Canadian Auditing Standards Flashcards
Technical Information
CAS 200: Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Canadian Auditing Standards
Simplified Summary: This standard outlines the fundamental goals of an audit: to obtain reasonable assurance about whether the financial statements are free from material misstatement, enabling the auditor to express an opinion. It also sets out the auditor’s responsibilities, including professional skepticism and judgment, and compliance with CAS.
Why This Matters (Briefly): Forms the bedrock of every audit. Understanding CAS 200 is essential to grasp the purpose and scope of an audit.
CAS 210: Agreeing the Terms of Audit Engagements
Simplified Summary: Before starting an audit, the auditor must agree on the terms with management or those charged with governance. This agreement is documented in an engagement letter and clarifies responsibilities, scope, and reporting framework.
Why This Matters (Briefly): Prevents misunderstandings, sets clear expectations, and legally documents the auditor-client relationship before audit work begins.
CAS 230: Audit Documentation
Simplified Summary: Auditors must document everything significant in the audit. This documentation (audit file/working papers) provides evidence of the audit work performed and supports the auditor’s opinion. It should be sufficient, appropriate, and prepared timely.
Why This Matters (Briefly): “If it’s not documented, it wasn’t done” – documentation is crucial for audit quality, review, and defense in case of legal challenges.
CAS 315: Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment
Simplified Summary: Auditors must understand the entity and its environment (including internal control) to identify and assess the risks that the financial statements could be materially misstated. This risk assessment guides the nature, timing, and extent of further audit procedures.
Why This Matters (Briefly): Risk assessment is the foundation for a risk-based audit approach. It ensures auditors focus their efforts where misstatements are most likely.
CAS 220: Quality Control for an Audit of Financial Statements
Simplified Summary: This standard deals with the auditor’s firm’s responsibilities for quality control at the engagement level for an audit. It emphasizes leadership responsibility, ethical requirements, acceptance & continuance of client relationships, engagement performance, and monitoring. Essentially, making sure the audit is done right.
Why This Matters (Briefly): Ensures audit quality and credibility. Examines the firm’s and engagement team’s processes to maintain standards.
CAS 250: Consideration of Laws and Regulations in an Audit of Financial Statements
Simplified Summary: Auditors must consider laws and regulations when auditing financial statements. While management is responsible for compliance, the auditor needs to obtain sufficient appropriate audit evidence regarding compliance with laws and regulations that have a direct effect on material amounts and disclosures in the financial statements. Also, be aware of other laws and regulations that might have a material effect on the financial statements in case of non-compliance.
Why This Matters (Briefly): Ensures financial statements are not materially misstated due to non-compliance with laws and regulations, which can have significant financial and reputational consequences 1 for the entity.
CAS 240: The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements
Simplified Summary: Auditors need to identify and assess the risks of material misstatement due to fraud, obtain sufficient appropriate audit evidence about fraud, and respond appropriately to fraud or suspected fraud. Professional skepticism is key. It’s not about detecting all fraud, but about reasonable assurance regarding material misstatement due to fraud.
Why This Matters (Briefly): Fraud is a significant risk in audits. Understanding CAS 240 is crucial for assessing and responding to fraud risks, protecting the public interest and audit credibility.
CAS 260: Communication with Those Charged with Governance
Simplified Summary: Auditors must communicate with “those charged with governance” (e.g., board of directors, audit committee) regarding the audit. This includes planned scope and timing of the audit, significant findings from the audit, and matters related to internal control. It’s about two-way communication and keeping governance informed.
Why This Matters (Briefly): Facilitates effective oversight of the financial reporting process and audit by those charged with governance, improving audit quality and corporate governance.
CAS 265: Communicating Deficiencies in Internal Control to Those Charged with Governance and Management
Simplified Summary: If, during the audit, the auditor identifies deficiencies in internal control that are significant, they must communicate these deficiencies to both management and those charged with governance. This communication should be timely and in writing for significant deficiencies communicated to those charged with governance.
Why This Matters (Briefly): Helps ensure that management and governance are aware of and can address significant internal control weaknesses that could lead to material misstatements in the future.
CAS 300: Planning an Audit of Financial Statements
Simplified Summary: Auditors must plan the audit to ensure it is performed effectively. Planning involves establishing an overall audit strategy and developing an audit plan. Adequate planning helps ensure the audit is conducted in an effective and efficient manner.
