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ASPE Update and Preparing for Year End Audit/Review Presenters: Leanne Mongiat, CA Trudy Snooks, CA Adams & Miles LLP.

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Presentation on theme: "ASPE Update and Preparing for Year End Audit/Review Presenters: Leanne Mongiat, CA Trudy Snooks, CA Adams & Miles LLP."— Presentation transcript:

1 ASPE Update and Preparing for Year End Audit/Review Presenters: Leanne Mongiat, CA Trudy Snooks, CA Adams & Miles LLP

2 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.

3 Session Overview Accounting Standards for Private Enterprises (ASPE) Update Accounting Standards for Private Enterprises (ASPE) Update Strategies for preparing for your year- end audit or review engagement Strategies for preparing for your year- end audit or review engagement

4 Adoption Adoption –enterprises must adopt either ASPE or IFRS for fiscal years beginning on or after January 1, 2011 –early adoption is permitted Handbook – now located in Part II 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 Retrospective - is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied Review of ASPE

5 Timeline

6 ASPE Affects: Fair value Fair value Asset retirement obligations (ARO) Asset retirement obligations (ARO) Election for Property, Plant & Equipment Election for Property, Plant & Equipment Intangibles Intangibles Government payables Government payables Income taxes Income taxes Opening balance sheet Opening balance sheet

7 What happens to differential reporting? All options are included in ASPE. All options are included in ASPE. The standard options include The standard options include -Future taxes - Goodwill -Consolidations - LT investments -Preferred shares No longer need unanimous consent. No longer need unanimous consent. No longer disclosed on the report or in the Notes to F/S. No longer disclosed on the report or in the Notes to F/S.

8 Fair Value Investments traded in an active market must be recorded at fair value 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 Investments not traded in an active market may elect to record at fair value, but the election is irrevocable

9 Asset Retirement Obligation An ARO is a legal obligation (by law, statute or contract) to clean up your own mess at some future date! 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. 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 Managements best estimate. Measurement obligation has now changed from a third-party estimate to Managements best estimate.

10 ARO – Contd 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. 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. 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. An elective exemption is available to record ARO as of the transition date.

11 Election to Value Property, Plant and Equipment (PPE) at Fair Value This is a one time election. This is a one time election. The election must be done at the transition date. The election must be done at the transition date. This election can be done on an item by item basis. 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. 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. Determining the FV will likely cost enterprises.

12 ASPE Update Definition of intangible asset changed – basically any non-refundable deposits are no longer considered prepaid 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 Government payables – must be disclosed on face of Balance Sheet or in a Note Cash flows statements are now required. Cash flows statements are now required.

13 Transition Steps 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

14 More Information on ASPE Resources available from the ICAO Standards in Transition Website Resources available from the ICAO Standards in Transition Website http://www.cica.ca/privateenterprises//inde x.aspx 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 CICA has also released publication on Sample Model Financial Statements

15 Preparing for Year - End Audit/Review

16 Objectives Overview of new CAS requirements and impact on your year-end 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 prep your GL (and cut down on adjustments and audit costs!) How to get the most efficiency out of your audit How to get the most efficiency out of your audit Detailed working papers to help your Auditor/Accountant Detailed working papers to help your Auditor/Accountant

17 New Canadian Audit Standards (CAS) Effective for year-ends ending after December 14, 2010 Effective for year-ends ending after December 14, 2010 Significant changes are: Significant changes are: - Change to Audit Report wording - Change to Audit Report date - Change to materiality - Change to materiality - Change to client communications - Change to certain audit procedures

18 Change to Audit Report Wording It is now referred to as Independent Auditors Report It is now referred to as Independent Auditors Report has been extended to report on Management Responsibilities and Auditor Responsibilities for the statements has been extended to report on Management Responsibilities and Auditor Responsibilities for the statements Managements responsibility Managements responsibility –Produce statements free from material misstatements (whether due to fraud or error)

19 Change to Audit Report Wording – Contd Auditors responsibilities 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 managements 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) Must now disclose notes regarding comparative amounts (unaudited or audited by a different auditor)

20 Change to Audit Report Date Report is now dated when the financial statements are approved: Report is now dated when the financial statements are approved: –Management –Shareholders/Stakeholders –Board of Directors –Audit or Finance Committees This will generally be later than in the past. This will generally be later than in the past. Draft financial statements will likely not be dated. 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. Due to date change, additional audit procedures may be required depending on how long the approval process takes.

