Back in its Compilation Engagements exposure draft the Auditing and Assurance Standards Board (AASB) indicated that it had not yet formed a view as to whether the proposed new standard Canadian Standard on Related Services (CSRS) 4200 should be subject to quality control requirements at the firm level and at the engagement level.
The current compilation engagement standard, Section 9200, does not require quality control for performance of compilation engagements and the Canadian Standard on Quality Control (CSQC) 1 only pertains to audits and reviews. It is for this reason that CPA firms that do not provide assurance services are not required to maintain a quality control manual or conduct ongoing and cyclical monitoring.
In the AASB’s most recent meeting in January 2019 it unanimously approved a new exposure draft for a proposed Canadian Standard on Quality Management (CSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements. As the name would imply this new standard would apply to compilation engagements as they are considered a related service engagement. The meeting summary also indicates that this new standard would apply to agreed-upon procedures engagements. Therefore, it would appear that all services included in the CPA Handbook Assurance will be subject to some quality management standards the outstanding question is what specific requirements will be placed upon compilation engagements and how will these differ from requirements placed upon assurance engagements.
The other key item mentioned in the meeting notes is that this standard will be based on the International Standard on Quality Management (ISQM) 1. The international board released their exposure draft for ISQM 1 in February 2019. ISQM 1 requires quality management policies and procedures for all engagements but it does acknowledge that those policies and procedures would be more complex for a full service firm as compared to a firm that only provides compilation engagements. Furthermore, as part of the firm’s quality monitoring activities, ISQM 1 also requires completed file inspections on a cyclical basis. The cyclical period for inspecting engagement partners may differ according to the types of engagements that they perform. For example, the firm may determine that the cyclical period for an engagement partner performing audits of financial statements is every three years, whereas a longer period may be appropriate for engagement partners performing only compilation engagements.
The AASB will release its exposure draft for CSQM 1 by the end of March 2019. We will have to wait to see if there are any significant discrepancies between it and ISQM 1 but it is probably safe to say that these changes are going to impact all firms to some extent. Subscribe to our newsletter for our first impressions of the exposure draft once it is released.