Why This Matters (Briefly): Proper planning is essential for a well-executed audit. It sets the stage for a risk-based and efficient audit, helping to achieve audit objectives effectively.
CAS 320: Materiality in Planning and Performing an Audit
Simplified Summary: Auditors must set materiality at the planning stage to guide audit scope and evaluate misstatements. This involves determining materiality for the financial statements as a whole (overall materiality) and for specific classes of transactions, account balances, or disclosures (performance materiality). Also, a threshold is set for accumulating misstatements. Materiality is the magnitude of misstatement that could reasonably be expected to influence the economic decisions of users.
Why This Matters (Briefly): Materiality focuses the audit on what truly matters to users of financial statements. It guides the nature, timing, and extent of audit procedures and the evaluation of audit findings.
CAS 330: The Auditor’s Responses to Assessed Risks
Simplified Summary: Auditors must design and perform audit procedures to respond to assessed risks of material misstatement. These responses include overall responses to address risks at the financial statement level, and further audit procedures (tests of controls and substantive procedures) at the assertion level. The nature, timing, and extent of these procedures are determined based on the assessed risks.
Why This Matters (Briefly): CAS 330 bridges the gap between risk assessment and audit procedures. It ensures that audit effort is directed towards areas of higher risk of misstatement.
CAS 402: Audit Considerations Relating to an Entity Using a Service Organization
Simplified Summary: When a client uses a service organization (e.g., payroll processor, cloud service provider), the auditor (“user auditor”) needs to consider the service organization’s controls in relation to the client’s internal control. The user auditor may need to obtain an understanding of the service organization’s controls and their effectiveness, possibly by reviewing a service auditor’s report (e.g., Type 2 report).
Why This Matters (Briefly): Recognizes the increasing reliance on outsourced services. Ensures auditors consider controls outside of the client entity that can impact financial reporting.
CAS 450: Evaluation of Misstatements Identified During the Audit
Simplified Summary: This involves accumulating misstatements, considering whether they are material individually or in aggregate, and considering both factual, judgmental, and projected misstatements. Uncorrected misstatements need to be communicated to management and those charged with governance and their impact on the audit opinion evaluated.
Why This Matters (Briefly): Provides a structured approach for dealing with misstatements found during the audit. Ensures that the auditor considers the overall effect of misstatements on the financial statements and the audit opinion.
CAS 500: Audit Evidence
Simplified Summary: the auditor must obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. Evidence must be sufficient (quantity) and appropriate (quality - relevance and reliability). It discusses various sources and types of audit evidence.
Why This Matters (Briefly): This standard is the cornerstone of all audit work. It dictates the quality and quantity of evidence needed to support the auditor’s opinion – without sufficient appropriate evidence, the 1 opinion is not justified.
CAS 501: Audit Evidence—Specific Considerations for Selected Items
Simplified Summary: CAS 501 provides specific guidance for obtaining sufficient appropriate audit evidence for certain key account balances: inventory, litigation and claims, and segment information. It highlights unique considerations and procedures for these areas due to their inherent risks or complexity.
Why This Matters (Briefly): Addresses areas that are often material and subject to specific risks. Provides targeted procedures to ensure adequate evidence is obtained for these important balances.
CAS 505: External Confirmations
Simplified Summary: External confirmation is an audit procedure where the auditor obtains audit evidence as a direct written response from a third party (the confirming party) in paper, electronic, or other medium. It’s a reliable source of evidence, often used for accounts receivable, bank balances, and payables. The auditor maintains control over the confirmation process.
Why This Matters (Briefly): External confirmations are a highly reliable source of audit evidence because they come directly from a third party, enhancing the assurance over certain account balances.
CAS 510: Initial Audit Engagements—Opening Balances
Simplified Summary: In an initial audit engagement (new client), the auditor must obtain sufficient appropriate audit evidence about opening balances. This is to ensure that opening balances do not contain misstatements that materially affect the current period’s financial statements, and that appropriate accounting policies have been consistently applied or changes are properly accounted for and disclosed.
Why This Matters (Briefly): Ensures the integrity of the starting point for a new audit client. Opening balances from prior periods significantly impact the current year’s financial statements.
CAS 520: Analytical Procedures
Simplified Summary: Analytical procedures involve evaluating financial information by studying plausible relationships among both financial and non-financial data. They are used at the planning stage (preliminary analytical procedures), as substantive procedures, and as part of the overall review at the end of the audit. They help identify risks, obtain evidence, and assess the overall financial statement presentation.
