www.pwc.com/ca/controls
Navigating the
transition to
CSAE 3416
FAQs on the new Canadian Standard on Assurance EngagementsIn response to changes in third-party assurance
standards in both the US and internationally, the
Auditing and Assurance Standards Board has issued a
new Canadian Standard on Assurance Engagements
called Reporting on Controls at a Service Organization
(CSAE 3416). This standard replaces the Auditor’s
Report on Controls at a Service Organization,
Section 5970 (S 5970), which has been the standard
in Canada for performing independent third-party
assurance engagements.
CSAE has been designed to provide standards and
guidance to an auditor who is reporting on the controls
at a service organization. This is relevant to situations
when the service (a specialized business task or
function) being provided to customers (or user entities)
impacts the user entity’s financial reporting processes.
In such situations, service organizations are often
subjected to audits of these processes.
How will the CSAE affect my organization?
CSAE 3416 (and S 5970) allows auditors to issue two types of service auditor’s reports. In a type 1 report the service auditor expresses an opinion on the fair presentation of the described controls (i.e. does the description coincide with what actually exists) and whether the controls included in the description are suitably designed to meet the control objectives. Once controls are determined to be suitably designed to achieve the control objectives, their operating effectiveness can be assessed and reported on, within a type 2 report.In both of the above reports, the service organization is responsible for the preparation of the system description inserted into the report. This description includes the nature of the service provided, how the service is performed, and the service organization’s controls over the service and related control objectives.
Why the need for change?
The CSAE is aligned with the new Statement on Standards for Attestation Engagements (SSAE 16), Reporting on Controls at a Service Organization, which was issued by the American Institute of Certified Public Accountants’ (AICPA) Auditing Standards Board (ASB). The SSAE 16 standard was released in response to the new International Standard on Assurance Engagements (ISAE 3402), which was created to provide a reporting option for service organizations with the need to deliver consistent reporting worldwide.
Are there any significant differences between
CSAE 3416, the new international standard
ISAE 3402, and the new US standard SSAE 16?
By aligning with the new SSAE, the CSAE materially aligns with ISAE 3402 in most respects. The CSAE 3416 standard is modeled after the US standard SSAE 16, with a six month lag in effective date.Will the new standard be as widely
accepted as the existing Section 5970?
As of December 15, 2011, S 5970 will be replaced by CSAE 3416. It is expected that all current users and issuers of S 5970 reports will move to CSAE 3416, except in instances where the service organization wants to target a non-Canadian audience. In these circumstances, the SSAE 16 or ISAE 3402 may be used.
When will the new standards be effective?
CSAE 3416 will be effective for service auditor’s reports for periods ending on or after December 15, 2011. This is six months after the effective date of the International Auditing and Assurance Standards Board’s (IAASB) and the AICPA’s standard for service auditors (June 15, 2011).Can a single report be issued under
more than one standard?
Have significant changes been made to CSAE
3416 that will affect a service auditor’s
engagement? Will these changes lead to a
considerable change in the level of effort and
cost to issue a report under the new standard?
While the standard does include some new requirements and changes to previous requirements as outlined in S 5970, the change in the level of effort from a service organization’s standpoint would depend on how prepared they are. Factors that may affect the level of effort include the service organization’s past experience with third-party assurance reporting and the overall strength of the internal controls environment. The level of effort for first time issuers of a third-party assurance report under the new standard will be significantly higher. Please refer to “A new level of trust and transparency – A perspective on transitioning from Section 5970 to CSAE 3416” for more detail in this area.Can CSAE 3416 be used for reporting
on controls over subject matter
other than financial reporting?
No. While early exposure drafts considered the expansion of scope beyond controls related to financial reporting, later drafts removed this provision. CSAE 3416 (as well as S 5970) does not apply to examinations of controls over subject matter other than financial reporting. These types of engagements would be performed under Section 5025, Standards for Assurance Engagements Other than Audits of Financial Statements and other historical financial information.
What types of activities can be performed
by service organizations to prepare
for the move to the new standard?
Is early adoption permitted?
While it is not expected that many organizations will adopt the new Canadian standard early, we’re encouraging organizations to begin aligning their existing reports and supporting processes with the new requirements. If an organization chooses to adopt early, we suggest they reach out to their service auditors to discuss next steps in their transition.
Is the existing guidance to assist
with the performance of S 5970
engagements being rewritten? When
will the new guidance be available?
Yes. The existing AICPA guide, which is often used as a reference in Canada (AICPA guide for Service Organizations or SAS 70 guide), is being rewritten to reflect the requirements and guidance in SSAE 16. This revised guide can be consulted when performing CSAE 3416 engagements in the future, and is expected to be available in the second quarter of 2011.Can service organizations provide a
CSAE 3416 service auditor’s report on
their services to potential customers?
No. Given that the nature of services performed by individual service organizations are different, service auditor’s reports are designed to only include controls that services organizations feel are relevant to their existing clients (and user auditors). Additionally, any procedures performed by the service auditor (used to formulate their opinion) only relate to the controls that apply to existing customers. As a result, use of a CSAE 3416 report (or S 5970 report) is restricted to existing customers (user entities) of the service organization and their auditors and is not meant to be used for the purpose of marketing to potential customers.
Will entities now become “certified” under
CSAE 3416 and similar standards?
No. The idea of certifying against CSAE 3416 and S 5970 (and other similar standards) is a popular misconception, since third- party assurance reports (including CSAE 3416 and S 5970) are meant primarily for auditor to auditor communication. Neither of these represents a prescriptive framework against which a service provider can be evaluated (unlike certification frameworks such as ISO 27001 or PCI). As a result, a service provider cannot be “certified” as CSAE 3416 compliant.
Who to call
National Controls Leader Arturo Lopez
416 941 8219
Calgary & Vancouver
Justin Abel 403 509 7522 [email protected] Edmonton Kishan Dial 789 441 6864 [email protected] Montréal Marc Fournier 514 205 5201 [email protected] Ottawa Anthony Dias 613 755 5945 [email protected] Toronto Peter Hargitai 416 941 8464 [email protected] Jennifer Johnson 416 947 8966 [email protected] Tony Pedari 416 941 8226 [email protected] Johanna Sun 416 815 5216 [email protected] Winnipeg Robert Reimer 204 926 2442 [email protected]
