply to the audit of the
opening statement of financial position when an entity transitions to
a new financial reporting framework for its 2011 financial statements,
and what is the form of the auditor’s report?
1. The transition provisions in certain parts of the CPA Canada
Handbook – Accounting require that the financial statements in
the first year of adoption of a new financial reporting framework
contain an opening statement of financial position.1 Existing
auditing standards apply for audits of financial statements for
periods ending before December 14, 2010. The CASs apply for
audits of financial statements for periods ending on or after this
date. Earlier adoption of the CASs is not permitted. The question
of which auditing standards to apply arises when the first financial
statements prepared in accordance with a new financial reporting
framework are for a period ending after December 14, 2010 and
those financial statements include an opening statement of
financial position as at a date prior to December 14, 2010. For
example, for an entity with a calendar year end, the entity’s first
financial statements would include the entity’s statements of
financial position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening statement of financial position).
2. During an entity’s changeover to a new financial reporting
framework, the entity’s auditor would apply the CASs in auditing
the December 31, 2011 and December 31, 2010 statements of
financial position because these financial statement periods are
after the effective date of the CASs.
3. There are various supportable views on whether existing auditing
standards or the CASs should be applied to the January 1, 2010
opening statement of financial position. Therefore, in auditing this
financial statement, the auditor may choose to apply:
(a) auditing standards in effect prior to the issuance of theCASs;2
(b) the CASs; or
(c) a combination of both.
4. In all circumstances, the auditor’s report would make reference
to Canadian generally accepted auditing standards (GAAS). The
auditor’s report on the 2011 financial statements would be in the
form required by CAS 700, Forming an Opinion and Reporting on
Financial Statements, as set out in Illustrative Reports in this Guide.

Q&A 1(b) Reference to the Financial Reporting Framework
in the Practitioner’s Report

How should the practitioner’s report refer to the financial reporting
framework when financial statements are prepared in accordance
with one of the financial reporting frameworks of the CPA Canada
Handbook – Accounting or the CPA Canada Public Sector Accounting
Handbook?
Background
1. Unlike Section 5400, The Auditor’s Standard Report, which focuses
on a single financial reporting framework (Canadian GAAP), the
CASs do not specify a particular financial reporting framework as
being the acceptable financial reporting framework for general
purpose financial statements. CAS 210, Agreeing the Terms of Audit
Engagements, indicates that, at present there is no objective and
authoritative basis that has been generally recognized globally
for judging acceptability of general purpose frameworks. In the
absence of such a basis, financial reporting standards established
by organizations that are authorized or recognized to promulgate
standards are presumed to be acceptable for general purpose
financial statements. The auditor is required by paragraph 6 of
CAS 210 to determine whether the financial reporting framework
to be applied in the preparation of the financial statements is
acceptable.
2. The following general principles have been followed to promote
consistency in the wording of the auditor’s report:
(a) The report would clearly describe the financial reporting
framework applied by management in preparing the financial
statements. Because the CPA Canada Handbook – Accounting
has been restructured to include different financial reporting
frameworks, use of the term “Canadian generally accepted
accounting principles” is not specific enough to help readers
identify which financial reporting framework has been used.
(b) The reports for different entities would describe the same
financial reporting framework in the same way. For example,
a report on the financial statements of a private enterprise
that prepares its financial statements in accordance with
International Financial Reporting Standards (IFRSs) should
contain the same description of the financial reporting
framework as a report on the financial statements of a
publicly accountable enterprise that also prepares its financial
statements in accordance with IFRSs.
(c) The report would normally maintain consistency with how
the entity describes the financial reporting framework in
its financial statements. Certain parts of the CPA Canada
Handbook – Accounting require that the basis of presentation
be specifically stated in the financial statements.3
Financial statements prepared in accordance with IFRSs
3. In considering how to describe, in the practitioner’s report, financial
statements prepared in accordance with IFRSs, it is noted that:
(a) IFRSs are a separately recognized financial reporting
framework that is used in many countries around the globe;
(b) IFRSs as issued by the International Accounting Standards
Board (IASB) are incorporated into the CPA Canada Handbook
– Accounting without modification;
(c) Canadian entities that are reporting issuers are required by
Canadian securities regulations to report compliance with
“IFRSs”, defined as being International Financial Reporting
Standards as issued by the International Accounting Standards
Board. An auditor may describe the financial reporting
framework in the auditor’s report as either “International
Financial Reporting Standards” or “International Financial
Reporting Standards as issued by the International Accounting
Standards Board” in complying with these securities
regulations; and
(d) Canadian entities that have reporting obligations in the
securities markets in other jurisdictions are often required
to report compliance with “International Financial Reporting
Standards as issued by the International Accounting Standards
Board.” This wording may be required to be reflected in the
auditor’s report.
In Canada, the use of the additional words “as issued by the
International Accounting Standards Board” is redundant
because, as stated above, IFRSs as issued by the IASB have
been incorporated unchanged into the CPA Canada Handbook –
Accounting. However, including these words in the description of
the financial reporting framework is not incorrect or prohibited.
Canadian securities legislation requires the auditor’s report
to refer to “International Financial Reporting Standards”. This
is the wording that is used in the Illustrative Reports in this
Guide. When other legislation or regulation requires the use of
different wording to describe the financial reporting framework
(for example, including the additional words noted above),
the auditor would comply with that legislation or regulation.
Paragraph 15 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, requires the auditor to evaluate whether the
description of the financial reporting framework is adequate.
Financial statements prepared in accordance
with pre-changeover accounting standards
4. An entity applies the accounting standards in Part V of the CPA
Canada Handbook – Accounting until it adopts the accounting
standards in one of the other Parts. The financial reporting
framework in a practitioner’s report on financial statements
prepared in accordance with the accounting standards in Part V
would be described as “Canadian generally accepted accounting
principles.” Continued use of Part V, after the mandatory effective
date of the other Parts, will not constitute Canadian GAAP.
Financial statements prepared in accordance with other financial
reporting frameworks in the CPA Canada Handbook – Accounting
5. In considering how to describe, in the practitioner’s report,
financial statements prepared in accordance with other financial
reporting frameworks in the CPA Canada Handbook – Accounting,
the principles in paragraph 2 of this Q&A have been considered.
Further, paragraph 37 of CAS 700 requires the auditor’s opinion
to identify the jurisdiction of origin. Accordingly, for accounting
standards for private enterprises, the description in reports would
be “Canadian accounting standards for private enterprises.” A
similar approach would be taken for the other financial reporting
frameworks in the CPA Canada Handbook – Accounting. For
example, accounting standards for pension plans in Part IV of
the CPA Canada Handbook – Accounting would be referred to as
“Canadian accounting standards for pension plans.”
Financial statements prepared in accordance with accounting
standards in the CPA Canada Public Sector Accounting Handbook
6. The financial reporting framework in a practitioner’s report on
financial statements prepared in accordance with the accounting
standards in the CPA Canada Public Sector Accounting Handbook
would be described as “Canadian public sector accounting
standards.”
Performing an audit in accordance with auditing standards
in effect prior to the issuance of the CASs, or a review
7. The approach set out in this Q&A describing the financial reporting
framework in accordance with which the financial statements have
been prepared may also be used when a practitioner is performing
an audit in accordance with auditing standards in effect prior to the
issuance of the CASs and reports in accordance with Section 5400,
The Auditor’s Standard Report, or a review in accordance with
Section 8200, Public Accountant’s Review of Financial Statements.
This would be applicable, for example, when an entity early adopts
a new financial reporting framework such as IFRSs or Canadian
accounting standards for private enterprises.

