new auditor’s report - nelligan law · new auditor’s report. new reporting standards...

“KAM” you understand

the changes?

BENOIT GROULX, CPA, CA - PRINCIPAL

New Auditor’s Report

New reporting standards

• Effective for audits of financial statements for periods

ending on or after December 15, 2018

Expected benefits

• New report provides reporting of:

– Going concern matters

– Entity-specific reporting of other information

– Key audit matters

• Provides enhanced transparency

– Clarifies scope of the auditor’s work and roles and

responsibilities of the auditor, management and TCWG

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Current Auditor’s ReportINDEPENDENT AUDITOR'S REPORT

To the Members of Organization ABC

Report on the Financial Statements

We have audited the accompanying financial statements of Organization ABC, which comprise the statement of financial position as at December 31, 2018, and the statements of operations, changes in net assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Not-for-Profit Organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Current Auditor’s Report (continued)Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Current Auditor’s Report (continued)Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Organization ABC as at December 31, 2018, and the results of its operations and its cash flows for the year then ended in accordance with Canadian Accounting Standards for Not-for-Profit Organizations.

Report on Other Legal and Regulatory Requirements

As required by the Corporations Act of Ontario, we report that, in our opinion, the accounting principles in Canadian Accounting Standards for Not-for-Profit Organizations have been applied on a consistent basis.

[Signature]

[Date]

[Auditor's address]

Changes to the auditor’s report

• Auditor’s opinion

– Moved to the beginning of the report

• Auditor’s Independence and Ethics

– Explicit statement of the auditor’s independence

• Going concern

– Now always explicitly mentioned in the report

– Separate section when a material uncertainty exists

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Changes to the auditor’s report (continued)

• Key audit matters

– Separate section for matters of most significance to the audit

• Other information

– Sometimes a separate section when the entity prepares other

information, such as an annual report, containing or accompanying

the entity’s financial statements and auditor’s report thereon

– Depends on timing of auditor’s report and preparation of the other

information

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Independent auditor’s report

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INDEPENDENT AUDITOR'S REPORT


Report on the Audit of the Financial Statements

OpinionWe have audited the financial statements of Organization ABC (the Organization), which comprise the statement of financial position as at December 31, 2018, and the statements of operations, changes in net assets and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Organization as at December 31, 2018, and the results of its operations and its cash flows for the year then ended in accordance with Canadian Accounting Standards for Not-for-Profit Organizations.

Independent auditor’s report (continued)

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Basis for OpinionWe conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Organization in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.


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Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.[Description of each key audit matter in accordance with CAS 701.]

https://www.knotia.ca/Knowledge/Home.aspx?productID=126


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Other Information [Reporting in accordance with the reporting requirements in CAS 720.]

Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian Accounting Standards for Not-for-Profit Organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.


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In preparing the financial statements, management is responsible for assessing the Organization's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Organization or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Organization's financial reporting process.


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Auditor's Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.


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As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.


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• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.


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• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Organization's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Organization to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.


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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.


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Report on Other Legal and Regulatory RequirementsAs required by the Corporations Act of Ontario, we report that, in our opinion, the accounting principles in Canadian Accounting Standards for Not-for-Profit Organizations have been applied on a consistent basis.

[Signature][Auditor Address][Date]

Going concern

• Separate additional section when a material uncertainty exists

• Modified audit opinion if disclosure is not adequate

• Example of disclosure:

Material Uncertainty Related to Going Concern

We draw attention to Note X in the financial statements, which indicates that the Organization incurred a deficiency of revenue over expenses of $X during the year ended December 31, 2018 and, as of that date, the Organization’s current liabilities exceeded its total assets by $X. As stated in Note X, these events or conditions, along with other matters as set forth in Note X, indicate that a material uncertainty exists that may cast significant doubt on the Organization’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

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Key audit matters (KAM)

• Matters that, in the auditor’s professional judgment, were of most

significance in the audit of the entity’s financial statements of the

current period

• Selected from matters communicated to TCWG

• Limited to those matters of most significance to the audit

• Entity-specific and specific to the audit

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Key audit matters (KAM) (continued)

• If something is discussed with the Board, will it be included in the auditor’s report?– Not everything discussed with the Board will be included in the KAM

section

– Only matters of most significance to the audit

– If significant, it is included unless law or regulation precludes public disclosure of the matter

– In extremely rare circumstances, if we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication, we would not include it

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• Does it include management letter points?

– Not typically

– Management letter points are generally recommendations

– Public disclosure of weaknesses in internal control could be

detrimental to the organization

• What if there are no KAM?

– Disclosure in the auditor’s report that there are none

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• Management and TCWG may consider requesting to see

a draft of the auditor’s report (at least the KAM section) as

early as possible to get an understanding for what the

auditor may intend to say about the matters and to start a

dialogue to discuss the matters.

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Key audit matters (KAM) - examples

• Valuation of intangibles

• Valuation of certain investments (loans to other NFPs,

non-publicly traded investments, etc.)

• Impairments

• Provisions (claims, impaired loans, etc.)

• Defined benefit pension plans and other employee future

benefit plans

• Revenue recognition for memberships or grants

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Key audit matters (KAM) – disclosure example

Post-retirement benefits

The Organization is required to record a defined benefit obligation with regards to the

post-retirement benefits it offers to its employees. The obligation as of December 31,

2018 is material to the financial statements and management’s assessment is based

on assumptions, specifically with regards to the retirement age, mortality, discount

rates to reflect the time value of money and future salary and benefits levels.

Our audit procedures included, among others, using the work of an actuary to assist us

in evaluating the assumptions and data used by the Organization. The assumptions

were also compared to actual results from previous years.

The Organization’s disclosure about the defined benefit obligation is included in Note

X, which specifically discloses the significant assumptions used in the calculation of the

obligation.

