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Committee of the Whole/Documents/Report to Council — Communication of Audit Results
Staff Report

Report to Council — Communication of Audit Results

May 8, 2018Pages 52–7513 sections

Comprehensive audit findings report from Grant Thornton LLP, detailing audit results, internal controls, and upcoming accounting standards changes.

2 APPROVAL OF AGENDA
Date: May 8, 2018Finding: No unadjusted non-trivial misstatements identifiedAuditor Independence confirmed

Report to Council — Communication of Audit Results

The Town of View Royal For the year ended December 31, 2017

Town of View Royal 45 View Royal Ave Victoria, BC V9B 1A6

May 8, 2018

To the Council of the Town of View Royal

We are pleased to report that we have now substantially completed our audit of the consolidated financial statements of the Town of View Royal (hereinafter “the Town”) for the year ended December 31, 2017. We enclose our Report to Council - Communication of Audit Results to continue our dialogue with the Council on the audit of the Town. This report provides an overview of the results of our audit including comments on misstatements, significant accounting policies, sensitive accounting estimates, and other matters that may be of interest to Council.

This communication has been prepared to comply with the requirements outlined in CAS 260 Communication with those Charged with Governance. The information in this document is intended solely for the information and use of the Council and management. It is not intended to be distributed or used by anyone other than these specified parties.

We express our appreciation for the cooperation and assistance received from the management and staff of the Town during the course of our audit.

If you have any particular comments or concerns, please do not hesitate to raise them at our scheduled meeting.

Yours sincerely,

Grant Thornton LLP

Dan Little, CPA, CA Principal

cc: Mr. Kim Anema, Chief Administrative Officer Ms. Dawn Christenson, Director of Finance

Page 52–75

Contents

Section Page
Status of the audit 3
Audit results 4
Reportable matters 5
Technical updates 7
Appendix A- Independent Auditors’ Report 8
Appendix B— Draft management representation letter 10
Appendix C – PSAB Accounting developments 15
Appendix D—Auditing developments 19
Page 52–75

Status of the audit

Outstanding items

We have substantially completed our audit of the financial statements of the Town for the year ended December 31, 2017 and the results of that audit are included in this report.

We have attached our draft auditor’s report in the appendices. We will finalize the report once the Council has approved the financial statements. The following items were outstanding as at the date of this report:

  • Receipt of signed management representation letter (attached in the Appendix B);
  • Approval of the financial statements by Council; and
  • Procedures regarding subsequent events and legal confirmations.
Page 52–75

Audit results

Summary of misstatements

There were no unadjusted non-trivial misstatements identified as a result of our audit procedures.

There were no misstatements identified and adjusted in the financial statements by the Town as a result of our audit procedures.

Summary of disclosure matters

Our audit did not identify any unadjusted non-trivial misstatements from disclosure matters. Our suggestions for disclosure changes related to best practices and general Accounting Standards for Public Sector Organization requirements.

Page 52–75

Reportable matters

Internal control

Management is responsible for the design and operation of an effective system of internal control that provides reasonable assurance that the accounting system provides timely, accurate and reliable financial information, and safeguards the assets of the Town.

The audit is designed to express an opinion on the financial statements. Our understanding of internal control is sufficient to enable us to plan the audit and to determine the nature, timing and extent of tests to be performed. If we become aware of a deficiency in your internal controls systems, the auditing standards require us to communicate to the audit committee those deficiencies we consider significant. However, a financial statement audit is not designed to provide assurance on internal control.

We identified areas for improvement in internal control and our comments and recommendations on the matters have been provided in a separate internal control letter. This letter will be provided to management in draft and will be finalized once management has reviewed the contents and commented back to us. We want to ensure that the points we have raised are validated by management to ensure our documentation and case facts are accurate.

Significant new accounting policies

No significant new accounting policies were identified.

Acceptable alternative accounting policies

No significant alternative accounting policies were identified compared to policies or methods used by management.

Fraud and illegal acts

Our inquiries of management and audit procedures did not reveal any fraud or illegal acts.

Cooperation during the audit

We report that we received excellent cooperation from management and the employees of the Town. To our knowledge, we were provided access to all necessary records and other documentation and any issues that arose as a result of our audit were discussed with management and have been resolved to our satisfaction.