Q&A 1(c) Describing in the Opinion Paragraph in the
Auditor’s Report the Information the Financial Statements
Are Designed to Present

When an entity adopts a new financial reporting framework, how
should the auditor describe in the opinion paragraph in the auditor’s
report the information that the financial statements are designed to
present?
Background
1. Paragraph A29 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, indicates that the auditor’s opinion states
that the financial statements present fairly, in all material respects,
the information that the financial statements are designed to
present, (for example, in the case of many general purpose
frameworks), the financial position of the entity as at the end of the
period and the entity’s financial performance and cash flows for the
period then ended.
2. The Auditor’s Standard Report, paragraph 5400.14, requires the
auditor, in the opinion paragraph, to express his or her opinion
whether the financial statements present fairly, in all material
respects, the financial position, results of operations and cash
flows of the entity in accordance with Canadian generally accepted
accounting principles.
3. Because there are various different financial reporting frameworks
in Canadian GAAP, the auditor needs to consider the requirements
of the respective financial reporting framework when stating the
auditor’s opinion in the auditor’s report under either CAS 700 or
Section 5400.
International Financial Reporting Standards
(Part I of the CPA Canada Handbook – Accounting)
4. Paragraph 15 of IAS 1 Presentation of Financial Statements states
that financial statements shall present fairly the financial position,
financial performance and cash flows of an entity.
5. Therefore, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Company] as
at [Date], and its financial performance and its cash flows for the
[period] then ended in accordance with International Financial
Reporting Standards.”
Accounting standards for private enterprises
(Part II of the CPA Canada Handbook – Accounting)
6. General Standards of Financial Statement Presentation, paragraph
1400.03 in Part II of the CPA Canada Handbook – Accounting,
states that financial statements shall present fairly in accordance
with generally accepted accounting principles the financial
position, results of operations and cash flows of an entity.
7. Therefore, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Company] as
at [Date], and the results of its operations and its cash flows for
the [period] then ended in accordance with Canadian accounting
standards for private enterprises.”
Accounting standards for not-for-profit organizations
(Part III of the CPA Canada Handbook – Accounting)
8. General Standards of Financial Statement Presentation,
paragraph 1401.03 in Part III of the CPA Canada Handbook –
Accounting, states that financial statements shall present fairly
in accordance with generally accepted accounting principles the
financial position, results of operations and cash flows of an entity.
9. Therefore, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Organization]
as at [Date], and the results of its operations and its cash flows for
the [period] then ended in accordance with Canadian accounting
standards for not-for-profit organizations.”
Accounting standards for pension plans
(Part IV of the CPA Canada Handbook – Accounting)
10. Pension Plans, paragraph 4600.10 in Part IV of the CPA Canada
Handbook – Accounting, states that financial statements shall
consist of:
(a) a statement of financial position;
(b) a statement of changes in net assets available for benefits; and
(c) a statement of changes in pension obligations.
11. Therefore, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Pension Plan]
as at [Date], and the changes in its net assets available for benefits
and changes in its pension obligations for the [period] then ended
in accordance with Canadian accounting standards for pension
plans.”
Pre-changeover accounting standards
(Part V of the CPA Canada Handbook – Accounting)
12. General Standards of Financial Statement Presentation,
paragraph 1400.03 in Part V of the CPA Canada Handbook –
Accounting, states that financial statements shall present fairly
in accordance with generally accepted accounting principles the
financial position, results of operations and cash flows of an entity.
13. Therefore, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the Company] as
at [Date], and the results of its operations and its cash flows for
the [period] then ended in accordance with Canadian generally
accepted accounting principles.”
Public sector accounting standards
(CPA Canada Public Sector Accounting Handbook)
14. Financial Statement Presentation, paragraph PS 1200.012 in the
CPA Canada Public Sector Accounting (PSA) Handbook, states
that financial statements should present any information required
for the fair presentation of a government’s financial position, results
of operations, changes in net debt, and cash flow.
15. Therefore, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the government]
as at [Date], and the results of its operations, changes in its net
debt, and its cash flows for the [period] then ended in accordance
with Canadian public sector accounting standards.”
16. The Public Sector Accounting Board released new accounting
standards in June 2011 that replace Section PS 1200 with Section
PS 1201, Financial Statement Presentation, effective for government
organizations for fiscal years beginning on or after April 1, 2012 and
for governments for fiscal years beginning on or after April 1, 2015.
Earlier adoption is permitted. Paragraph PS 1201.012 states that
financial statements should present any information required for
the fair presentation of a government’s financial position, results of
operations, remeasurement gains and losses, change in net debt,
and cash flow.
17. Therefore, when Section PS 1201 is adopted, the auditor’s opinion
would be worded as follows, when the auditor’s report refers to
the current period only as discussed in Q&A 2(a): “In our opinion,
the financial statements present fairly, in all material respects, the
financial position of [the government] as at [Date], and the results
of its operations, its remeasurement gains and losses, changes
in its net debt, and its cash flows for the [period] then ended in
accordance with Canadian public sector accounting standards.”
18. The Introduction to Public Sector Accounting Standards in the CPA
Canada PSA Handbook states that for purposes of their financial
reporting, government not-for-profit organizations should adhere
to the standards for not-for-profit organizations in the CPA Canada
PSA Handbook or the standards in the CPA Canada PSA Handbook
without Sections PS 4200 to PS 4270. The auditor’s opinion on
financial statements of a government not-for-profit organization
that adheres to the standards in the CPA Canada PSA Handbook
without Sections PS 4200 to PS 4270 would be worded as
described in paragraphs 15 and 17 of this Q&A.
19. Section PS 4200, Financial Statement Presentation by Not-for
Profit Organizations, establishes presentation and disclosure
standards for financial statements for not-for-profit organizations adhering to the standards for not-for-profit organizations. Section
PS 4200 was updated in June 2011. Paragraph PS 4200.05 states
that the financial statements for a not-for-profit organization are
to provide the information necessary to meet the requirements of
that Section and other Sections in a manner that results in the fair
presentation in accordance with generally accepted accounting
principles of the organization’s financial position, results of
operations and cash flows. A footnote indicates a statement of
remeasurement gains and losses may be required.
20. For government not-for-profit organizations that adhere to the
standards for not-for-profit organizations in the CPA Canada PSA
Handbook, the auditor’s opinion would be worded as follows, when
the auditor’s report refers to the current period only as discussed
in Q&A 2(a): “In our opinion, the financial statements present fairly,
in all material respects, the financial position of [the government
not-for-profit organization] as at [Date], and the results of its
operations and its cash flows for the [period] then ended in
accordance with Canadian public sector accounting standards.”
The statement of remeasurement gains and losses would not be
required and therefore would not be referenced in the auditor’s
report until adoption of Section PS 1201 by the government notfor-
profit organization.

