5 minute read 2 Feb. 2021
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What Canadian audit committees should consider at the end of 2020 and beyond

EY Canada
By EY Canada

Multidisciplinary professional services organization

5 minute read 2 Feb. 2021
Related topics Board governance and oversight Risk Strategy by EY-Parthenon Audit Tax
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  • What Canadian audit committees should consider at the end of 2020 and beyond

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In this 2020 edition of our annual review of issues affecting audit committees during the year-end audit cycle, we summarize key developments for audit committees to consider. With the changing risk landscape, the audit committee’s role continues to grow more demanding and complex amid the pandemic and a dynamic and fluid business environment.

This report is designed to assist audit committees as they proactively address recent and upcoming developments in financial reporting, tax, the regulatory landscape and risk management.

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Questions for the audit committee to consider

  • Financial reporting

    1. Have there been any material changes to internal controls over financial reporting or disclosure controls and procedures to address the changing operating environment? Have any cost saving initiatives and related efforts impacted resources and/or processes that are key in internal controls over financial reporting? If so, has management identified mitigating controls to address any potential gaps? Has management and/or internal audit taken additional steps to address heightened risk of fraud in the current environment?
    2. Are there any resource concerns and, if so, what are the mitigating plans? Has management confirmed whether specialists routinely used by the company to assist in complex financial reporting inputs (e.g., valuation, impairment, pension) or in internal audits (e.g., IT, cybersecurity) have the capacity and ability to meet the company’s financial reporting needs?
    3. How is the company adjusting its disclosures to adapt to evolving events and planning for COVID-19-related uncertainties going forward?
    4. What approach has management taken to consider multiple scenarios related to its projections and underlying assumptions that are expected to have a material impact on the results of operations or capital resources? Have there been material changes in controls and processes to evaluate the reasonableness of the assumptions and key estimates?
    5. External auditors: were there material changes to materiality assessments, scope, physical inventory counts and the overall planned audit approach? Were there any “close calls” or areas that were particularly challenging as a result of the current environment and remote workforce? What additional procedures has the external auditor performed to gain comfort around key assumptions, estimates, and prospective financial information? How has the engagement team considered the potential increase in errors due to work-from-home distractions or changes to the incentive, opportunity and rationalization of the fraud triangle? Has there been a re-evaluation of key audit matters and how will auditor reporting requirements be impacted?

  • Tax and other policy related developments

    1. Have the organization’s tax planning strategies been re-evaluated to address possible shifts in tax policy changes (including those that may arise post-US election), supply chain, workforce and capitalization?
    2. Has the company engaged in modelling and scenario planning to weigh the potential impacts of tax and trade-related developments?
    3. What additional audit procedures has the audit firm incorporated as a result of COVID-19 and the changing tax environment? Have here been any additional audit risks identified? How were they addressed?
    4. How is the company staying informed of global, federal, provincial and local tax policy changes and related developments? Is the company considering the outlook for future COVID-19-related legislation?

  • Regulatory developments

    1. Has the committee held discussions with its independent auditor on the relevant themes in CPAB’s Interim Inspections Results Report?
    2. To what extent is the audit committee considering how new areas of non-financial disclosure and related metrics (e.g., human capital disclosures and other ESG-related metrics) are subject to adequate disclosure processes and controls?
    3. Has the company benchmarked its disclosure practices around key ESG matters with those of its industry and proxy peers to identify areas of improvement?
    4. Has the audit committee considered how changes in the auditor reporting requirements may impact audit committee disclosures?
    5. In light of the changing environment, what additional voluntary disclosures might be useful to shareholders related to the audit committee’s time spent on certain activities, such as cybersecurity, data privacy, business continuity, corporate culture and financial statement reporting developments?

  • Risk management

    1. Do the organization’s ERM practices incorporate forward-looking insights and use of data analytics to determine trends and predictive indicators? Has the audit committee reviewed the effectiveness of management’s risk management programs in the wake of the pandemic?
    2. How is the organization deploying new tools and technologies to identify patterns and correlations in company data to identify potential warning areas? How can the organization act on weak signals, aligning the increase in the organization’s intensity to the velocity of the underlying risk?
    3. Does the organization have the necessary skill-sets, talent and culture to effectively manage the organization’s significant risks? If not, what are the gaps and how will management address those?
    4. How is management understanding and monitoring the effectiveness of risk management of critical third parties with respect to financial and operational resiliency, IT security, data privacy, culture and environmental, social and governance factors?
    5. Are there any concerns with the company’s risk culture given the ongoing remote environment?
    6. Has the organization revisited and updated its training programs to consider the current and changing business landscape, new controls, new systems and revised regulations?


Six priorities for boards in 2021

Following a year of global upheaval, organizations are evaluating every aspect of their business. In 2021, companies and boards will face an acceleration of existing challenges and be compelled to address how they are building resilience and creating sustainable value in a rapidly changing business environment. With increased investor scrutiny and stakeholder considerations, boards will be well served to focus on the following priorities in 2021:

  1. Overseeing strategy to create long-term value
  2. Promoting enterprise resiliency
  3. Focusing on workforce transformation
  4. Leading on diversity, equity and inclusion
  5. Guiding an ESG strategy
  6. Challenging board composition

Read our full report on the Six priorities for boards for 2021.

 

Summary

Audit committees should consider financial reporting developments, tax changes, regulatory changes and risk management as they work with management to plan for the year ahead.