At its meeting on January 21, 2021 the Auditing & Assurance Standards Board (“AASB”) approved the new Canadian Standard on Quality Management (“CSQM”) requirements.
The new standards will replace the existing Canadian Standard on Quality Control (“CSQC”) 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance Engagements that has been in place since 2009.
The changes will primarily impact the following new and revised CPA Handbook standards:
- 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;
- CSQM 2, Engagement Quality Reviews; and
- CAS 220, Quality Management for an Audit of Financial Statements.
As we anticipated, and had written about previously back in 2019, the new standards will apply to both assurance and related service (i.e. non-assurance) engagements which is a big change from CSQC 1 which only impacted assurance engagements. This means that for the first time CPA firms in Canada that only perform related services, such as compilation engagements, will have to implement a system of quality management that would be documented in a manual. It would also imply that annual and cyclical monitoring should also be performed on compilation and other related service engagements, especially if they form a significant portion of the firm’s activities.
The Board concluded it was in the public interest to defer the effective date for related service engagements as many small firms and sole practitioners raised concerns about implementing CSQM 1 at the same time they were trying to implement the new compilation engagement standard (CSRS 4200). This deferral also provides time for practitioners who don’t apply extant CSQC 1 to familiarize themselves with the requirements. As a result of this, the effective dates for new standards will be staggered as follows.
- CSQM 1 is effective as follows:
- Firms are required to design and implement their system of quality management for audits or reviews of financial statements or other assurance engagements by December 15, 2022. They are required to evaluate their system within one year following this date.
- Firms are required to design and implement their system of quality management for related services engagements, which would include compilation engagements, by December 15, 2023. They are required to evaluate their system within one year following this date.
- CSQM 2 is effective for:
- audits and reviews of financial statements and other assurance engagements for periods beginning on or after December 15, 2022; and
- related services engagements beginning on or after December 15, 2023.
- CAS 220 is effective for audits of financial statements for periods beginning on or after December 15, 2022.
More information will inevitably be available on the Financial Reporting & Assurance Standards Canada website which you can find here. As always, if you would like to discuss the ramifications of these changes on your form please contact us.