Independence

We have a rigorous process where we continually monitor and maintain our independence. The process of maintaining our independence includes, but is not limited to:

  • Identification of threats to our independence and putting into place safeguards to mitigate those threats. For example, we evaluate the independence threat of any non-audit services provided to the Town, and
  • Confirming the independence of our engagement team members.

In accordance with the Chartered Professional Accountants of Canada (CPA) Handbook Section 260.17, we advise that we are independent of the Town.

Page 52–75

Technical updates

Accounting standards

Further details of the changes to accounting standards are included in Appendix B. If you have any questions about these changes we invite you to raise them during our next meeting. We will be pleased to address your concerns.

Auditing standards

Recent changes in auditing standards have been summarized in the appendices. These auditing changes have had no effect on the entity for this year.

Page 52–75

Appendix A- Independent Auditors’ Report

To the Mayor and Councillors of THE TOWN OF VIEW ROYAL

Report on Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of the Town of View Royal, which comprise the consolidated statement of financial position as at December 31, 2017, the consolidated statement of operations, change in net financial 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 Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 evaluation of the overall presentation of the consolidated financial statements, whether due to fraud or error.

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

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of The Town of View Royal as at December 31, 2017, and its consolidated results of operations, its consolidated changes in net financial assets and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Victoria, BC May 8, 2018

Chartered Professional Accountants

Page 52–75

Appendix B— Draft management representation letter

Dear Sirs/Mesdames:

We are providing this letter in connection with your audit of the consolidated financial statements of Town of View Royal as of December 31, 2017, and for the year then ended, for the purpose of expressing an opinion as to whether the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Town of View Royal in accordance with Canadian public sector accounting standards.

We acknowledge that we have fulfilled our responsibilities for the preparation of the consolidated financial statements in accordance with Canadian public sector accounting standards and for the design and implementation of internal controls to prevent and detect fraud and error. We have assessed the risk that the consolidated financial statements may be materially misstated as a result of fraud, and have determined such risk to be low. Further, we acknowledge that your examination was planned and conducted in accordance with Canadian generally accepted auditing standards (GAAS) so as to enable you to express an opinion on the consolidated financial statements. We understand that while your work includes an examination of the accounting system, internal controls and related data to the extent you considered necessary in the circumstances, it is not designed to identify, nor can it necessarily be expected to disclose, fraud, shortages, errors and other irregularities, should any exist.

Certain representations in this letter are described as being limited to matters that are material. An item is considered material, regardless of its monetary value, if it is probable that its omission from or misstatement in the consolidated financial statements would influence the decision of a reasonable person relying on the consolidated financial statements.

We confirm, to the best of our knowledge and belief, as of May 8, 2018, the following representations made to you during your audit.

Financial statements

  1. The consolidated financial statements referred to above present fairly, in all material respects, the financial position of the entity as at December 31, 2017 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards as agreed to in the terms of the audit engagement.

Completeness of information

  1. We have made available to you all financial records and related data and all minutes of the meetings of shareholders, directors, and committees of directors, as agreed in the terms of the audit engagement. Summaries of actions of recent meetings for which minutes have not yet been prepared have been provided to you. All significant board and committee actions are included in the summaries.
  2. We have provided you with unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.
  3. There are no material transactions that have not been properly recorded in the accounting records underlying the consolidated financial statements. The adjusting journal entries which have been proposed by you are approved by us and will be recorded on the books of the entity.
  4. The restatements made to correct material misstatements in the prior period consolidated financial statements have been properly recorded, are approved by us, and will be recorded on the books of the entity.
  5. We are unaware of any known or probable instances of non-compliance with the requirements of regulatory or governmental authorities, including their financial reporting requirements.
  6. We are unaware of any violations or possible violations of laws or regulations the effects of which should be considered for disclosure in the consolidated financial statements or as the basis of recording a contingent loss.
  7. We have disclosed to you all known deficiencies in the design or operation of internal control over financial reporting of which we are aware.
  8. We have identified to you all known related parties and related party transactions, including sales, purchases, loans, transfers of assets, liabilities and services, leasing arrangements guarantees, non-monetary transactions and transactions for no consideration.
  9. You provided a non-audit service by assisting us with drafting the consolidated financial statements and related notes. In connection with this non-audit service, we confirm that we have made all management decisions and performed all management functions, have the knowledge to evaluate the accuracy and completeness of the consolidated financial statements, and accept responsibility for such consolidated financial statements.

