ASPE Update andPreparing for Year End Audit/ReviewPresenters:

Leanne Mongiat, CATrudy Snooks, CAAdams & Miles LLP

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.

Session Overview

Accounting Standards for Private Enterprises (ASPE) Update

Strategies for preparing for your year-end audit or review engagement

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

Retrospective - is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied

Review of ASPE

Timeline

ASPE Affects:

Fair value Asset retirement obligations

(ARO) Election for Property, Plant &

Equipment Intangibles Government payables Income taxes Opening balance sheet

What happens to differential reporting? All options are included in ASPE. The standard options include

- Future taxes - Goodwill- Consolidations - LT investments- Preferred shares

No longer need unanimous consent.

No longer disclosed on the report or in the Notes to F/S.

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

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 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 Management’s best estimate.

ARO – Cont’d

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.

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

Election to Value Property, Plant and Equipment (PPE) at Fair Value

This is a one time election. The election must be done at the transition

date. 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.

Determining the FV will likely cost enterprises.

ASPE Update

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

Cash flows statements are now required.

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

More Information on ASPE Resources available from the

ICAO Standards in Transition Websitehttp://www.cica.ca/privateenterprises//index.aspxIncludes: FAQ, Transition Guide, and

Archived Webinars CICA has also released

publication on Sample Model Financial Statements

Preparing for Year - End Audit/Review

Objectives

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 get the most efficiency out of your audit

Detailed working papers to help your Auditor/Accountant

New Canadian Audit Standards (CAS) Effective for year-ends ending

after December 14, 2010 Significant changes are:

- Change to Audit Report wording- Change to Audit Report date

- Change to materiality- Change to client communications- Change to certain audit procedures

Change to Audit Report Wording It is now referred to as “Independent

Auditor’s Report”

has been extended to report on Management Responsibilities and Auditor Responsibilities for the statements

Management’s responsibility– Produce statements free from

material misstatements (whether due to fraud or error)

Change to Audit Report Wording – Cont’d 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 management’s 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)

Change to Audit Report Date 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.

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.

Change to Materiality

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

Change to Client Communications Establish a mutually acceptable

communication process Communicate:

– Form– Timing– Expected general content

Sample Communications 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.

Changes to Certain Audit Procedures Confirmations

– External confirmations are no longer mandatory, but at the discretion of the auditor

Accounting estimates– Auditor required to assess reasonability

and track past history of management’s estimates

Additional enquiries regarding going concern and management assessment of risks

BREAK TIME

Coffee and refreshments at the back!

Audit Efficiency

Audit Efficiency

Be ready! 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.

Audit Efficiency

Anticipate questions- new or unusual balances- significant changes- Related party transactions and balances

Ask for a Prep List- scope- list of audit/review questions

How to Prep Your G/L

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…..

How to Prep Your G/L

Ensure retained earnings agrees to previously published F/S.

Ensure all prior adjustments from previous audits have been posted (unless directed otherwise)

Ensure subsidiary or related company balances agree (or are reconciled)

How to Prep Your G/L – cont’d Some recurring entries include:

–Ensure bank reconciles to G/L–Update any monetary FX

balances–Book any allowances/accruals–Annual amortization for capital

assets

How to Prep Your G/L – cont’d Book recurring allocations or

reclassifications– Inventory– COGS– Salaries– Credits/debits in AR or AP– General expense accounts,

miscellaneous

Detailed Working Papers Cash –

– Bank reconciliations tied to bank statements

– Listing of subsequent receipts and disbursements

– Listing of monthly FX rates used

Accounts receivable – Aging summary tied to G/L.– Identify anything subsequently paid.– Identify doubtful accounts.– Adjust for foreign exchange

Detailed Working Papers 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

Detailed Working Papers Deposits and other assets

– Listing of all deposits, with supporting documents

– Summary of insurance coverage

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

Detailed Working Papers 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

Detailed Working Papers Income taxes

– Continuity schedule– Copies of all assessments – Installment summary– Identify Schedule 1 addbacks

Meals and entertainment – 50% Life insurance Non-deductible interest Non-deductible memberships (golf fees)

Detailed Working Papers 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

Detailed Working Papers 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

Detailed Working Papers 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

Detailed Working Papers Organization chart

– Internal (showing lines of authority)– External (share structure and related

parties)

Org Chart Example - Internal

Org Chart Example - External

Detailed Working Papers Cutoff memos

–Cash, AR, AP and Inventory

AJE–Types of adjusting entries–Authorization and controls on

AJE

Detailed Working Papers a brief highlights memo copies of all legal invoices copies of new agreements a brief memo describing any new

related entities, related party transactions

A brief memo describing controls Minutes

Questions?