Pursuant to recent changes in professional standards, the objective of this communique is to help you understand how our work will be affected in the upcoming year. It is important to be aware of the changes listed below and the work that will be required on our part to meet these new requirements.
The new review engagement standard “Canadian Standard on Review Engagements (CSRE) 2400, Engagements to Review Historical Financial Statements” is applicable for periods ending on or after December 14, 2017. As such, the Review Engagement report on your financial statements will also be changing effective as of that date.
The biggest change in the new standard lies in communication – gathering of data, increased support for our work, increased documentation and communicating management’s involvement and corporate governance in place (or not in place). As you may already be aware, the evolution of reporting has placed more emphasis on reliance of the oversight of management on operations, accounting and otherwise, of your business. In most cases, discussion and interaction with owners, management and the team are the only ways to assess this. The additional time and effort expended on our part may not seem ‘concrete’ or tangible as most accounting work is deemed to be financial. The new standards require much more judgment, interpretation and documentation, and for this, reliance on conversations and interactions is as important as the financial data itself.
With these new changes may come increased costs, for which we will do our best to minimize. Accordingly, if there is to be an increase in fees related to these changes, we estimate that it will likely be between 5-10%
Please understand our goal remains to provide the most reliable, credible and quality product that you and the readers of your financial statements have come to expect from FL Fuller Landau. We trust you will work with us on these changes, cooperate with our team and continue to provide us with access to complete and trust-worthy information for us to do the best possible job for you and your entities.
What should you expect?
- New letters: We will require you to sign a new engagement letter. This letter will explain your responsibilities and our responsibilities relating to the review engagement. There may also be changes to the representation letter.
- More communication: The new review engagement standard includes a greater emphasis on communication with you, as management and corporate governance, including:
- Communication of all misstatements accumulated during the review and a request that management correct those misstatement If these misstatements are not corrected, then a request for written representation of management about whether they believe the effects of these uncorrected misstatements are immaterial, individually or in the aggregate, to the financial statements as a whole
- More discussion and inquiry: The new review engagement standard emphasizes focusing on the areas where material misstatements are likely to occur. Therefore, different questions may be asked because there are more specific requirements in this new standard regarding the inquiry and analytics to be performed. As such, it may requires us to perform more analytics and include more documentation in the file regarding planning and obtaining knowledge of the client’s business.
- A new Review Engagement report: The most significant change you may notice is to the review engagement report (the communication attached to the reviewed financial statements).
The matters highlighted in this communiqué are presented in broad general terms and, of course, cannot be applied without consideration of all circumstances. FL Fuller Landau will be pleased to discuss with recipients the possible effects of these matters in specific situations.