Fraud and error

  1. We have no knowledge of fraud or suspected fraud affecting the entity involving management; employees who have significant roles in internal control; or others, where the fraud could have a non-trivial effect on the consolidated financial statements.
  1. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity’s consolidated financial statements communicated by employees, former employees, analysts, regulators or others.
  2. We acknowledge our responsibility for the design, implementation and maintenance of internal control to prevent and detect fraud.
  3. We believe that the effects of the uncorrected financial statement misstatements summarized in the accompanying schedule are immaterial, both individually and in the aggregate, to the consolidated financial statements taken as a whole.

Recognition, measurement and disclosure

  1. We believe that the significant assumptions used by us in making accounting estimates, including those used in arriving at the fair values of financial instruments as measured and disclosed in the consolidated financial statements, are reasonable and appropriate in the circumstances.
  2. We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities, both financial and non-financial, reflected in the consolidated financial statements.
  3. All related party transactions have been appropriately measured and disclosed in the consolidated financial statements.
  4. The nature of all material measurement uncertainties has been appropriately disclosed in the consolidated financial statements, including all estimates where it is reasonably possible that the estimate will change in the near term and the effect of the change could be material to the consolidated financial statements.
  5. Any business combination that occurred during the year has been properly accounted for with appropriate consideration of amounts that should be allocated to goodwill and other intangible assets.
  6. Any goodwill or intangibles on the books of the entity are evaluated whenever events or changes in circumstances indicated the carrying amount may not be recoverable to determine whether or not they have been impaired, and an appropriate loss provision is provided in the accounts where there has been a permanent impairment.
  7. All outstanding and possible claims, whether or not they have been discussed with legal counsel, have been disclosed to you and are appropriately reflected in the consolidated financial statements. Refer to Note 13 in the consolidated financial statements.
  8. All liabilities and contingencies, including those associated with guarantees, whether written or oral, have been disclosed to you and are appropriately reflected in the consolidated financial statements.
Page 52–75
  1. All “off-balance sheet” financial instruments have been properly recorded or disclosed in the consolidated financial statements.
  2. For any derivative financial instruments that the entity has entered into we have used reasonable assumptions and methodologies in valuing these derivative financial instruments and have appropriately reflected all such transactions in the financial statements, including identifying and accounting for any embedded derivative financial instruments. We have provided to you the terms of transactions involving derivative financial instruments, including any side agreements, and confirm that all transactions involving derivative financial instruments have been conducted at arm’s length and at fair value. The entity complies with the documentation requirements of the Canadian public sector accounting standards for derivative financial instruments that are conditions precedent to specified hedge accounting treatments. As well we have provided to you details of any written options that the entity has entered into.
  3. With respect to environmental matters: a) at year end, there were no liabilities or contingencies that have not already been disclosed to you; b) liabilities or contingencies have been recognized, measured and disclosed, as appropriate, in the consolidated financial statements; and c) commitments have been measured and disclosed, as appropriate, in the consolidated financial statements.
  4. The entity has satisfactory title to (or lease interest in) all assets, and there are no liens or encumbrances on the entity’s assets nor has any been pledged as collateral.
  5. We have disclosed to you, and the entity has complied with, all aspects of contractual agreements that could have a material effect on the consolidated financial statements in the event of non-compliance, including all covenants, conditions or other requirements of all outstanding debt. Refer to Note 7 in the consolidated financial statements.
  6. The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) transactions recorded by the entity are in accordance with the federal and provincial regulations. The GST and HST liability/receivable amounts recorded by the entity are considered complete.
  7. Employee future benefit costs, assets, and obligations have been determined, accounted for and disclosed in accordance with the requirements of Section PS 3250 Retirement Benefits of the Chartered Professional Accountants of Canada (CPA Canada) Public Sector Accounting Handbook.
  8. The defined benefit obligation for the defined benefit plan, as of the balance sheet date, has been measured using the most recently completed actuarial valuation prepared for funding purposes.
  9. There have been no events subsequent to the balance sheet date up to the date hereof that would require recognition or disclosure in the consolidated financial statements. Further, there have been no events subsequent to the date of the comparative financial statements that would require adjustment of those financial statements and related notes.

Other

  1. We have considered whether or not events have occurred or conditions exist which may cast significant doubt on the Company’s ability to continue as a going concern and have concluded that no such events or conditions are evident.

