Transcript ASPE Update and Preparing for Year End Audit/Review

ASPE Update and
Preparing for Year End Audit/Review
Presenters:
Leanne Mongiat, CA
Trudy Snooks, CA
Adams & Miles LLP
A disclaimer before we begin….
Although the presentation and related
materials have been carefully
prepared, neither the presentation
authors, firm, nor any persons
involved in the preparation and/or
instruction of the materials accepts
any legal responsibility for its contents
or for any consequences arising from
its use.
Session Overview
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Accounting Standards for Private
Enterprises (ASPE) Update
Strategies for preparing for your yearend audit or review engagement
Review of ASPE
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Adoption
– enterprises must adopt either ASPE or IFRS
for fiscal years beginning on or after January
1, 2011
– early adoption is permitted
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Handbook – now located in Part II
Retrospective - is applying a new accounting
policy to transactions, other events and
conditions as if that policy had always been
applied
Timeline
ASPE Affects:
 Fair value
 Asset retirement obligations (ARO)
 Election for Property, Plant &
Equipment
 Intangibles
 Government payables
 Income taxes
 Opening balance sheet
What happens to
differential reporting?
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All options are included in ASPE.
The standard options include
- Future taxes
- Consolidations
- Preferred shares
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- Goodwill
- LT investments
No longer need unanimous consent.
No longer disclosed on the report or in
the Notes to F/S.
Fair Value
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Investments traded in an active
market must be recorded at fair value
Investments not traded in an active
market may elect to record at fair
value, but the election is irrevocable
Asset Retirement
Obligation
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An ARO is a legal obligation (by law, statute
or contract) to clean up your own mess at
some future date!
An ARO cost is an amount that is capitalized
and increase the carrying amount of the
asset when an obligation is recognized.
Measurement obligation has now changed
from a third-party estimate to
Management’s best estimate.
ARO – Cont’d
Measurement – upon initial recognition the
carrying amount of the asset should increase
by the same amount as the liability.
Subsequently this amount is expensed using a
systematic, rational method.
 Initial recognition should be discounted using a
current market risk-free rate of interest.
 An elective exemption is available to record
ARO as of the transition date.

Election to Value Property, Plant and
Equipment (PPE) at Fair Value
 This
is a one time election.
 The election must be done at the transition
date.
 This election can be done on an item by item
basis.
 The fair value becomes the new cost of the
PPE and future amortization calculations will
use this new cost.
 Determining the FV will likely cost enterprises.
ASPE Update
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Definition of intangible asset changed –
basically any non-refundable deposits are
no longer considered prepaid
Government payables – must be
disclosed on face of Balance Sheet or in a
Note
Cash flows statements are now
required.
Transition Steps
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Decide which Canadian GAAP: IFRS or
ASPE?
Select accounting policies
Plan for transition – review S. 1500
Prepare opening B/S
Prepare disclosures
Consider tax implications
Consider other implication
More Information on
ASPE
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Resources available from the ICAO
Standards in Transition Website
http://www.cica.ca/privateenterprises//inde
x.aspx
Includes: FAQ, Transition Guide, and
Archived Webinars