Q&A 1(d) Comparative Information and its Effect on
the Auditor’s Report on the First Financial Statements
Prepared in Accordance with a New Financial Reporting
Framework

How does the difference between “comparative financial statements”
and “corresponding figures” under the CASs affect the auditor’s
report on the first financial statements when an entity transitions to a
new financial reporting framework?
1. The distinction between the two approaches discussed in Q&A 2(a)
is important with respect to audits of the first financial statements
prepared in accordance with new financial reporting frameworks
that contain transition provisions requiring comparative
information, including related notes, to be presented. For example,
for an entity with a calendar year end, the entity’s first financial
statements prepared in accordance with a new financial reporting
framework would include the entity’s statements of financial
position as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening statement of financial position).
2. The auditor would discuss with the entity what approach is to be
adopted for the entity’s first financial statements and how the
auditor is being engaged to report. In many cases, the auditor
may be responsible for reporting on all financial statement periods
presented (for example, if an obligation arises because the entity is
a reporting issuer). (See paragraphs 3-6 of this Q&A and Illustrative
Report 1(b) when the auditor’s report refers to each period for
which financial statements are presented.) In other cases, the
entity may have a choice (for example, if the entity is a private
enterprise). When the entity has a choice, the entity may consider
it preferable for the auditor to report on all financial statement
periods presented rather than report on the current period only,
particularly when the auditor determines that the additional
procedures to support the auditor’s opinion on the comparative
financial statements are not significantly different from those
required to report on the current period only. (See paragraphs 7-11
of this Q&A and Illustrative Report 1(c) when the auditor’s report
refers to the current period only.) Such entities may also prefer the
form of report in Illustrative Report 1(b) as compared to Illustrative
Report 1(c).
Reporting on first financial statements on transition to a
new financial reporting framework when the auditor’s report
refers to each period for which financial statements are presented
3. When the auditor is engaged to report on all financial statement
periods presented, the auditor is required to issue an audit opinion
on all three balance sheets and two operating periods prepared
in accordance with the new financial reporting framework, using
the audit reporting approach for comparative financial statements
discussed in Q&A 2(a).
4. While the auditor may have audited the financial statements for the
years ended December 31, 2010 and December 31, 2009 prepared
in accordance with the pre-changeover accounting standards, the
auditor will not have previously audited the financial statements
for those periods prepared in accordance with the new financial
reporting framework.
5. When reporting on the first financial statements for 2011 prepared
in accordance with the new financial reporting framework, the
auditor will be reporting on the December 31, 2010 financial
statements and the January 1, 2010 opening statement of financial
position prepared in accordance with the new financial reporting
framework for the first time. Accordingly, the auditor will be
required to obtain sufficient appropriate audit evidence to support
the auditor’s opinion on those financial statements.
6. The auditor is able to use the work performed in auditing the
financial statements for the years ended December 31, 2010 and
December 31, 2009 prepared in accordance with pre-changeover
accounting standards. However, because the comparative financial
statements are prepared in accordance with the new financial
reporting framework, the auditor will have to perform additional
audit procedures to support the auditor’s opinion on those
financial statements, even when the financial statements prepared
in accordance with the new financial reporting framework do
not appear to be significantly different from those prepared in
accordance with pre-changeover accounting standards.
Reporting on first financial statements on the transition
to a new financial reporting framework when the auditor’s
report refers to the current period only
7. While the auditor may have audited the financial statements for the
years ended December 31, 2010 and December 31, 2009 prepared
in accordance with the pre-changeover accounting standards, the
auditor will not have previously audited the financial statements
for those periods prepared in accordance with the new financial
reporting framework.
8. When the auditor’s report refers to the current period only, using
the audit reporting approach for corresponding figures discussed
in Q&A 2(a), there may be an incorrect presumption by readers of
the auditor’s report on the first financial statements prepared in
accordance with the financial reporting framework that the auditor
has previously issued an auditor’s report on the comparative
information.
9. Unless the auditor has been specifically engaged to perform
an audit of the December 31, 2010 financial statements and the
January 1, 2010 opening statement of financial position prepared
in accordance with the new financial reporting framework, these
financial statements are unaudited. In such a case, the comparative
information is presented in the form of corresponding figures and
the auditor complies with paragraph 14 of CAS 710, Comparative
Information — Corresponding Figures and Comparative Financial
Statements, that requires the auditor to state in an Other Matter
paragraph in the auditor’s report that the corresponding figures are
unaudited. The Other Matter paragraph is included in the auditor’s
report irrespective of whether:
(a) the corresponding figures are marked as unaudited; or
(b) the notes to the financial statements indicate that the auditor
has not audited, and does not express an opinion on, the
corresponding figures.
10. Paragraph 14 of CAS 710 also indicates that a statement in an Other
Matter paragraph referred to in paragraph 9 of this Q&A does not,