Yours very truly,

Mr. Kim Anema, Chief Administrative Officer

Ms. Dawn Christenson, Director of Finance

Page 52–75

Appendix C – PSAB Accounting developments

Public Sector Accounting Standards [updated December 31, 2017] Effective date
Introduction to the PSA Handbook
The Introduction to the PSA Handbook has been amended to add a new type of public sector entity called a government component. A government component is an integral part of a government, such as a department, ministry or fund, that is not a separate entity with the power to contract in its own name and that can sue and be sued. Government components that want to prepare general purpose financial statements must apply the standards for governments in the PSA Handbook. Government components that adopt the PSA standards - Fiscal periods beginning on or after January 1, 2017. Earlier adoption is permitted.
As a result of adding the definition of a government component, the definition of a government organization was amended. A government organization is any organization controlled by a government that is a separate entity with the power to contract in its own name and that can sue and be sued. Government organizations include government business enterprises (GBEs), government not-for-profit organizations (GNPOs) and other government organizations (OGOs). As a result of the change in the definition of a government organization, some entities that were formerly classified as GNPOs or OGOs may now be classified as government components which may result in a change in the accounting framework that they are required to apply. GBPs that adopt the standards applicable to PAEs - Fiscal periods beginning on or after January 1, 2017. Earlier adoption is permitted.
Government business partnerships (GBPs) between two or more public sector entities that want to issue general purpose financial statements must apply the standards for PAEs in Part I of the CPA Canada Handbook – Accounting – IFRS. Government partnerships, other than GBPs, that determine the standards applicable to PAEs are most appropriate for their partnership - Fiscal periods beginning on or after January 1, 2017. Earlier adoption is permitted.
Non-business government partnerships between two or more public sector entities that want to issue general purpose financial statements would normally apply the PSA Handbook, unless it does not meet the needs of the partnership’s financial statement users. In that case the partnership can apply, the standards applicable to PAEs in Part I of the CPA Canada Handbook – Accounting – IFRS. Factors to consider in assessing users' needs include, but are not limited to, whether the partnership:
• has issued, or is in the process of issuing, debt or equity instruments that are, or will be, outstanding and traded in a public market
• holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses
• has commercial-type operations and substantially derives its revenue from these activities
• receives limited government assistance on an ongoing basis		 Government components, GBPs and other government partnerships that expect to change their basis of accounting must disclose this fact in the periods preceding the period the change becomes effective.
Government components and government partnerships that adopt the PSA Handbook must account for the transition retroactively, with the restatement of prior periods in accordance with Section PS 2125 First-time adoption.
Public Sector Accounting Standards [updated December 31, 2017] Effective date
Section PS 3450 Financial instruments, Section PS 2601 Foreign currency translation, Section PS 1201 Financial statement presentation, and PS 3041 Portfolio investments
PS 3450 Financial instruments is a new Section that establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. The new requirements are all required to be applied at the same time.
PS 2601 Foreign currency translation revises and replaces Section PS 2600 Foreign currency translation. For governments - Fiscal years beginning on or after April 1, 2019. This effective date was amended in September 2015.
PS 1201 Financial statement presentation revises and replaces Section PS 1200 Financial statement presentation. For government organizations that applied the CPA Canada Handbook – Accounting prior to their adoption of the CPA Canada Public Sector Accounting Handbook - Fiscal years beginning on or after April 1, 2012.
PS 3041 Portfolio investments revises and replaces Section PS 3040 Portfolio investments.
The issuance of these new sections also includes consequential amendments to:
• Introduction to accounting standards that apply only to government not-for-profit organizations
• PS 1000 Financial statement concepts
• PS 1100 Financial statement objectives
• PS 2125 First-time adoption by government organizations
• PS 2500 Basic principles of consolidation
• PS 2510 Additional areas of consolidation
• PS 3050 Loans receivable
• PS 3060 Government partnerships
• PS 3070 Investments in government business enterprises
• PS 3230 Long-term debt
• PS 3310 Loan guarantees
• PS 4200 Financial statement presentation by not-for-profit organizations
PSG-6 Including results of organizations and partnerships applying fair value measurement was withdrawn as a result of the issuance of these sections.		 For all other government organizations - Fiscal years beginning on or after April 1, 2019. This effective date was amended in September 2015.
Earlier adoption is permitted.
GNPOs only – Section PS 4260 Disclosure of related party transactions by not-for-profit organizations (Withdrawn December 2016)
This Section has been withdrawn because similar disclosure requirements are provided in Section PS 2200 Related party disclosures. Section PS 4260 will remain in effect for GNPOs reporting under PSAS plus the PS 4200 series until Section PS 2200 must be adopted for fiscal periods beginning on or after April 1, 2017. Earlier adoption is permitted.
