Methodology Update—June 2021
Jun-2021
Target audience: All Attest Auditors
Effective date: The revised methodology is effective upon release.
Standards: This update reflects up to CPA Canada—Assurance—Update Number 34—April 2021 (excluding revisions to CAS 315 which will be reflected in a future methodology update)
Copyright: CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright.
Description of subject: The update includes changes to audit manual policies and guidance, audit procedures, templates and Intranet pages. Significant changes to the methodology are summarized below.
Key changes are:
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Changes to the extent of manual controls tests.
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New and enhanced guidance on materiality.
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New and enhanced guidance on external confirmations and use of confirmation.com.
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New and enhanced guidance on additional audit procedures when events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern.
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Modified OAG policy for conforming amendments to Canadian Standards resulting from the revised International Code of Ethics for Professional Accountants (IESBA Code).
Updates to the Manual
A number of revisions have been made to the annual audit manual sections. The following is a summary of all revisions other than editorial revisions, revisions made solely to CAS extracts or revisions made solely to procedure references:
| Section | Section Title | Nature of Changes |
|---|---|---|
| SofQC Sections | ||
|
1031 |
Ethical Requirements Relating to an Assurance Engagement |
Modified OAG policy and assurance standards for conforming amendments to Canadian Standards. |
|
1091 |
Complaints and Allegations |
Modified OAG policy for conforming amendments to Canadian Standards. |
|
3011 |
Acceptance and Continuance |
Additional assurance standards and guidance related to terms of engagement for direct engagements as a result of AuG-50. |
|
3062 |
Engagement Leader Responsibilities for Audit Quality |
Modified OAG policy and assurance standards for conforming amendments to Canadian Standards. |
|
Glossary |
Glossary |
Updated definitions for conforming amendments to Canadian Standards. Added and updated definitions for new guidance related to AuG‑50. |
| Annual Audit Sections | ||
|
2102 |
Overall Materiality |
Added guidance on considerations specific to determining materiality for periods shorter or longer than 12 months. Enhanced guidance in the FAQ relating to applying a rule of thumb to a chosen benchmark and how debt covenants impact the rule of thumb. |
|
2103 |
Performance Materiality |
Enhanced guidance for account balances, classes of transactions and disclosures that exceed performance materiality but are less than overall materiality, and selection of an appropriate haircut. |
|
2104 |
Materiality for Particular Classes of Transactions, Account Balances or Disclosures |
Added guidance related to performance materiality for auditing pension assets. |
|
2214 |
Required communications for all engagements |
Updated guidance to remove the requirement to communicate corrected misstatements to those charged with governance to align with the latest RAC‑Results template. Modified guidance for conforming amendments to Canadian Standards. |
|
2328 |
Compliance with ethical requirements, particularly independence |
Enhanced guidance on determining independence from component auditors (external firms/auditors). |
|
3081.1 |
Summary of matters for consultations |
Updated to reflect changes made throughout the audit manual. |
|
4024 |
Develop the testing strategy |
Updated to align with changes made to OAG Audit 6053. |
|
4026 |
Strategy in relation to indirect ELCs |
Updated to align with changes made to OAG Audit 6053. |
|
5509 |
Journal Entries |
Enhanced guidance on testing journal entries and other adjustments responsive to the risks related to management override of controls. This section has been significantly re‑organized. |
|
6001 |
Introduction |
Updated to remove reference to desired evidence for a controls test to align with changes in OAG Audit 6053 Extent of controls tests. |
|
6034 |
Evaluating the work of the internal audit function |
Updated to align with changes made to OAG Audit 6053. |
|
6051 |
Test of controls and their importance |
Updated to remove reference to desired evidence for a controls test to align with changes in OAG Audit 6053 Extent of controls tests. |
|
6053 |
Extent of controls tests |
|
|
6055 |
Determine whether evidence is available for the whole period |
Updated to align with changes made to OAG Audit 6053. |
|
7011.1 |
Audit guidance for specific financial statement areas |
Added FAQs related to substantive evidence for income statement accounts other than revenue. |
|
7044.1 |
Eight step approach to performing non-Statistical audit sampling |
Enhanced guidance on stratification. |
|
7052 |
External confirmation procedures |
Added guidance on selecting the appropriate confirming party and methods for sending external confirmation requests. |
|
7053 |
Evaluating results of external confirmation procedures |
Enhanced guidance on assessing reliability of responses. |
|
7054 |
Bank confirmations—Specific considerations |
Added guidance on use of the Capital Confirmation Inc.’s Confirm Service (confirmation.com). |
|
7064 |
Cycle Counts |
Updated to align with changes made to OAG Audit 6053. |
|
7524 |
Additional audit procedures when events or conditions are identified |
Enhanced guidance for specific events or conditions including refinancing and cash flow forecasts. Added guidance for considerations when assessing management’s plans for future actions. |
|
7525 |
Audit conclusions and reporting |
Updated to align with changes made to OAG Audit 6053. |
|
7581 |
Testing key reconciliations |
Updated to align with changes made to OAG Audit 6053. |
|
8023 |
Corresponding Figures |
Added a new FAQs section. |
|
11011 |
Understanding our legislative annual audit mandate |
Updated references to legislation. |
Updates to the Annual Audit Procedures
The following is a summary of all revisions other than editorial revisions.