however, relieve the auditor of the requirement to obtain sufficient
appropriate audit evidence that the opening balances do not
contain misstatements that materially affect the current period’s
financial statements in accordance with paragraph 6 of CAS 510,
Initial Audit Engagements — Opening Balances. The auditor’s work
effort to comply with CAS 510 may not be significantly different
than the work effort required to report on all periods presented,
as discussed in paragraphs 3 to 6 of this Q&A. Accordingly, the
auditor may wish to discuss with the entity whether it would be
more appropriate for the auditor to report on all periods presented,
as discussed in paragraph 2 of this Q&A. It is important that
the terms of the engagement appropriately reflect the financial
statement periods on which the auditor is being engaged to report.
11. Some auditors may consider whether to make an additional
reference in the auditor’s report to the fact that the financial
statements for the years ended December 31, 2010 and December
31, 2009 prepared in accordance with pre-changeover accounting
standards were audited. While such a reference may be factually
correct, including it in the auditor’s report may be seen to
contradict the Other Matter paragraph referred to in paragraph
9 of this Q&A. As a result, readers of the auditor’s report may
misunderstand that the auditor was not engaged to opine on the
December 31, 2010 financial statements and the January 1, 2010
opening statement of financial position prepared in accordance
with the new financial reporting framework. Therefore, such a
reference has not been made in the Illustrative Reports included in
this Guide.

Q&A 1(e) Describing the Financial Reporting Framework
when an Entity Uses Pre-Changeover Accounting
Standards in 2010

How is the financial reporting framework described in the
practitioner’s report when an entity uses pre-changeover
accounting standards and, in particular, differential reporting
options in its financial statements for periods ending on or after
December 14, 2010?
Background
1. Pre-changeover accounting standards permit certain entities to
prepare their financial statements using differential reporting
options.
2. For audits of financial statements for periods ending before
December 14, 2010 performed in accordance with auditing
standards in effect prior to the issuance of the CASs, Section 5400,
The Auditor’s Standard Report, requires the introductory paragraph
in the auditor’s report to indicate that the financial statements
have been prepared in accordance with Canadian GAAP using
differential reporting options available to non-publicly accountable
enterprises.
3. For audits of financial statements for periods ending on or after
December 14, 2010, performed in accordance with the CASs, the
CASs do not specifically address differential reporting options
or how the auditor should report when the entity has prepared
financial statements using those options. However, paragraph 6 of
CAS 210, Agreeing the Terms of Audit Engagements, requires that
the auditor determine whether the applicable financial reporting
framework is acceptable and paragraph 15 of CAS 700, Forming
an Opinion and Reporting on Financial Statements, requires the
auditor to evaluate whether the financial statements adequately
refer to or describe the applicable financial reporting framework.
4. For reviews of financial statements for periods ending before
and after December 14, 2010, Section 8200, Public Accountant’s
Review of Financial Statements, applies. When reporting on an
entity that prepares its financial statements in accordance with
pre-changeover accounting standards using differential reporting
options, Section 8200 requires the public accountant to indicate
in the scope paragraph that the financial statements have been
prepared in accordance with Canadian GAAP using differential
reporting options available to non-publicly accountable enterprises.
Description of the financial reporting framework in the auditor’s report
5. The auditor’s report on financial statements for periods ending
on or after December 14, 2010 prepared in accordance with
pre‑changeover accounting standards, including differential
reporting options, will be in the form required by CAS 700. The
description of the financial reporting framework in the auditor’s
report would be “Canadian generally accepted accounting
principles” and would not make separate reference to differential
reporting options. This is because differential reporting options are
accounting policies the entity selects and applies within a financial
reporting framework and are not a separate financial reporting
framework. The notes to the financial statements will describe the
accounting policies selected by the entity, which may include the
use of differential reporting options, if appropriate.
6. Entities that currently use differential reporting options may
transition to Canadian accounting standards for private enterprises
on January 1, 2011. While Canadian accounting standards for
private enterprises include certain options that exist as differential
reporting options in Part V of the CPA Canada Handbook –
Accounting, the auditor would not make separate reference to
these differential reporting options when describing the financial
reporting framework in the auditor’s report for the same reason as
discussed in paragraph 5.
Description of the financial reporting framework in the
public accountant’s review engagement report
7. The review engagement report on financial statements for periods
ending on or after December 14, 2010 prepared in accordance
with pre-changeover accounting standards, including differential
reporting options, will be in the form required by Section
8200. Paragraph 8200.51 requires that the review engagement
report be presented as set out in General Review Standards,
paragraphs 8100.26 and 8100.34, as appropriate, except that the
scope paragraph should:
(a) indicate that the financial statements have been prepared in
accordance with Canadian generally accepted accounting
principles using differential reporting options available to nonpublicly
accountable enterprises; and
(b) (refer to the summary of accounting policies in the financial
statements that describes each differential reporting option
applied.