In addition, in Section PS 4250 Reporting controlled and related entities by not-for-profit organizations, the definitions of control and shared control have been amended to conform to those provided Section PS 2200 Related party disclosures.
Section PS 2200 Related party disclosures
This Section defines a related party. It also establishes the disclosures required for related party transactions, including disclosure of information about an entity’s related party transactions and the relationship between the related parties when the transactions:
• have occurred at a value different from that which would have been arrived at if the parties were unrelated; or
• have or could have, a material financial effect on the financial statements.		 Fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted.
As a result of the issuance of Section 2200, the Public Sector Accounting Board (PSAB) approved the withdrawal of Section PS 4260 Disclosure of related party transactions by not-for-profit organizations since PS 2200 contains similar disclosure requirements. Section PS 4260 will remain in effect for GNPOs reporting under PSAS plus the PS 4200 series until Section PS 2200 must be adopted for fiscal periods beginning on or after April 1, 2017. Earlier adoption is permitted.
Page 52–75
Public Sector Accounting Standards [updated December 31, 2017] Effective date
Section PS 3420 Inter-entity transactions
This Section establishes how to account for and report transactions between public sector entities that comprise a government's reporting entity from both a provider and recipient perspective (i.e., related parties within a government reporting entity). The main features of the new Section are:
• Transactions are measured at their carrying amounts, except in specific circumstances
• Transactions occurring on similar terms and conditions as an arm’s length transaction are measured at the exchange amount
• Cost allocation and recovery is the allocation of costs of activities associated with providing goods or services to another entity and the recovery of the costs incurred from the other entities; under a policy of cost allocation, revenues and expenses are recognized on a gross basis at their exchange amount
• Unallocated costs are the cost of resources recorded by the providing entity in its operating activities that are incurred on behalf of a recipient entity; a recipient may choose to recognize unallocated costs for the provision of goods and services and measure them at their carrying amount, fair value or other amount dictated by policy, accountability structure or budget practice
• The transfer of an asset or liability for nominal or no consideration is measured by the provider at its carrying amount and by the recipient at its carrying amount or fair value
• Inter-entity transactions must be disclosed in accordance with Section PS 2200 Related party disclosures		 Fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted.
Section PS 3210 Assets
This new Section provides guidance for applying the definition of an asset set out in Section PS 1000 Financial statement concepts and establishes general disclosure standards for assets.
Disclosure of information about the major categories of assets that are not recognized is required. When an asset is not recognized because a reasonable estimate of the amount involved cannot be made, the reason(s) for this should be disclosed.		 Fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted.
Section PS 3320 Contingent assets
This new Section defines and establishes disclosure standards for contingent assets.
Contingent assets are possible assets arising from existing conditions or situations involving uncertainty. That uncertainty will ultimately be resolved when one or more future events not wholly within the public sector entity's control occur or fail to occur and that resolution will confirm the existence or non-existence of an asset. Disclosure of information about contingent assets is required when the occurrence of the confirming future event is likely.		 Fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted.
Section PS 3380 Contractual rights
This new Section defines and establishes disclosure standards on contractual rights. Contractual rights are rights to economic resources arising from contracts or agreements that will result in both an asset and revenue in the future.
Disclosure of information about contractual rights is required, including a description about their nature and extent and the timing.		 Fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted.
Public Sector Accounting Standards [updated December 31, 2017] Effective date
Section PS 3430 Restructuring transactions
This new Section defines a restructuring transaction and establishes standards for recognizing and measuring assets and liabilities transferred in a restructuring transaction.
A restructuring transaction is a transfer of an integrated set of assets and/or liabilities, together with related program or operating responsibilities without consideration based primarily on the fair value of the individual assets and individual liabilities transferred. The main requirements in the new Section are:
• The net effect of a restructuring transaction is recognized as revenue or an expense by the entities involved (transferor/recipient)
• The recipient must recognize the individual assets and liabilities received in a restructuring transaction at their carrying amounts with applicable adjustments at the restructuring date
• The transferor and recipient cannot restate their financial position or results of operations as if the transaction had happened from inception
• The transferor and recipient must disclose sufficient information to enable users to assess the nature and financial effects of a restructuring transaction on their financial position and operations
The issuance of this new Section also resulted in consequential amendments to Section PS 3050 Loans receivable.		 Fiscal years beginning on or after April 1, 2018. Earlier adoption is permitted.