Why This Matters (Briefly): Analytical procedures are efficient and effective for identifying potential misstatements and understanding the entity’s business and financial performance. They provide valuable insights at various stages of the audit.
CAS 530: Audit Sampling
Simplified Summary: Audit sampling involves applying audit procedures to less than 100% of items within a population to draw conclusions about the entire population. It can be statistical or non-statistical. Sampling risk exists that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population were tested.
Why This Matters (Briefly): Audit sampling allows auditors to efficiently audit large volumes of transactions and balances. Understanding sampling concepts is crucial for designing and evaluating audit tests effectively.
CAS 540: Auditing Accounting Estimates and Related Disclosures
Simplified Summary: This standard deals with auditing accounting estimates (e.g., fair values, provisions). Auditors need to assess risk of material misstatement related to estimates, understand how management makes estimates and related controls, and obtain sufficient appropriate audit evidence to evaluate the reasonableness of estimates and related disclosures. Focus is on estimation uncertainty and management bias.
Why This Matters (Briefly): Accounting estimates are pervasive in financial statements and often involve subjectivity. CAS 540 provides guidance to address the inherent risks in auditing these crucial elements.
CAS 550: Related Parties
Simplified Summary: Related party relationships and transactions can present increased risks of material misstatement due to lack of independence and potential for non-arm’s length transactions. Auditors must identify, assess, and respond to risks associated with related parties. This includes understanding client’s related party relationships, transactions, and related controls, and performing procedures to identify undisclosed related party relationships or transactions.
Why This Matters (Briefly): Related party transactions can be used to manipulate financial results. CAS 550 ensures auditors scrutinize these relationships and transactions to provide reasonable assurance.
CAS 560: Subsequent Events
Simplified Summary: Subsequent events are events occurring between the period end and the date of the auditor’s report, and facts that become known to the auditor after the date of the auditor’s report. Auditors must perform procedures to identify events that may require adjustment or disclosure in the financial statements up to the date of the auditor’s report. Responsibilities extend even after the report date in certain circumstances.
Why This Matters (Briefly): Subsequent events can materially impact financial statements. CAS 560 ensures auditors consider these events up to the reporting date and beyond in certain situations.
CAS 570: Going Concern
Simplified Summary: Auditors must consider going concern - whether the entity can continue as a going concern for a reasonable period (at least 12 months from the financial statement date). This involves assessing management’s going concern assessment, identifying events or conditions that may cast significant doubt on going concern, and evaluating management’s plans to address these issues. If substantial doubt exists and is not adequately disclosed, or if going concern basis is inappropriate, the auditor may modify the audit opinion.
Why This Matters (Briefly): Going concern is a fundamental assumption underlying financial statement preparation. Failure to properly assess and disclose going concern issues is a critical audit failure with major implications for users.
CAS 580: Written Representations
Simplified Summary: Auditors obtain written representations from management and, where appropriate, those charged with governance. These are written statements by management on matters relating to the audit. While not sufficient appropriate audit evidence on their own, they are necessary audit evidence, and corroborate other evidence obtained. They reinforce management’s responsibilities and can highlight areas of potential misstatement or misunderstanding.
Why This Matters (Briefly): Written representations document management’s responsibilities, support other audit evidence, and can alert auditors to potential issues. Refusal by management to provide representations is a significant matter.
CAS 600: Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)
Simplified Summary: This complex standard addresses audits of group financial statements (consolidated financial statements). The group engagement partner is responsible for the group audit opinion. This involves dealing with component auditors (auditors of subsidiaries or divisions), determining the scope of work to be performed, and evaluating the work of component auditors to form an opinion on the group financial statements. Group materiality, component materiality, and clear communication are key.
Why This Matters (Briefly): Group audits are common and complex. CAS 600 provides a framework for managing these audits, ensuring a consistent and high-quality opinion on consolidated financial statements.
CAS 620: Using the Work of an Auditor’s Expert
Simplified Summary: Auditors may need to use the work of an auditor’s expert to assist in obtaining sufficient appropriate audit evidence, especially for complex valuations, specialized industries, or legal interpretations. The auditor must assess the expert’s competence, capabilities, and objectivity. The auditor is responsible for evaluating the adequacy of the expert’s work for audit purposes.