Q&A 1(f) Early Adoption of a New Financial Reporting
Framework and the Need for an Emphasis of Matter
Paragraph

When an entity early adopts a new financial reporting framework,
should the auditor include an Emphasis of Matter paragraph in
the auditor’s report referring to the change in financial reporting
framework?
Background
1. For audits of financial statements for periods ending before
December 14, 2010, the audit is performed in accordance with
auditing standards in effect prior to the issuance of the CASs.
Section 5701, Other Reporting Matters, provides guidance on
additional explanations in the auditor’s report, but does not require
use of Emphasis of Matter paragraphs.
2. For audits of financial statements for periods ending on or after
December 14, 2010, the audit is performed in accordance with the
CASs. Paragraph 6 of CAS 706, Emphasis of Matter Paragraphs
and Other Matter Paragraphs in the Independent Auditor’s Report,
states that if the auditor considers it necessary to draw users’
attention to a matter presented or disclosed in the financial
statements that, in the auditor’s judgment, is of such importance
that it is fundamental to users’ understanding of the financial
statements, the auditor shall include an Emphasis of Matter
paragraph in the auditor’s report provided the auditor has obtained
sufficient appropriate audit evidence that the matter is not
materially misstated in the financial statements.
3. Paragraph A1 of CAS 706 provides examples of circumstances
where the auditor may consider it necessary to include an
Emphasis of Matter paragraph. One example provided relates
to the early application (where permitted) of a new accounting
standard (for example, a new International Financial Reporting
Standard) that has a pervasive effect on the financial statements in
advance of its effective date.
4. When an entity early adopts a new financial reporting framework,
this may have a pervasive effect on the entity’s financial statements
in advance of any required effective date to adopt a new financial
reporting framework.
The need for an Emphasis of Matter paragraph
5. The early adoption of a new financial reporting framework can be
contrasted with the early adoption of a new accounting standard in
the following ways:
(a) The entity’s financial statements will contain additional
disclosures not presented when an entity early adopts a new
accounting standard, including:
(i) an opening balance sheet (statement of financial position)
on the transition date; and
(ii) a reconciliation of certain key financial information
reported in the entity’s most recent previously issued
financial statements to the same information prepared in
accordance with the new financial reporting framework.
(b) The auditor’s report will refer to the new financial reporting
framework and the opening balance sheet (statement of
financial position) and, therefore, will be different from the
auditor’s report for the prior period.
6. Because of the more extensive presentation and disclosures in
the financial statements on the early adoption of a new financial
reporting framework, and the fact that the auditor’s report will be
different from the prior period, there is much less likelihood that
the auditor will consider it necessary to draw users’ attention to
this matter through an Emphasis of Matter paragraph. Illustrative
Reports in this Guide do not include such an Emphasis of Matter
paragraph.

Q&A1(g) Referring to Canadian GAAP in the Auditor’s
Report on Financial Statements Prepared in Accordance
With a New Financial Reporting Framework