Proposed modifications to the accounting standards for not-for-profit organizations in the private and public sectors

In April 2013, the Accounting Standards Board (AcSB) and the Public Sector Accounting Board (PSAB and collectively, the Boards) published a joint statement of principles (SOP) entitled Improvements to Not-for-Profit Standards. The changes proposed in the SOP would apply to private sector NPOs that apply Part III of the CPA Handbook – Accounting Standards for Not-for-Profit Organizations and public sector NPOs that apply the CPA Canada Public Sector Accounting Handbook (PSA Handbook) including the Section PS 4200 to 4270 series of standards contained within the PSA Handbook. The consultation document issued by the Boards proposed improvements to better meet the needs of financial statement users and, where possible, to align accounting standards for private and public sector NPOs.

The Boards analyzed the responses and discovered some common concerns with certain proposed principles, including:

  • recognition of contributions and pledges
  • accounting for controlled and related entities
  • financial statement presentation

The AcSB has moved forward to work on improvements to standards in ASNPO by creating a Not-for-Profit Advisory Committee to advise the AcSB on standard setting. While the AcSB will continue to issue not-for-profit standards, PSAB will monitor and assess any accounting differences from a broader public sector perspective. PSAB’s Improvements Project has been removed from PSAB’s active project page and there is no longer a timeline as to when or if potential changes to their NPO standards may occur. However, one of the strategies in PSAB’s 2017-2018 Work Plan includes implementing an NPO strategy that meetings the public interest; this includes the following objectives:

  • gathering information on NPO financial stakeholders to identify their user needs and understand their perspectives
  • consulting with the NPO sector to ensure their ongoing involvement in the development of PSAS
  • monitoring and collecting relevant differences in standards that may arise between ASNPO and PSAS’s 4200 NPO series of standards
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Appendix D—Auditing developments