Annual Audit Procedures Cabinet
Action required: Ensure you have the most updated procedure steps and procedure documents moving forward.
| Program (PRG) | Procedure Step | Change |
|---|---|---|
|
A.1.PRG—Audit Mandate and Client Acceptance and Continuance |
CPA Canada licence Agreement (Jun‑2021) |
Copyright date changed from 2020 to 2021. |
|
B.4.PRG—Assess Risk |
Accounting estimates— Understanding and risk assessment (Sept‑2020) |
Updated wording in Step 10 to indicate a procedure must be added for each accounting estimate identified in Step 5. Added wording in step 10 to refer to new PSAS and IFRS execution procedures containing steps specific to the nature of the estimate that also includes steps to address CAS 540 requirements. These procedures will be published in a future Accounting Methodology Update. *It is not required to import the updated procedure document, just be aware there have been some changes to the wording to clarify a step and to align with upcoming accounting updates. Procedure document |
|
C.2.PRG—Develop audit plan |
Determine audit strategy and plan (Jun‑2021) |
Added a reference to the new Virtual Inventory Observations Documentation Template. In tab Audit Planning Meeting Agenda, added link to the new Labelling and Marking of Information Security classification Tool. Procedure document P_01530E_Det_audit_strategy_and_plan |
|
D.1.PRG—Completion and Reporting Activities |
Evaluating misstatements (Jun‑2021) |
Updated reference to OAG Audit 9015 (Policy) related to consultation with Audit Services on prior period misstatements Procedure document has been replaced by |
|
C.2.PRG—Develop Audit Plan and E.1.PRG—General Execution Procedures |
Various procedures |
Procedures related to Executive and board compensation, travel, hospitality, conference and event expenditures have been moved to the Annual Audit Procedures—Supplement Cabinet to reflect the risk-based audit approach. |
Annual Audit Procedures—Supplement Cabinet
Action required: Ensure you have the most updated procedure steps and procedure documents moving forward.
| Program (PRG) | Procedure Step | Change |
|---|---|---|
|
F.1.PRG—General Execution Procedures |
Review consistency of other information in documents obtained after the date of audit report (Jun‑2021) |
Added reference to OAG Audit 11015 (Policy). Procedure document has been replaced by |
|
J.1.PRG —Executive and board compensation, travel, hospitality, conference and event expenditures |
Planning—Executive and board compensation, travel, hospitality, conference and event expenditures (Jun‑2018) |
Moved from the Annual Audit Procedures Cabinet to the Annual Audit Procedures—Supplement Cabinet. Add this procedure if needed based on the risk-based audit approach on auditing executive and board compensation, and travel, hospitality, conference and event expenditures. Procedure document |
|
Executive and Board compensation (Jun‑2018) |
Moved from the Annual Audit Procedures Cabinet to the Annual Audit Procedures—Supplement Cabinet. Add this procedure if needed based on the risk-based audit approach on auditing executive and board compensation, and travel, hospitality, conference and event expenditures. Procedure document |
|
|
Test travel, hospitality, conference and event expenditures (Jun‑2021) |
Moved from the Annual Audit Procedures Cabinet to the Annual Audit Procedures—Supplement Cabinet. Add this procedure if needed based on the risk-based audit approach on auditing executive and board compensation, and travel, hospitality, conference and event expenditures. Added and updated steps for the latest changes to the Directive on Travel, Hospitality, Conference and Event Expenditures (DTHCEE) Procedure document has been replaced by |
Updates to templates
The following is a summary of all revisions other than editorial revisions and any actions that need to be taken:
|
Planning |
Test of Controls |
Updated guidance buttons as a result of the changes in the OAG Audit 6053 |
None Changes were made to guidance buttons. Auditors can continue to use the previous template version, however must ensure they use the latest guidance on manual controls test. |
|
Planning |
Audit Planning Templates |
Instructions to come |
Changes to OAG Audit 6053 have an impact on the Audit Planning Template with regards to the control reliance section. However, since more changes are coming with CAS 315 and Caseware, we have not updated the APT to align with the changes in OAG Audit 6053. We will release further instructions on how to complete the control reliance section in July. |
| Annual Audit Templates | |||
| Phase | Template Name | Change | Action Required/Impact |
|---|---|---|---|
Updates to INTRAnet
The Financial Audit INTRAnet pages reflect the changes included in this Methodology Update. In addition, the following COVID‑19 Guidance have been updated:
- COVID‑19: Audit FAQ (update)
- Virtual Inventory Observations Documentation Template (New)