Can an auditor’s report on financial statements prepared in
accordance with a new financial reporting framework in the CPA
Canada Handbook – Accounting also make reference to Canadian
GAAP and, if so, how should this reference be made in the auditor’s
report?
Background
1. Incorporating or other governing legislation, or a contract, may
require that an entity prepare its financial statements in accordance
with Canadian GAAP. Canadian GAAP includes different financial
reporting frameworks in Parts I to V of the CPA Canada Handbook
– Accounting. Consequently, when an entity makes reference to the
specific financial reporting framework it has applied in preparing
its financial statements, making a separate reference to Canadian
GAAP might be viewed as redundant.
2. The Introductions to Parts I to IV of the CPA Canada Handbook
– Accounting indicate that an entity that prepares its financial
statements in accordance with the respective part of the Handbook
“is permitted, but not required, to make the additional statement
that its financial statements are in accordance with Canadian
GAAP.”4 Further, some regulators, such as the Canadian Securities
Administrators and the Office of the Superintendent of Financial
Institutions, have indicated that they will not require such an
additional statement in financial statements prepared by entities
they regulate. It is the decision of the entity whether or not to
specifically refer to Canadian GAAP. An entity may decide to
demonstrate compliance not only with a specific financial reporting
framework but also with Canadian GAAP. Auditors are required by
paragraph 15 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, to evaluate whether the financial statements
adequately refer to or describe the applicable financial reporting
framework.
3. Irrespective of whether the entity decides to also disclose
compliance with Canadian GAAP, it is the auditor’s decision
whether the auditor’s report makes specific reference to Canadian
GAAP. As long as the auditor’s report makes reference to the
financial reporting framework applied in preparing the financial
statements (for example, in the manner set out in Illustrative
Reports in this Guide), there is no need for the auditor’s report
to make specific reference to Canadian GAAP, unless the auditor
considers that he or she is required to do so under regulation or
legislation.
4. Auditors may decide to make specific reference to Canadian
GAAP in the auditor’s report to maintain consistency with how
the entity describes the financial reporting framework in its
financial statements. However, even when the entity does not make
specific reference to Canadian GAAP in its financial statements,
auditors may also decide to make specific reference to Canadian
GAAP when they believe that it is important to readers of the
auditor’s report to know that in the auditor’s opinion the financial
statements comply with Canadian GAAP.
5. When referring specifically to Canadian GAAP, and when
evaluating whether the financial statements adequately refer
to or describe the applicable financial reporting framework in
accordance with paragraph 15 of CAS 700, the auditor would
consider whether the reference clearly sets out the relationship
between Canadian GAAP and the financial reporting framework.
6. Paragraphs A8 and A32 of CAS 700 indicate that when the
financial statements are prepared in accordance with two
financial reporting frameworks the auditor’s opinions may be
expressed separately or in a single sentence (for example, “the
financial statements are presented fairly, in all material respects,
in accordance with accounting principles generally accepted in
Jurisdiction X and with IFRS”). This form of wording should not be
used in Canada when referring to accounting standards in Parts I
to V of the CPA Canada Handbook – Accounting — for example,
“Canadian accounting standards for private enterprises and
Canadian generally accepted accounting principles” — as it might
imply that the two are separate financial reporting frameworks,
which is not the case. Further, referring to a financial reporting
framework as “part of” Canadian GAAP may imply that the entity
has not complied with all of Canadian GAAP.
7. The following sets out examples of descriptions of the financial
reporting framework that clearly sets out the relationship between
Parts I to IV of the CPA Canada Handbook – Accounting and
Canadian GAAP:
(a) For Part I of the CPA Canada Handbook – Accounting:
“International Financial Reporting Standards, which is one
of the financial reporting frameworks included in Canadian
generally accepted accounting principles.”
(b) For Part II of the CPA Canada Handbook – Accounting:
“Canadian accounting standards for private enterprises,
which is one of the financial reporting frameworks included in
Canadian generally accepted accounting principles.”
(c) For Part III of the CPA Canada Handbook – Accounting:
“Canadian accounting standards for not-for-profit
organizations, which is one of the financial reporting
frameworks included in Canadian generally accepted
accounting principles.”
(d) For Part IV of the CPA Canada Handbook – Accounting:
“Canadian accounting standards for pension plans, which is
one of the financial reporting frameworks included in Canadian
generally accepted accounting principles.”
8. Such wording would ordinarily be placed in the opinion paragraph
of the auditor’s report. When the auditor’s report includes a
separate section dealing with other reporting responsibilities, as
discussed in paragraphs 38 and 39 of CAS 700, the auditor may
consider it to be more appropriate to include such wording in that
separate section.

Q&A 1(h) The Review Engagement Report on the First
Financial Statements Prepared in Accordance with
Canadian Accounting Standards for Private Enterprises