Canadian Auditing Standards (CASs) and other Canadian Standards issued by the AASB Effective date
Replacement of the Joint Policy Statement Concerning Communications with Law Firms Regarding Claims in Connection with the Preparation and Audit of Financial Statements and AuG-46, Communication with Law Firms under New Accounting and Auditing Standards
The former joint policy statement, which was appended to CAS 501, Audit Evidence – Specific Considerations for Selected Items, was based on the terminology and accounting requirements of Part II of the CPA Canada Handbook. That joint policy statement was replaced with a revised statement of the same name that incorporates the following fundamental changes:
• expanding the scope of the revised Statement to apply to in-house legal counsel who are acting in a legal capacity by performing a role that commonly would be performed by external legal counsel
• providing a more detailed discussion on the legal concept of privilege
• structuring the revised Statement to be accounting framework neutral so that it can be used regardless of the applicable financial reporting framework applied by management to evaluate the entity’s claims and possible claims
• updating guidance with respect to the timing of issuance of the inquiry and response letters
The implementation of this Policy Statement has resulted in the withdrawal of AuG-46 Communications with Law Firms under new Accounting and Auditing Standards.		 The revisions are effective for communication letters issued on or after December 1, 2016.
Amendments to CAS 250, Consideration of Laws and Regulations in an Audit of Financial Statements
The amendments to this standard have not changed the work effort of the auditor and serve to clarify existing guidance. The key changes are intended to:
• help the auditor decide whether to report identified or suspected non-compliance to authorities outside the entity
• clarify the auditor’s duty of confidentiality and any additional responsibilities the auditor may have according to laws, regulations and relevant ethical requirements
• enhance consideration of the implications of non-compliance with laws and regulations for the audit
• emphasize the fact that, in certain cases, communication with management or those charged with governance may be restricted or prohibited by law or regulation		 CAS 250 (revised) applies to audits of financial statements for period ending on or after December 15, 2018.
Canadian Auditing Standards (CASs) and other Canadian Standards issued by the AASB Effective date
Amendments to CAS 700 and other standards pertaining to Reporting on Audited Financial Statements and adoption of 701, Communicating Key Audit Matters in the Independent Auditor’s Report
The key changes to the existing Canadian standards as a result of adopting CAS 700 (revised) and CAS 701 are as follows:
• Expanded disclosures regarding management’s responsibilities related to going concern, specifically: the responsibility to assess the entity’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate as well as disclosing, if applicable, matters relating to going concern
• Expanded disclosures regarding the auditor’s responsibilities related to going concern, specifically: the requirement to conclude on the appropriateness of management’s use of the going concern basis of accounting and, if based on the audit evidence obtained, whether the auditor concludes a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If the auditor concludes that a material uncertainty exists, the auditor is required to draw attention in their report to the related disclosures
• Disclosure of the engagement partner’s name in auditor’s reports for audits of listed entities
• Changes to the descriptions of the responsibilities of management, the auditor and those charged with governance, including a reference to who within the entity is responsible for overseeing the reporting process (when those charged with governance are distinct from management) (ISA 700)
• Adoption of a new standard (CAS 701) that deals with the requirements when the auditor will be communicating the matters judged to be most significant to the audit in the audit report, either because the auditor has chosen to do so or because law or regulation requires key audit matters to be described in the auditor’s report
It is believed that these changes will enhance the communicative value of the auditor’s report and also improve the overall quality of the audit and financial reporting.		 The new reporting standards apply for periods ending on or after December 15, 2018, with earlier application permitted.
Amendments to CAS 720, The Auditor’s Responsibilities Relating to Other Information
The main changes are as follows:
• broadening and clarifying the scope of other information by linking it to the concept of an “annual report”
• enhancing the auditor’s work effort with respect to other information
• providing transparency by requiring reporting on the auditor’s work relating to other information
The concept in extant CAS 720 that other information is not audited (i.e. that auditors do not provide assurance on the other information) has been retained.		 CAS 720 applies for periods ending on or after December 15, 2018, with earlier application permitted.
Amendments to CAS 800, Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and CAS 805, Special Considerations – Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement
CAS 800 and CAS 805 have been amended to provide guidance as to how the enhancements to the Auditor Reporting standards apply to audits of special purpose financial statements and audits of specific elements, accounts or items of a financial statement. CAS 800 and CAS 805 apply for periods ending on or after December 15, 2018, with earlier application permitted.
Amendments to CAS 810, Engagements to Report on Summary Financial Statements
The key changes are as follows:
• The requirements of extant CAS 810 have been amended to require a material misstatement related to going concern or a material misstatement of other information to be highlighted in the CAS 810 report, if these items have been highlighted separately in the auditor’s report on the related audited financial statements in accordance with the new reporting format
• A new requirement has been introduced for CAS 810 reports to include a reference to the communication of key audit matters in the auditor’s report on the audited financial statements
The layout of the CAS 810 illustrative auditor’s report has been altered to be consistent with those in CAS 700 (Revised).		 CAS 810 applies for periods ending on or after December 15, 2018, with earlier application permitted.
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Canadian Auditing Standards (CASs) and other Canadian Standards issued by the AASB Effective date
Amendments to CAS’s related to the subject of Addressing Disclosures in the Audit of Financial Statements
The AASB has approved certain changes to the standards that clarify how auditors should address the audit of financial statement disclosures. The changes include:
• Clarifying the meaning of “Disclosure”(CAS 200)