21 Change to Materiality Now three levels: Now three levels: –Overall planning: for statements taken as a whole –Performance materiality: represents between 60- 75% 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 More adjustments may be required as all non-trivial misstatements must now be adjusted, regardless of materiality More adjustments may be required as all non-trivial misstatements must now be adjusted, regardless of materiality

22 Change to Client Communications Establish a mutually acceptable communication process Establish a mutually acceptable communication process Communicate: Communicate: –Form –Timing –Expected general content

23 Sample Communications Expected communications could include: 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.) Some of these communications may be in verbal format, email, etc. As agreed to by both parties. Some of these communications may be in verbal format, email, etc. As agreed to by both parties.

24 Changes to Certain Audit Procedures Confirmations Confirmations –External confirmations are no longer mandatory, but at the discretion of the auditor Accounting estimates Accounting estimates –Auditor required to assess reasonability and track past history of managements estimates Additional enquiries regarding going concern and management assessment of risks Additional enquiries regarding going concern and management assessment of risks

25 BREAK TIME Coffee and refreshments at the back!

26 Audit Efficiency

27 Be ready! Be ready! Be realistic with the amount of time you need to prepare. 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. Be realistic about how much time you (and others!) need to be available to the auditor during fieldwork.

28 Audit Efficiency Anticipate questions Anticipate questions - new or unusual balances - significant changes - Related party transactions and balances Ask for a Prep List Ask for a Prep List - scope - list of audit/review questions

29 How to Prep Your G/L There are a few ways to prepare a G/L that will ultimately save you time and $$: There are a few ways to prepare a G/L that will ultimately save you time and $$: –Booking recurring entries –Agreeing or reconciling G/L balances to schedules The next few slides outline some common examples….. The next few slides outline some common examples…..

30 How to Prep Your G/L Ensure retained earnings agrees to previously published F/S. Ensure retained earnings agrees to previously published F/S. Ensure all prior adjustments from previous audits have been posted (unless directed otherwise) Ensure all prior adjustments from previous audits have been posted (unless directed otherwise) Ensure subsidiary or related company balances agree (or are reconciled) Ensure subsidiary or related company balances agree (or are reconciled)

31 How to Prep Your G/L – contd Some recurring entries include: Some recurring entries include: –Ensure bank reconciles to G/L –Update any monetary FX balances –Book any allowances/accruals –Annual amortization for capital assets

32 How to Prep Your G/L – contd Book recurring allocations or reclassifications Book recurring allocations or reclassifications –Inventory –COGS –Salaries –Credits/debits in AR or AP –General expense accounts, miscellaneous

33 Detailed Working Papers Cash – Cash – –Bank reconciliations tied to bank statements –Listing of subsequent receipts and disbursements –Listing of monthly FX rates used Accounts receivable Accounts receivable –Aging summary tied to G/L. –Identify anything subsequently paid. –Identify doubtful accounts. –Adjust for foreign exchange

34 Detailed Working Papers Inventory 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

35 Detailed Working Papers Deposits and other assets Deposits and other assets –Listing of all deposits, with supporting documents –Summary of insurance coverage Capital assets Capital assets –Continuity schedule –Supporting documents –G/L listings for all R&M accounts –Ensure following internal capitalization policy –Ensure amortization is calculated on additions/disposals

36 Detailed Working Papers Accounts payable 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

37 Detailed Working Papers Income taxes Income taxes –Continuity schedule –Copies of all assessments –Installment summary –Identify Schedule 1 addbacks Meals and entertainment – 50% Meals and entertainment – 50% Life insurance Life insurance Non-deductible interest Non-deductible interest Non-deductible memberships (golf fees) Non-deductible memberships (golf fees)

38 Detailed Working Papers Current Operating Line/Long-term debt (leases/loans) 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

39 Detailed Working Papers Revenue and Cost of Sales 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

40 Detailed Working Papers Other Expenses 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

41 Detailed Working Papers Organization chart Organization chart –Internal (showing lines of authority) –External (share structure and related parties)

42 Org Chart Example - Internal

43 Org Chart Example - External

44 Detailed Working Papers Cutoff memos Cutoff memos –Cash, AR, AP and Inventory AJE AJE –Types of adjusting entries –Authorization and controls on AJE

45 Detailed Working Papers a brief highlights memo a brief highlights memo copies of all legal invoices copies of all legal invoices copies of new agreements copies of new agreements a brief memo describing any new related entities, related party transactions a brief memo describing any new related entities, related party transactions A brief memo describing controls A brief memo describing controls Minutes Minutes

46 Questions?


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