Town of View Royal Report to Council Audit strategy and results For the year ended December 31, 2018

Contents

Executive summary

Purpose of report and scope

The purpose of this report is to engage in an open dialogue with you regarding our audit of the financial statements of Town of View Royal (the "Council") for the year ended December 31, 2018. This communication will assist Council in understanding our overall audit strategy and results of audit procedures and includes comments on misstatements, significant accounting policies, sensitive estimates and other matters.

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 have obtained our engagement letter dated June 6, 2018, which outlines our responsibilities and the responsibilities of management.

We were engaged to provide the following deliverables:

Status of our audit

We have substantially completed our audit of the financial statements of the Council and the results of that audit are included in this report.

We will finalize our report upon resolution of the following items that were outstanding as at May 7, 2019:

• Receipt of signed management representation letter (a draft has been attached in the appendices)
• Approval of the financial statements by Council
• Procedures regarding subsequent events

Approach

Our audit approach requires that we establish an overall strategy that focuses on risk areas. We identify and assess risks of material misstatement of the financial statements, whether due to fraud or error. The greater the risk of material misstatement associated with an area of the financial statements, including disclosures, the greater the audit emphasis placed on it in terms of audit verification and analysis. Where the nature of a risk of material misstatement is such that it requires special audit consideration, it is classified as a significant risk.

Our approach is discussed further in the Appendix.

Audit risks and results

We have executed our audit in accordance with our approach summarized in Appendices A and B. We highlight our significant findings in respect of transactions.

Materiality

The purpose of our audit is to provide an opinion as to whether the financial statements are prepared, in all material respects, in accordance with Canadian public sector accounting standards as at December 31, 2018. Therefore, materiality is a critical auditing concept and as such we apply it in all stages of our engagement.

The concept of materiality recognizes that an auditor cannot verify every balance, transaction or judgment made in the financial reporting process. During audit planning, we made a preliminary assessment of materiality for the purpose of developing our audit strategy, including the determination of the extent of our audit procedures.

During execution of the audit, we will consider whether materiality should be re-assessed due to changes or events identified. At completion, we will consider not only the quantitative assessment of materiality, but also qualitative factors, in assessing the impact on the financial statements, our audit opinion and whether matters should be brought to your attention.

Significant risks

Other Considerations

The following is a summary of matters that relate to changes to the Council and its environment that were considered in preparing our audit plan.

Significant findings

During the year, management determined that between 2001-2011, approximately $3.74M of projects were funded from annual surplus, however they were eligible to be funded from developer cost charges. Adjustments to the affected accounts have been appropriately applied retroactively as a prior period restatement.

Adjustments and uncorrected misstatements

Adjustments

We have no adjustments to report.

Uncorrected misstatements

We have no non-trivial unadjusted misstatements to report.

Summary of disclosure matters

Additional disclosure for the 2018 financial statements includes a restatement of developer charges in the prior period.

Team, timing and communications

Timing and communications

We are committed to delivering exceptional client service and executing our audit in the most effective, efficient and timely manner. The planned timing of our audit work and the deliverables we will provide to Council are as follows:

In our communication of audit results, we will report on the following matters:

• Our views on significant accounting practices
• Significant difficulties, if any, encountered during the audit
• Misstatements, other than trivial errors
• Actual or suspected fraud or illegal acts
• Significant deficiencies in internal control
• Other significant audit matters, as applicable

Team

Technical updates – highlights

Accounting

Further details of the changes to accounting standards, including management’s preliminary comments on their applicability to the Town, are included in the Appendices. 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.

Assurance

Further details of the changes to assurance standards, including management’s preliminary comments on their applicability to the Town, are included in the Appendices. 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.

Regulatory

There have been no new developments in our regulations that are expected to significantly affect the Town’s audit.

Appendix A – Overview and approach

Our audit is planned with the objective of obtaining reasonable assurance about whether the financial statements as a whole are free from material misstatement, so that we are able to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with Canadian public sector accounting standards. The following outlines key concepts that are applicable to the audit, including - the responsibilities of parties involved, our general audit approach and other considerations.

Roles and responsibilities

Audit approach

Our understanding of the Council and its operations drives our audit approach, which is risk based and specifically tailored to Town of View Royal.

The five key phases of our audit approach

1. Planning
2. Assessing risk
3. Evaluating internal controls
4. Testing accounts and transactions
5. Concluding and reporting

Our tailored audit approach results in procedures designed to respond to an identified risk. The greater the risk of material misstatement associated with the account, class of transactions or balance, the greater the audit emphasis placed on it in terms of audit verification and analysis.

Throughout the execution of our audit approach, we maintained our professional skepticism, recognizing the possibility that a material misstatement due to fraud could exist notwithstanding our past experiences with the entity and our beliefs about management’s honesty and integrity.

Materiality

The purpose of our audit is to provide an opinion as to whether the financial statements are prepared, in all material respects, in accordance with Canadian public sector accounting standards as at December 31, 2018. Therefore, materiality is a critical auditing concept and as such we apply it in all stages of our engagement.

The concept of materiality recognizes that an auditor cannot verify every balance, transaction or judgment made in the financial reporting process. During audit planning, we made a preliminary assessment of materiality for the purpose of developing our audit strategy, including the determination of the extent of our audit procedures. During the completion stage, we consider not only the quantitative assessment of materiality, but also qualitative factors, in assessing the impact on the financial statements, our audit opinion and whether the matters should be brought to your attention.