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Other information (OI)

• Financial or non-financial information (other than financial

statements and the auditor’s report thereon) included in

an entity’s annual report

• Applicable to all audits where other information is issued

(E.g. an annual report issued by a not-for-profit

organization)

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Other information (OI) (continued)

• Auditor required to determine which documents meet the

definition of OI

• The timing and purpose of the documents (and for whom

they are intended) are matters that may be relevant to the

auditor’s determination of which documents comprises

the annual report.

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• Examples of common documents that would qualify as OI:

– Not-for-profit annual report detailing its operations, financial

results and future outlook

– Financial Statement Discussions and Analysis or equivalent

documents issued by public sector entities

– Management Discussion and Analysis (MD&A)

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• Examples of documents that are outside the scope of

CAS 720:

– The Annual Information Return filed by pension plans with the

Office of the Superintendent of Financial Institutions or the

Financial Services Commission of Ontario and the Canada

Revenue Agency

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• Is a website considered other information?

– Per auditing standards (CAS 720):• When other information is only made available to users via the entity's

website, the version of the other information obtained from the entity, rather than directly from the entity's website, is the relevant document on which the auditor would perform procedures in accordance with this CAS.The auditor has no responsibility under this CAS to search for other information, including other information that may be on the entity's website, nor to perform any procedures to confirm that other information is appropriately displayed on the entity's website or otherwise has been appropriately transmitted or displayed electronically.

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Other information (OI) - timing

• If auditor has obtained some or all of the other information

– Separate section included in auditor’s report

• If annual report is prepared after auditor’s report is dated

– No separate section included in auditor’s report

– Auditor still required to review the annual report

• Requirements are different for listed entities

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OI - example

Other Information

Management is responsible for the other information. The other information comprises the annual report, but does not include the financial statements and our auditor's report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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Auditor’s report – summary F/S

• New report for summary financial statements

• Per auditing standards (CAS 810):– The auditor shall read the information included in a document containing the

summary financial statements and the auditor's report thereon and consider whether there is a material inconsistency between that information and the summary financial statements.

– If the auditor identifies a material inconsistency, the auditor shall discuss the matter with management and determine whether the summary financial statements or the information included in the document containing the summary financial statements and the auditor's report thereon needs to be revised. If the auditor determines that the information needs to be revised and management refuses to revise the information as necessary, the auditor shall take appropriate action in the circumstances, including considering the implications for the auditor's report on the summary financial statements.

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Auditor’s report – summary F/S (example)

REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS


Opinion

The summary financial statements, which comprise the summary statement of financial position as at December 31, 2018, the summary statement of operations, summary statement of changes in net assets and summary cash flow statement for the year then ended, and related notes, are derived from the audited financial statements of Organization ABC for the year ended December 31, 2018.

In our opinion, the accompanying summary financial statements are a fair summary of the audited financial statements, in accordance with the note entitled Basis of Presentation included as part of these summary financial statements.

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Summary Financial Statements

The summary financial statements do not contain all the disclosures required by Canadian Accounting Standards for Not-for-Profit Organizations. Reading the summary financial statements and the auditor's report thereon, therefore, is not a substitute for reading the audited financial statements and the auditor's report thereon. The summary financial statements and the audited financial statements do not reflect the effects of events that occurred subsequent to the date of our report on the audited financial statements.

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The Audited Financial Statements and Our Report ThereonWe expressed an unmodified audit opinion on the audited financial statements in our report dated February 15, 2019. That report also includes:• A Material Uncertainty Related to Going Concern section that draws attention to Note X in the audited financial statements. Note X of the audited financial statements indicates that Organization ABC incurred a deficiency of revenue over expenses of $X during the year ended December 31, 2018 and, as of that date, Organization ABC's current liabilities exceeded its total assets by $X. These events or conditions, along with other matters as set forth in Note X of the audited financial statements, indicate that a material uncertainty exists that may cast significant doubt on Organization ABC's ability to continue as a going concern. These matters are addressed in Note X of the summary financial statements.• The communication of other 2 key audit matters. [Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. The auditor may include additional explanation about key audit matters considered helpful to users of the auditor’s report on the summary financial statements.]

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Management's Responsibility for the Summary Financial Statements

Management is responsible for the preparation of the summary financial statements in accordance with the note entitled Basis of Presentation included as part of these summary financial statements.

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Auditor's Responsibility

Our responsibility is to express an opinion on whether the summary financial statements are a fair summary of the audited financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, Engagements to Report on Summary Financial Statements.

[Auditor's signature]

[Auditor's address]

[Date of the auditor's report]

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Audit Humor

Questions?

References

• FAQ for management and audit committees: New

auditor reporting standards

– https://www.cpacanada.ca/en/business-and-accounting-

resources/audit-and-assurance/canadian-auditing-

standards-cas/publications/faq-for-management-and-audit-

committees

https://www.cpacanada.ca/en/business-and-accounting-resources/audit-and-assurance/canadian-auditing-standards-cas/publications/faq-for-management-and-audit-committees

References (continued)

• Audit and assurance alert: CAS 701 Key audit matters



standards-cas/publications/audit-and-assurance-alert-cas-

701

• Audit and assurance alert: CAS 720 Other information



standards-cas/publications/audit-and-assurance-alert-cas-

720

https://www.cpacanada.ca/en/business-and-accounting-resources/audit-and-assurance/canadian-auditing-standards-cas/publications/audit-and-assurance-alert-cas-701

https://www.cpacanada.ca/en/business-and-accounting-resources/audit-and-assurance/canadian-auditing-standards-cas/publications/audit-and-assurance-alert-cas-720

Disclaimer

Information is current to November 1, 2018. The information contained in this presentation is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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