Canadian Assurance and Financial Reporting Standards: What’s New  

We recently reviewed some of the latest updates to Canadian assurance and financial reporting standards in our webinar What’s new in 2024? The Latest Developments in Canadian Financial Reporting and Assurance Standards. To keep you informed, we’ve outlined the most significant updates and their potential impact on the work of assurance and financial professionals below. 

Latest developments in professional standards: Financial reporting 

Cloud Computing Arrangements 

Accounting Guideline 20 (AcG-20), Customer’s Accounting for Cloud Computing Arrangements, which is effective for fiscal years beginning on or after January 1, 2024, aims to provide consistency in recording cloud computing arrangements.  

This guideline responds to industry-wide shifts in software purchasing. The old process of buying software to install on a customer’s hardware has been replaced by cloud software arrangements. 

Cloud software is hosted and maintained by providers in the cloud, not locally on customers’ computers. Customers, in turn, pay a subscription fee to access the software. For example, customers can opt for Caseware Working Papers software for on-site installation, or they can use cloud software like our Caseware Engagement Suite apps.  

These new cloud computing arrangements have led to wide variability in contract terms. AcG-20 attempts to rectify the resulting diversity in financial reporting with increased reporting consistency.  

Under the new guideline, an enterprise can choose to use a simplified approach to expense the cloud computing arrangement. Otherwise, an enterprise must determine if the software is an intangible asset or a service. 

Amendments associated with related parties 

Several new changes have been made to accounting standards effective for fiscal years beginning on, or after, January 1, 2025. These amendments are for greater clarity, as noted below. Some noteworthy sections of accounting standards have not changed yet but might be modified in the future.   

Section 3840, Related Party Transactions, was amended to clarify the application of Section 1582, Business Combinations. The amendment provides a couple of options for business combinations under common control, when carrying values are used to account for the combination. Enterprises may retrospectively restate prior periods to account for the combination, or they may opt for prospective accounting of the transactions. 

This is another clarification amendment. When a business transfer of assumed liabilities occurs between two enterprises of common control, the amendment clarifies the initial measurement of the financial instruments that are acquired liabilities is in accordance with Section 3840 rather than Section 3856, Financial Instruments. 

Revenue (Section 3400) 

There has been an indefinite delay to the amendment of this section about nonrefundable fees or payments. The Accounting Standards Board (the “Board”) received pushback and stated that they had heard feedback from the profession and, because of their concerns, have delayed the amendment until after the Board’s project on Evaluating the Preface is completed. 

Not-for-profit organizations (Section 4411) 

Section 4410, Contributions – Revenue Recognition, remains in effect, but changes might be on the horizon. A proposal to mandate one approach to recognizing revenue from restricted contributions had been made. The Board received feedback that this approach would fail to meet the diverse needs of Canadian not-for-profit organizations. 

For now, the current standard stays in place. This offers the choice between the deferral method or the restricted fund method to recognize revenue from contributions.  

There will be a new proposed draft that will recommend new amendments to improve financial statement quality and understandability. 

Latest developments in professional standards: Assurance 

Important changes affected group audit requirements, including a modified framework for team audit responsibility. While the standards for review and compilation engagements have not changed, some firms might be underperforming their obligations under the current standards. To that end, we offer a few insights for support and areas for potential improvement.  

Audit 

The revision of Canadian Accounting Standard (CAS) 600, Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors), applies to group audit considerations. The revised standard is effective for audits of financial statement periods beginning on, or after, December 15, 2023, and aligns with revisions to related standards such as Canadian Standard on Quality Management (CSQM) 1, CAS 220 (Quality) and CAS 315 (Risks Identification).  

This is a new risk-based approach to group audits. The group audit partner takes responsibility for the audit of the group financial statements and, in so doing, identifies and assesses risks of material misstatement. The group auditor determines the method for obtaining audit evidence, including a preliminary assessment of whether the team has the capability to obtain that information.  

If the team lacks the capability to obtain the information, it might rely on a component auditor. Even in that case, the overall group auditor is responsible for overseeing the component auditor and evaluating the component auditor’s competency. Ultimately, the group auditor also determines whether the audit evidence obtained by the component auditor is appropriate.  

The revised standard, therefore, imposes two-way communication between the group auditor and the component auditor. The revisions strengthen the auditor’s responsibilities for professional skepticism, planning and group audit performance.  

Review 

The Canadian Standards on Review Engagements (CSRE) 2400 have not changed. However, there are areas for potential improvement at the practice level. Based on practice inspection reports, there is a need for a deeper understanding of accounting statements and records at the entity under review. This understanding helps the practitioner better identify areas where a material misstatement is likely to arise. It can also support improved design and performance of assurance procedures.  

Caseware’s ReviewComp app can help with this process. It guides a practice’s team members through the documentation requirements of the CSRE standard.  

Compilation 

The Canadian Standard on Related Services (CSRS) 4200 also has no changes. However, practice inspections once again noted potential areas for improvement at the practice level.  

This new standard, which became effective in 2021, has additional documentation requirements. Again, practice inspection reports suggest significant gaps at the practice level. The additional requirements include documenting the practitioner’s knowledge of the entity, business operations and accounting basis. The basis of accounting note in the disclosure must be tailored to each client.  

An important reminder for CSQM 1: There’s a new system of control for quality management for related services engagements, which includes compilations. Design and implementation of the new system was to be completed by December 15, 2023 and its evaluation was to be completed by December 15, 2024. 

This is another area where Caseware solutions can help. Caseware SQM, available in English and French, can assist you with meeting the requirements of CSQM 1 with respect to designing, operating and monitoring your firm’s system of quality.  

Integrate new and existing accounting and assurance standards with Caseware 

Caseware has an innovative suite of solutions to support the work of accounting and assurance firms across Canada and abroad. Our trusted products and solutions allow you to respond to changing professional standards and client expectations, future-proofing your business. 

To learn more about the value of partnering with Caseware, schedule a demo today.