ASPE Common Presentation and
Disclosure Deficiencies
M A R C U S G U E N T H ER C PA , C A , M BA
FO C U S R OI I N C
MGUENTHER@FOCUSROI.COM
Copyright FocusROI 2014
Self-evaluation questions
1.
Do our audit files specifically assess the RMM for financial statement
presentation and disclosure and design the appropriate response?
2.
Is a fully referenced copy of the final financial statements, including the notes to
the FS included in the file showing where numbers came from with the
appropriate audit evidence?
3.
Does the firm have a step-by-step training program for all new senior staff on
how to prepare financial statements and use the firm tools?
4.
Does the firm have an up-to-date notes library and F/S template for the staff to
use?
5.
Does the firm use a disclosure checklist when preparing and/or reviewing the
F/S?
6.
Do all F/S (both audit and review) go through a final QC process before being
released?
7.
Have previous inspection or monitoring deficiencies been addressed?
2
How wrong are the F/S?
Major deficiency
Significant deficiency
Auditor’s report should have been
qualified.
Accounting policy note for estimation Typos in notes.
uncertainty missing.
Material related party transaction
not disclosed.
Note does not balance to amount on Note numbering is off by one
balance sheet.
number.
FV of material free-standing
derivative (FX contracts) not
disclosed.
Callable debt or debt with covenant
violations presented as long-term.
Reconciliation of tax expense to
statutory rate note missing (taxes
payable method).
Government remittances not
disclosed separately.
Capital leases accounted for as
operating leases.
Related party note did not describe
measurement basis and nature of
relationship.
Revenue presented gross rather than Measurement uncertainty note
net.
omitted.
Minor deficiency
Amortization rate for equipment is
wrong in the accounting policy note.
Interest on long-term debt was not
disclosed separately from other
interest.
Cash and cash equivalents not
defined.
Financing item presented under
Investing activities on cash flow
statement.
3
Who is responsible for ensure the
F/S are fairly presented in
accordance with GAAP?
4
Independent Auditor’s Report - CAS 700
Introductory paragraph….
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in accordance with
Canadian accounting standards for private enterprises,
and for such internal control as management determines
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to
fraud or error.
Inherent Risks
Sources and effects
Risk
Sources
Business Strategy
Culture. Environment
Transactions
& Data
Management
Information
& Reports
Financial
Statements
Risk
Effects
Deficiencies – inspection findings
Independent Auditor’s Report
Deficiency
Comment
• Wrong auditor’s report – Pre-CAS 700
• CAS 700 has specific
• Auditor’s report versus “Independent auditor’s”
requirements for the format
report.
and wording of the report.
• Addressed to wrong addressee (users).
• Firms should stick to the exact
• Description of statements listed does not match
wording.
the titles used on the statements or index.
• ANY modified reports should
• Incorrect modifications to auditor’s report.
go through a thorough analysis
• (i.e. Qualified opinion over pervasive and
and
material matter.)
• Incorrect use of “Emphasis of Matter or Other
Matter” paragraphs.
• Did not include place or name of firm below
conclusion.
7
Deficiencies – inspection findings
Deficiency
Comment
Related party transactions did not
adequately describe the nature, extent
or nature of related party transactions.
• Often descriptions are too vague
• Under s. 3840, an enterprise shall disclose:
description of the relationship between the
transacting parties, the measurement basis
used, terms and conditions relating thereto.
Did not disclose nature and extent of
financial instruments, including credit
risk, currency risk etc.
• S. 3856 .53 requires an entity to disclose:
the exposures to risk and how they arise, as
well as any change in risk exposures from
the previous period.
• Notes are generic and do not address entity
specific risks.
• Best practice is to also discuss how the
entity manages these risks.
8
Deficiencies – inspection findings
Deficiency
Comment
Debt due on demand, including related • As per s. 1510.13, “Non-current
party debt is classified as long-term
classification of debt is based on facts
debt.
existing at the balance sheet date rather
than on expectations regarding future
refinancing or renegotiation”.
• If the creditor has the unilateral right to
demand payment within one year at the
B/S date , it must be classified as current
debt unless that right has been waived.
Government remittances were not
• Required under s. 1510.15 on face or notes
separately disclosed.
to f/s/
• Practitioners not aware of requirement or
definition of what constitutes a
“Government remittance”.
9
Deficiencies – inspection findings
Deficiency
Comment
Income taxes accounting policy note • Should disclose accounting policy note
was not included.
since there are alternative policy
choices.
When using the taxes payable
method of accounting for income
taxes, no reconciliation of the
income tax rate/expense related to
the income or loss for the period as
disclosed.
• 3465.88b) requires “a reconciliation of
the income tax rate or expense related
to income or loss for the period…to the
statutory income tax rate or the dollar
amount that would result from its
application, including the nature and
amount of each significant reconciling
item.”
10
Deficiencies – inspection findings
Deficiency
Comment
Revenue - Inadequate disclosure of • S. 3400.31 requires entity to disclose
revenue recognition policy, (i.e. did
revenue recognition policy for each
not describe policy for each material
material transaction stream.
revenue type).
Revenue – accounting policy does
• S. 3400.34 states the “objective of this
not adequately describe how
disclosure is to assist the reader in
revenue is recognized. (i.e. too
understanding the sources of revenue
vague or generic).
and their effect on the financial
statements”.
Major categories of revenue not
• S.3400.33 requires major categories of
disclosed.
revenue to be disclosed on the face of
the income statement or in the notes to
the F/S.
11
Deficiencies – inspection findings
Deficiency
Comment
Inadequate disclosure of share
• S. 3240 requires entity to classify
capital, including the classification of
preferred shares as equity or debt
preferred shares NOT issued in a tax
based on the characteristics.
planning arrangement.
• Guidance for shares issued in tax
planning arrangement is under
s.3856.23.
When adopting ASPE or ASNFPOs,
• S.1500 or s.1501 are mandatory.
F/S did not present and opening
• Entity shall “prepare and present” an
balance sheet and follow guidance
opening balance sheet at the date for
in s. 1500 or 1501.
transition.
12
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