CICA has also released publication on
Sample Model Financial Statements
Preparing for Year - End
Audit/Review
Objectives
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Overview of new CAS requirements
and impact on your year-end
How to prep your GL (and cut down
on adjustments and audit costs!)
How to get the most efficiency out of
your audit
Detailed working papers to help your
Auditor/Accountant
New Canadian Audit
Standards (CAS)
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Effective for year-ends ending after
December 14, 2010
Significant changes are:
- Change to Audit Report wording
- Change to Audit Report date
- Change to materiality
- Change to client communications
- Change to certain audit procedures
Change to Audit Report
Wording
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It is now referred to as “Independent
Auditor’s Report”
has been extended to report on
Management Responsibilities and Auditor
Responsibilities for the statements
Management’s responsibility
– Produce statements free from material
misstatements (whether due to fraud or
error)
Change to Audit Report
Wording – Cont’d
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Auditors’ responsibilities
– Conduct audit in accordance with Cdn GAAS
– Obtain sufficient evidence concerning the
reasonability of amounts and disclosures in the
FS (including accounting policies and
management’s estimates)
– Factors to assess reasonability include risk
assessment, professional judgment, assessment
of internal controls
Must now disclose notes regarding comparative
amounts (unaudited or audited by a different
auditor)
Change to Audit Report
Date
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Report is now dated when the financial
statements are approved:
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Management
Shareholders/Stakeholders
Board of Directors
Audit or Finance Committees
This will generally be later than in the past.
Draft financial statements will likely not be
dated.
Due to date change, additional audit
procedures may be required depending on
how long the approval process takes.
Change to Materiality
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Now three levels:
– Overall planning: for statements taken as a
whole
– Performance materiality: represents between 6075% of overall planning materiality that auditor
will use to determine extent and timing of audit
procedures
– Specific materiality: (if required – based on
professional judgment) represents level of
materiality for specific classes of transactions or
account balances
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More adjustments may be required as all
non-trivial misstatements must now be
adjusted, regardless of materiality
Change to Client
Communications
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Establish a mutually acceptable
communication process
Communicate:
– Form
– Timing
– Expected general content
Sample Communications
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Expected communications could include:
– Engagement letter
– Pre-planning letter (timing, materiality, responsibilities of
management etc.)
– Representation letter from Management
– Independence letter from Auditor (subject to change)
– Management letter/Post-Engagement letter (matters of
interest, assessment of controls, audit issues or
disagreements etc.)
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Some of these communications may be in verbal
format, email, etc. As agreed to by both parties.
Changes to Certain Audit
Procedures
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Confirmations
– External confirmations are no longer mandatory,
but at the discretion of the auditor
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Accounting estimates
– Auditor required to assess reasonability and
track past history of management’s estimates
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Additional enquiries regarding going concern
and management assessment of risks
BREAK TIME
Coffee and refreshments at the back!
Audit Efficiency
Audit Efficiency
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Be ready!
Be realistic with the amount of time
you need to prepare.
Be realistic about how much time you
(and others!) need to be available to
the auditor during fieldwork.
Audit Efficiency
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Anticipate questions
- new or unusual balances
- significant changes
- Related party transactions and
balances
Ask for a Prep List
- scope
- list of audit/review questions
How to Prep Your G/L
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There are a few ways to prepare a G/L
that will ultimately save you time and
$$:
– Booking recurring entries
– Agreeing or reconciling G/L balances to
schedules
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The next few slides outline some
common examples…..
How to Prep Your G/L
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Ensure retained earnings agrees to
previously published F/S.
Ensure all prior adjustments from
previous audits have been posted
(unless directed otherwise)
Ensure subsidiary or related company
balances agree (or are reconciled)
How to Prep Your G/L –
cont’d
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Some recurring entries include:
– Ensure bank reconciles to G/L
– Update any monetary FX balances
– Book any allowances/accruals
– Annual amortization for capital
assets
How to Prep Your G/L –
cont’d
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Book recurring allocations or
reclassifications
– Inventory
– COGS
– Salaries
– Credits/debits in AR or AP
– General expense accounts, miscellaneous
Detailed Working Papers
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Cash –
– Bank reconciliations tied to bank statements
– Listing of subsequent receipts and
disbursements
– Listing of monthly FX rates used
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Accounts receivable
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Aging summary tied to G/L.
Identify anything subsequently paid.
Identify doubtful accounts.
Adjust for foreign exchange
Detailed Working Papers
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Inventory
– Summary of composition of inventory
– Memo outlining inventory count
procedures, count date, costing method
– Obsolete/slow moving inventory
– Inventory in transit/consignment
– Fixed contracts
Detailed Working Papers
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Deposits and other assets
– Listing of all deposits, with supporting
documents
– Summary of insurance coverage
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Capital assets
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Continuity schedule
Supporting documents
G/L listings for all R&M accounts
Ensure following internal capitalization policy
Ensure amortization is calculated on
additions/disposals
Detailed Working Papers
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Accounts payable
– Aging summary tied to GL balance
– Adjust for foreign exchange
– Related party balances
– GST/HST agreed to last return filed
– Source deduction statement tied to GL
– Listing of accruals with support
Detailed Working Papers
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Income taxes
– Continuity schedule
– Copies of all assessments
– Installment summary
– Identify Schedule 1 addbacks
Meals and entertainment – 50%
 Life insurance
 Non-deductible interest
 Non-deductible memberships (golf fees)
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Detailed Working Papers
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Current Operating Line/Long-term
debt (leases/loans)
– Copy of the contract and amortization
schedule
– Reconcile GL to amortization schedule
– Schedule of balances due within one year
– Calculation of covenants
Detailed Working Papers
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Revenue and Cost of Sales
-Prepare gross margin analysis
-Top 5 or 10 customer sales
-Sales/revenue trend analysis
- Reasonability analysis
- Interest reasonability
- Grant revenue – copies of any new grants
tied to G.L.
- Revenue to budget analysis
Detailed Working Papers
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Other Expenses
- T4 reconciliation – agree T4 to total
wages
- Memo describing any significant hires
and terminations in the year
- Memo explaining why certain
expenses accounts may have
significantly increased or decreased
- Expense to budget analysis
Detailed Working Papers
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Organization chart
– Internal (showing lines of authority)
– External (share structure and related
parties)
Org Chart Example Internal
Org Chart Example External
Detailed Working Papers
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Cutoff memos
– Cash, AR, AP and Inventory
AJE
– Types of adjusting entries
– Authorization and controls on AJE
Detailed Working Papers
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a brief highlights memo
copies of all legal invoices
copies of new agreements
a brief memo describing any new
related entities, related party
transactions
A brief memo describing controls
Minutes
Questions?