Q&A 1(h)(i) What guidance does a practitioner use in considering the
form of review engagement report on comparative information in
the first financial statements prepared in accordance with Canadian
accounting standards for private enterprises?
1. For reviews of financial statements, Section 8200, Public
Accountant’s Review of Financial Statements, applies. Section 8200
also makes reference to Section 8100, General Review Standards.
2. Paragraph 8100.41 requires that when comparative figures are
neither audited nor reviewed, and disclosure of such matters is not
made in the information on which the public accountant reports,
disclosure should be made in a separate and final paragraph of the
review engagement report.
3. Neither Section 8100 nor Section 8200 provides guidance
dealing with comparative information and its effect on the review
engagement report. Therefore, practitioners may refer to Q&As
1(d) and 2(a) in this Guide that deal with comparative information
in the context of the auditor’s report. Similar principles apply in the
context of a review engagement. The application of Q&As 1(d) and
2(a) to review engagements is discussed further below.
Q&A 1(h)(ii) How does the practitioner apply the guidance in Q&As
1(d) and 2(a) in this Guide to the review engagement report on the
first financial statements prepared in accordance with Canadian
accounting standards for private enterprises?
4. The guidance in Q&As 1(d) and 2(a) is relevant to deciding on the
form of review engagement report with respect to the first financial
statements prepared in accordance with Canadian accounting
standards for private enterprises. These standards contain
transition provisions requiring comparative information, including
related notes to be presented. For example, for an entity with a
calendar year end, the entity’s first financial statements prepared
in accordance with Canadian accounting standards for private
enterprises would include a balance sheet as at:
(a) December 31, 2011;
(b) December 31, 2010; and
(c) January 1, 2010 (opening balance sheet prepared in accordance
with Canadian accounting standards for private enterprises).
Reporting on the first financial statements on the transition to
Canadian accounting standards for private enterprises when the
review engagement report refers to the current period only
5. While the practitioner may have reviewed the financial statements
for the years ended December 31, 2010 and December 31, 2009
prepared in accordance with the pre-changeover accounting
standards, the practitioner will not have previously reviewed the
financial statements for those periods prepared in accordance with
Canadian accounting standards for private enterprises.
6. When the practitioner’s report refers to the current period only,
using the reporting approach for corresponding figures discussed
in Q&A 2(a), there may be an incorrect presumption by readers of
the practitioner’s report on the first financial statements prepared
in accordance with Canadian accounting standards for private
enterprises that the practitioner has previously issued a review
engagement report on the comparative information.
7. Unless the practitioner has been specifically engaged to perform
an audit or a review of the December 31, 2010 financial statements
and the January 1, 2010 opening balance sheet prepared in
accordance with Canadian accounting standards for private
enterprises, these financial statements are not audited or reviewed.
8. There are two possible courses of action:
(a) The practitioner can be engaged to issue only a review
engagement report on the current period’s financial
statements. In such a case, the comparative information
is presented in the form of corresponding figures and the
practitioner complies with paragraph 8100.41 as discussed
in Q&A 1(h)(i). Disclosure that the comparative information
was neither audited nor reviewed should be made in a
separate and final paragraph of the review engagement report
unless disclosure of such matters is made in the financial
statements. (See Illustrative Report 2(b) in this Guide when
the practitioner’s report does not extend to the corresponding
figures and such disclosure in the financial statements is not
made.)
(b) Alternatively, the practitioner may discuss with the entity
whether the terms of the engagement need to extend to
all financial statement periods presented. In such a case,
the comparative information is presented in the form of
comparative financial statements and the review engagement
report extends to each financial statement period presented.
(Refer to paragraphs 9-12 in this Q&A.)
Reporting on first financial statements on transition to Canadian accounting
standards for private enterprises when the review engagement report
refers to each period for which financial statements are presented
9. The practitioner may have agreed to undertake an engagement to
report on all financial statements presented, when such financial
statements are prepared in accordance with Canadian accounting
standards for private enterprises. If so, the practitioner is required
to issue a review engagement conclusion on all three balance
sheets and two operating periods prepared in accordance with
Canadian accounting standards for private enterprises, using the
reporting approach for comparative financial statements discussed
in Q&A 2(a).
10. While the practitioner may have reviewed the financial statements
for the years ended December 31, 2010 and December 31, 2009
prepared in accordance with the pre-changeover accounting
standards, the practitioner will not have previously reviewed the
financial statements for those periods prepared in accordance with
Canadian accounting standards for private enterprises.
11. When reporting on the first financial statements for 2011 prepared
in accordance with Canadian accounting standards for private
enterprises, the practitioner will be reporting on the December
31, 2010 financial statements and the January 1, 2010 opening
balance sheet prepared in accordance with Canadian accounting
standards for private enterprises for the first time. Accordingly, the
practitioner will be required to perform sufficient procedures to
support the conclusion expressed in his or her review engagement
report on those financial statements.
12. The practitioner is able to use the work performed in reviewing the
financial statements for the years ended December 31, 2010 and
December 31, 2009 prepared in accordance with pre-changeover
accounting standards. However, because the comparative
financial statements are prepared in accordance with Canadian
accounting standards for private enterprises, the practitioner will
have to perform additional procedures to support the conclusion
in the review engagement report on those financial statements,
even when the financial statements prepared in accordance
with Canadian accounting standards for private enterprises do
not appear to be significantly different from those prepared in
accordance with pre-changeover accounting standards.

Q&A 1(i) Budget Information in Financial Statements
Prepared in Accordance with Canadian Public Sector
Accounting Standards

How does the auditor report on budget information contained in
financial statements prepared in accordance with Canadian public
sector accounting standards?
1. For the purposes of this Q&A, budget information includes planned
results or planned amounts as referred to in Financial Statement
Presentation, paragraphs PS 1201.130-.131 in the CPA Canada Public
Sector Accounting Handbook,5 which require the following:
(a) The statement of operations should present a comparison
of the results for the accounting period with those originally
planned. Planned results should be presented for the same
scope of activities and on a basis consistent with that used for
actual results.
(b) The statement of change in net debt should present a
comparison of the items that comprise the change in net debt
for the accounting period, as well as the change in net debt
for the period, with the figures originally planned. Planned
amounts should be presented for the same scope of activities
and on a basis consistent with that used for actual amounts.
Paragraphs PS 1201.132-.133 provide additional guidance when the
scope of financial activity reported in the fiscal plan is not the same
as that reported in the financial statements, or when the fiscal plan
is not prepared on a basis consistent with that used to report the
actual results.
2. “Supplementary information” is defined in the Glossary of Terms
in the CPA Canada Handbook – Assurance as: “Information that
is presented together with the financial statements that is not
required by the applicable financial reporting framework used
to prepare the financial statements, normally presented in either
supplementary schedules or as additional notes.” Because planned
results or planned amounts included in financial statements
prepared in accordance with Canadian public sector accounting
standards are required by the applicable financial reporting
framework, they do not represent supplementary information.
3. Paragraph A19 of CAS 700, Forming an Opinion and Reporting on
Financial Statements, states that the auditor’s opinion covers the
complete set of financial statements as defined by the applicable
financial reporting framework. Accordingly, the auditor’s opinion
would cover comparisons of actual and planned results or
planned amounts included in the statement of operations and the
statements of change in net debt. It would be inappropriate for
planned results or planned amounts to be marked as unaudited.
Paragraph 12 of CAS 700 requires the auditor to evaluate whether
the financial statements are prepared, in all material respects,
in accordance with the requirements of the applicable financial
reporting framework. This would include evaluating whether the
planned results and planned amounts meet the requirements of
paragraphs PS 1201.130-.131, including any information provided in
the notes to the financial statements or supporting schedules:
(a) concerning differences in the scope of financial activity
reported in the financial statements and the fiscal plan; and
(b) reconciling planned results or planned amounts restated for
consistency with the basis used for the financial statements.
4. The auditor is required to obtain sufficient appropriate audit
evidence to express an opinion whether the financial statements
are prepared, in all material respects, in accordance with the
applicable financial reporting framework, which under Canadian
public sector accounting standards includes the presentation
of planned results and planned amounts. The nature, timing and
extent of procedures required to obtain sufficient appropriate audit
evidence about planned results and planned amounts is a matter of
professional judgment of the auditor.
5. If the auditor is unable to obtain sufficient appropriate audit
evidence with respect to the entity’s planned results or planned
amounts, if the financial statements do not include a comparison
of actual and planned results and planned amounts, or if the
comparison does not otherwise meet the requirements of
paragraphs PS 1201.130-.131, the auditor would refer to CAS 705,
Modifications to the Opinion in the Independent Auditor’s Report,
in determining the implications for the audit and the auditor’s
opinion.
6. When a financial reporting framework does not require the
inclusion of planned results or planned amounts in the financial
statements, such information included in the financial statements
would represent supplementary information and the auditor would
refer to paragraphs 46-47 of CAS 700 in determining the possible
effects on the auditor’s report.