• Providing guidance to auditors to address audit considerations relating to disclosures early in the Audit (CAS 210, 260, 300)
• Disclosure considerations in identifying, assessing and responding to risks of material misstatement (CAS 240, 315, 320 and 330)
Clarifying and elaborating on expectations of the auditor when evaluating misstatements and forming an opinion (CAS 450 and 700).		 These revised standards apply for periods ending on or after December 15, 2018, with earlier application permitted.
Section 7170, Auditor’s Consent to the Use of the Auditor’s Report in Connection with Business Acquisition Reports
While the existing section, Section 7500 deals with requests for the auditor’s consent to using the auditor’s report in connection with a designated document, Section 7170 is specific to the situation where the auditor is asked to consent to the auditor’s report being included in a business acquisition report being issued by the acquirer. The wording of the existing section has been replaced with wording that is specific to this situation of business acquisition reports. The changes include the following:
• the auditor’s consent can be provided either orally or in writing, whereas previously it was required to be provided in writing
• the requirements with respect to what needs to be included in the auditor’s consent have been reduced (e.g. the auditor is no longer required to identify any modifications to the audit report)
Consent in connection with designated documents other than business acquisition reports will continue to be addressed by Section 7500.		 Section 7170 is effective for an auditor’s consent to the use of their report in a business acquisition report issued on or after June 1, 2017, with early adoption permitted.
Replacement of Section 5020, Association with CSOA 5000, Use of the Practitioner’s Communication or Name
The AASB has approved the replacement of Section 5020 with a new standard to address a number of issues that were raised by practitioners and other Canadian stakeholders. The key issues that are now addressed in CSOA 5000 include:
• Determining the meaning of “association”
• Identifying when a practitioner becomes associated with information
• Establishing the work effort required and the communications needed in the context of the nature and extent of the practitioner’s association with information
• Determining how this standard should interrelate with other standards		 CSOA 5000 is effective for consents provided on or after June 1, 2017 with early adoption permitted.
Canadian Auditing Standards (CASs) and other Canadian Standards issued by the AASB Effective date
CSAE 3000 Attestation Engagements Other than Audits or Reviews of Historical Financial Information and CSAE 3001 Direct Engagements
In an attestation engagement, the practitioner’s objective is to reach a conclusion on a public statement or assertion issued by the party responsible for the underlying subject matter of the engagement. In a direct engagement, there is no public statement or assertion by the responsible party and the practitioner expresses a conclusion “directly” on the underlying subject matter.
The two standards noted above replace the following sections:
• Section 5025 – Standards for Assurance Engagements Other Than Audits of Financial Statements and Other Historical Information
• Section 5030 – Quality Control Procedures for Assurance Engagements Other Than Audits of Financial Statements and Other Historical Information
• Section 5049 – Use of Specialists in Assurance Engagements Other Than Audits of Financial Statements and Other Historical Information
• Section 5050 – Using the Work of Internal Audit in Assurance Engagements Other Than Audits of Financial Statements and Other Historical Information
• Section 8100 – General Review Standards		 The final standards are effective for attestation and direct engagements where the assurance report is dated on or after June 30, 2017, with early adoption permitted.
The key differences between the superseded standards and the new standards relate to a number of different areas, including the number and format of the standards, the relationships between assurance standards, the terminology and definitions, specifications regarding those assurance providers who can claim compliance with assurance standards, the detailed requirements of the standards, and limited assurance engagements. The full extent of the changes is beyond the scope of this summary, but Grant Thornton would be happy to provide further information, if required.
CSAE 3530 - Special Considerations - Attestation Engagements to Report on Compliance and CSAE 3531 - Special Considerations - Direct Engagements to Report on Compliance
These standards set out specific requirements and application material applicable when applying CSAE 3000 or CSAE 3001 (discussed above), as appropriate, to engagements to report on compliance.
CSAE 3530 and CSAE 3531 will replace the following sections:
• Section 5800 - Special Reports - Introduction
• Section 5815 - Auditor's Reports on Compliance with Agreements, Statutes and Regulations
• Section 8600 - Reviews of Compliance with Agreements and Regulations
• Paragraphs PS 5300.11-13 of Auditing for Compliance with Legislative and Related Authorities in the Public Sector
The public interest considerations behind this project are to improve consistency in how practitioners perform these types of engagements and to require more transparency and clarity in reporting.		 CSAE 3530 and CSAE 3531 are effective for compliance reports dated on or after April 1, 2019, with early adoption permitted.
Canadian Exposure Drafts issued by the AASB Effective date
Proposed changes to CAS 540 Auditing Accounting Estimates, including Fair Value Accounting Estimates, and Related Disclosures
The AASB has issued an Exposure Draft that reflects changes the IAASB intends to make to ISA 540. The AASB intends to adopt the changes to the ISA as Canadian generally accepted auditing standards, subject to deliberating the comments received. The proposed changes, which seek to improve audit quality by driving auditors to perform appropriate procedures on accounting estimates and to maintain an appropriate level of professional scepticism, include the following:
• Enhancements to the auditor's risk assessment process and the linkage between the auditor's assessment of the level of risk and their response
• Greater emphasis on the use of specialized skills or knowledge to audit the estimate
• Greater emphasis on auditing disclosures related to estimates
• Requirements for the auditor to obtain representations from management about the "methods" and "significant data" used in making accounting estimates (rather than the "significant assumptions") and to consider the need for additional specific representations
• Enhancements to the information the auditor provides to those charged with governance concerning estimates and related disclosures
The AASB has provided input to the IAASB regarding the proposed changes. The IAASB expects to approve the revised ISA in June 2018 and the AASB plans to approve the equivalent CAS by the end of 2018.
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Extracted from: 2018 05 08 Committee of the Whole Agenda - Agenda - Pdf