Why This Matters (Briefly): Audits increasingly require specialized knowledge. CAS 620 provides guidance on how to appropriately use and rely on experts while maintaining auditor responsibility.
CAS 700: Forming an Opinion and Reporting on Financial Statements
Simplified Summary: outlines how the auditor forms an opinion on the financial statements and the content of the auditor’s report for an unmodified (unqualified/clean) opinion. The opinion is on whether the financial statements are presented fairly in all material respects, in accordance with the applicable financial reporting framework. It specifies elements of the auditor’s report, including title, addressee, opinion paragraph, basis for opinion, going concern, KAM (if applicable), responsibilities, signature, location, and date.
Why This Matters (Briefly): CAS 700 defines the output of the audit – the auditor’s report and opinion. It ensures consistent and understandable reporting to users of financial statements.
CAS 701: Communicating Key Audit Matters in the Independent Auditor’s Report
Simplified Summary: For listed entities (and potentially others), auditors must communicate Key Audit Matters (KAM) in the auditor’s report. KAMs are the matters that were of most significance in the audit of the current period financial statements. They are selected from matters communicated with those charged with governance and help users understand the audit focus. KAMs are descriptive, not separate opinions or modifications.
Why This Matters (Briefly): KAMs enhance the communicative value of the auditor’s report, making it more relevant and insightful for users, particularly for public companies.
CAS 702: Modifying the Opinion in the Independent Auditor’s Report
Simplified Summary: CAS 702 deals with modified audit opinions – situations where the auditor cannot issue an unmodified opinion. Modifications are due to material misstatements or inability to obtain sufficient appropriate audit evidence. Types of modified opinions are qualified opinion (material but not pervasive), adverse opinion (material and pervasive misstatement), and disclaimer of opinion (inability to obtain sufficient appropriate evidence, material and pervasive). The basis for modification is explained in the report.
Why This Matters (Briefly): Modified opinions signal to users that there are significant issues with the financial statements. Understanding CAS 702 is critical for knowing when and how to modify the auditor’s report
CAS 800: Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks
Simplified Summary: CAS 800 addresses audits of financial statements prepared using special purpose frameworks (e.g., cash basis, tax basis, regulatory basis), which are not IFRS or ASPE. It adapts CAS 700 for these frameworks, emphasizing clear description of the framework in the auditor’s report and potential restrictions on distribution of the report. Auditor needs to ensure framework is acceptable and that users understand the nature of the financial statements.
Why This Matters (Briefly): Many entities use special purpose frameworks. CAS 800 ensures audits of these financial statements are conducted and reported appropriately, with clear communication about the framework used.
CAS 805: Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement
Simplified Summary: CAS 805 addresses audits of single financial statements (e.g., balance sheet only) or specific elements, accounts, or items of a financial statement (e.g., accounts receivable). It adapts CAS 700 for these engagements, focusing on materiality determined for the specific scope of the audit, and reporting clearly on what is and is not covered by the opinion. Scope is limited compared to a full financial statement audit.
Why This Matters (Briefly): Provides guidance for audits with limited scope, ensuring appropriate audit procedures and clear reporting on the specific area audited, avoiding misinterpretations by users.
CAS 810: Engagements to Report on Summary Financial Statements
Simplified Summary: CAS 810 deals with engagements to report on summary financial statements, which are derived from audited financial statements but are much condensed. The auditor’s opinion is on whether the summary financial statements are consistent, in all material respects, with the audited financial statements. The auditor must have audited the underlying financial statements to accept this engagement. The report emphasizes that it is a summary and users should refer to the full audited financial statements.
Why This Matters (Briefly): Provides a framework for reporting on summarized financial information, ensuring users understand the nature and limitations of summary financial statements and their relationship to the full audited financial statements.
CAS 610: Using the Work of Internal Auditors
Simplified Summary: External auditors may use the work of internal auditors if the internal audit function is adequate and objective. This involves evaluating the internal audit function’s objectivity, competence, and due professional care. The external auditor cannot delegate judgment but can use internal auditors’ direct assistance on some tasks under direct supervision. Significant judgment and risk areas always remain the external auditor’s responsibility.
Why This Matters (Briefly): Internal audit can be a valuable resource in external audits, improving efficiency. However, the external auditor retains full responsibility for the opinion and must properly evaluate and supervise the use of internal audit work.
