ASPE Update and Preparing for Year End Audit/Review Presenters: Leanne Mongiat, CA Trudy Snooks, CA Adams & Miles L

1. ASPE Update andPreparing for Year End Audit/Review Presenters: Leanne Mongiat, CA Trudy Snooks, CA Adams & Miles LLP

2. 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.

3. Session Overview • Accounting Standards for Private Enterprises (ASPE) Update • Strategies for preparing for your year-end audit or review engagement

4. Review of ASPE • 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

5. Timeline

6. ASPE Affects: • Fair value • Asset retirement obligations (ARO) • Election for Property, Plant & Equipment • Intangibles • Government payables • Income taxes • Opening balance sheet

7. 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.

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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

14. More Information on ASPE • Resources available from the ICAO Standards in Transition Website http://www.cica.ca/privateenterprises//index.aspx Includes: FAQ, Transition Guide, and Archived Webinars • CICA has also released publication on Sample Model Financial Statements

15. Preparing for Year - End Audit/Review

16. 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

17. 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

18. 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)

19. 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)

20. 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.

21. 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

22. Change to Client Communications • Establish a mutually acceptable communication process • Communicate: • Form • Timing • Expected general content

23. 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.

24. 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

25. BREAK TIME Coffee and refreshments at the back!

26. Audit Efficiency

27. 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.

28. 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

29. 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…..

30. 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)

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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)

38. 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

39. 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

40. 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

41. Detailed Working Papers • Organization chart • Internal (showing lines of authority) • External (share structure and related parties)

42. Org Chart Example - Internal

43. Org Chart Example - External

44. Detailed Working Papers • Cutoff memos • Cash, AR, AP and Inventory • AJE • Types of adjusting entries • Authorization and controls on AJE

45. 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

46. Questions?