Q&A 1(j) Correction of Financial Statements in
Accordance with Paragraph PS 2120.31 in the CPA Canada
Public Sector Accounting Handbook

How does the auditor report on financial statements containing a
correction in accordance with paragraph PS 2120.31?
1. Accounting Changes, paragraph PS 2120.31 in the CPA Canada
Public Sector Accounting (PSA) Handbook, states that an issue
raised with the government (“the entity”) by its auditor in one
period but not corrected by the entity until a subsequent period
is not an error, for purposes of PS 2120. The issue would be
accounted for in the period in which the correction is made.
2. In other circumstances, errors are corrected retrospectively in both
the PSA Handbook and financial reporting frameworks in the CPA
Canada Handbook – Accounting.
3. As a result of the provision in paragraph PS 2120.31, entities
applying the PSA Handbook are not required to restate
comparative information for the effects of an error that was raised
with the entity by its auditor in an earlier reporting period.
4. This Q&A discusses the implications for the auditor’s report in
the circumstances when paragraph PS 2120.31 is applicable. The
following assumptions are used as a basis for presenting the
reporting implications in this Q&A:
(a) As at March 31, 20X1 the entity did not accrue a liability (for
example, related to a program expense) for which the effect is
material to the financial statements. The matter was identified
by the entity’s auditor and was raised with the entity.
(b) The entity decided not to correct the error in 20X1, so that the
financial statements of the entity for the year ended March 31,
20X1 (“20X1 financial statements”) were materially misstated
because expenses and liabilities were understated by a
material amount.
(c) In 20X2, the entity corrected the error in accordance with
paragraph PS 2120.31 by recording the expense and the liability
in the current year’s figures in its financial statements for the
year ended March 31, 20X2 (“20X2 financial statements”).
(d) When reporting on the 20X1 financial statements, the auditor
issued an auditor’s report containing a qualified opinion
because the financial statements contained a material
departure from Canadian public sector accounting standards
for that year.
5. The current year’s figures in the 20X2 financial statements do
not contain a departure from Canadian public sector accounting
standards in relation to the error itself because the error has been
corrected in accordance with paragraph PS 2120.31. However, the
prior year’s figures (comparative information) contained in these
financial statements remain materially misstated.
6. The form of the auditor’s report on the 20X2 financial statements
will depend on the audit reporting approach in respect of
comparative information.
7. Under the corresponding figures reporting approach, the
auditor would refer to the requirements in paragraph 11 of
CAS 710, Comparative Information — Corresponding Figures and
Comparative Financial Statements. Under paragraph 11 of CAS 710,
if the auditor's report on the prior period, as previously issued,
included a qualified opinion, a disclaimer of opinion, or an adverse
opinion and the matter which gave rise to the modification is
unresolved, the auditor shall modify the auditor's opinion on the
current period's financial statements. Because the comparative
information in the 20X2 financial statements (i.e., the financial
statements for the year ended March 31, 20X1) is still materially
misstated, the matter has not been resolved for the purposes
of paragraph 11 of CAS 710 even though the entity correctly
accounted for the error in the current year’s figures in the 20X2
financial statements for financial reporting purposes in accordance
with paragraph PS 2120.31. Accordingly, the auditor would apply
paragraph 11(b) of CAS 710 and modify the auditor’s opinion
because, notwithstanding the correction of the error, there are
effects on the comparability of the current year’s figures and the
corresponding figures. See Illustrative Report 8 in this Guide for
an example of an auditor’s report that is qualified because of the
effects of a matter on the comparability of the current period's
figures and the corresponding figures resulting from application of
paragraph PS 2120.31.
8. Under the comparative financial statements reporting approach,
the auditor would refer to the requirements in paragraph 15 of
CAS 710. Under paragraph 15 of CAS 710, the auditor would
express an opinion on financial statements for each period
presented, and the auditor’s opinion on the current year’s figures
in the 20X2 financial statements would be an unmodified opinion
because the entity correctly accounted for the error in accordance
with paragraph PS 2120.31. However, the auditor’s opinion on
the prior year’s figures of the 20X2 financial statements (i.e., the
financial statements for the year ended March 31, 20X1) would
continue to be modified as discussed in paragraph 5 of this
Q&A. This can be compared with the auditor’s opinion on the
current year’s figures in the 20X2 financial statements under
the corresponding figures reporting approach, as discussed
in paragraph 7 of this Q&A, which is qualified because of the
effects on the comparability of the current year’s figures and the
corresponding figures.

---

Share : Facebook Twitter Google+ Digg

Jika Anda menyukai Artikel di blog ini, Silahkan klik disini untuk berlangganan gratis via email, Anda akan mendapat kiriman artikel setiap ada artikel yang terbit di Our Akuntansi