Fraud risk factor considerations

We are responsible for planning and performing the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement caused by error or by fraud. Our responsibility includes:

• The identification and assessment of the risks of material misstatement of the financial statements due to fraud through procedures including discussions amongst the audit team and specific inquiries of management
• Obtaining sufficient appropriate audit evidence to respond to the fraud risks noted
• Responding appropriately to any fraud or suspected fraud identified during the audit

Due to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements may not be detected and this is particularly true in relation to fraud. The primary responsibility for the prevention and detection of fraud rests with those charged with governance and management.

We are required to communicate with you on fraud-related matters, including:

• Obtaining an understanding of how you exercise oversight of management's processes for identifying and responding to the risks of fraud in the entity and the internal control that management has established to mitigate these risks
• Inquiring as to whether you have knowledge of any actual, suspected or alleged fraud affecting the entity

The following provides a summary of some of the fraud related procedures that are performed during the audit:

• Testing the appropriateness of journal entries recorded in the general ledger and other adjustments made in the preparation of the financial statements
• Reviewing accounting estimates for biases
• Evaluating the business rationale (or the lack thereof) for significant transactions that are or appear to be outside the normal course of operations

Quality control

We have a robust quality control program that forms a core part of our client service. We combine internationally developed audit methodology, data analytics technology that allows us to examine large amounts of data, rigorous review procedures, mandatory professional development requirements, and the use of specialists to deliver high quality audit services to our clients. In addition to our internal processes, we are subject to inspection and oversight by standard setting and regulatory bodies. We are proud of our firm’s approach to quality control and would be pleased to discuss any aspect with you at your convenience.

Appendix B—Letter of independence

December 5, 2018

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

Attention: Council

Dear Sirs,

We have been engaged to audit the financial statements of the Town of View Royal (“the Town”) for the year ending December 31, 2018.

Canadian generally accepted auditing standards require that we communicate at least annually with you regarding all relationships between the Town and Grant Thornton LLP that, in our professional judgement, may reasonably be thought to bear on our independence.

In determining which relationships to report, these standards require us to consider relevant rules and related interpretations prescribed by the appropriate provincial institute and applicable legislation, covering such matters as:

a) holding a financial interest, either directly or indirectly, in a client; b) holding a position, either directly or indirectly, that gives the right or responsibility to exert significant influence over the financial or accounting policies of a client; c) personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly, with a client; d) economic dependence on a client; and e) provision of services in addition to the audit engagement.

We have prepared the following comments to facilitate our discussion with you regarding independence matters arising since October 25, 2017, the date of our last letter.

We are not aware of any relationships between the Town, and Grant Thornton LLP that, in our professional judgment, may reasonably be thought to bear on our independence, that have occurred from December 31, 2017 to the current date.

We confirm that we are independent with respect to the within the meaning of the Rules of Professional Conduct of the Institute of Chartered Professional Accountants of British Columbia as of the current date and expect to be as of the year end date of December 31, 2018.

This report is intended solely for the use of the Council, management and others within the Town and should not be used for any other purposes.

We look forward to discussing with you the matters addressed in this letter.

Sincerely,

Grant Thornton LLP

Kyman T. Chan, FCPA, FCA Partner*

• A partner through Kyman Chan Inc.

Appendix C – PSAS Accounting developments

Strategic plan for not-for-profit organizations in the public sector

Since 2012, GNPOs have been required to adopt PSAS, but were given the option of applying the specific NPO accounting standards in PSAS. Some NPOs have utilized those standards, while others have not. The PSAB recognized that a “one-size-fits-all” approach may not be appropriate for all stakeholders. As a result, the PSAB’s 2017-2020 Strategic Plan planned to assess the specific needs of public sector NPO stakeholders. PSAB’s 2018-2019 Annual Plan includes the following specific objectives for implementing its strategy:

• developing a GNPO strategy that meets the public interest; and
• enhancing engagement with users of GNPO financial statements.

It is expected that PSAB will issue a consultation paper in December 2018 that solicits the views of stakeholders on a variety of public sector NPO topics.

Concepts underlying financial performance

In response to feedback from stakeholders, including the senior government finance community, the PSAB is proposing changes to its conceptual framework and its reporting model with a focus on measuring the financial performance of public sector entities. The changes will be made through the following actions:

1. Issuing a revised conceptual framework to replace two Sections in the PSA Handbook:
   • PS 1000 Financial Statement Concepts
   • PS 1100 Financial Statement Objectives
2. Issuing a revised financial statement presentation standard that would replace Section PS 1201 Financial Statement Presentation.

In May 2018, PSAB released two documents for comment related to this project:

Statement of Concepts, A Revised Conceptual Framework for the Canadian Public Sector

A conceptual framework is a clear set of related concepts that act as the foundation for the development of standards and the application of professional judgment. The Statement of Concepts presents and explains key concepts that the PSAB expects to include in a future exposure draft. The components of the PSAB’s proposed conceptual framework are as follows:

• Characteristics of public sector entities
• Financial reporting objective
• Role of financial statements
• Financial statement foundations
• Financial statement objectives
• Qualitative characteristics of information and related considerations
• Elements of financial statements
• Recognition and measurement
• Presentation concepts

The Statement of Concepts also sets the foundation for the revised reporting model in the PSAB’s concurrently issued Statement of Principles.

Statement of Principles, A Revised Reporting Model for the Canadian Public Sector

The PSAB is proposing a revised reporting model that builds on the existing reporting model in Section PS 1201. The Statement of Principles presents and explains key principles that the PSAB expects to include in a future exposure draft. Some of the main features of the proposals in the Statement of Principles include:

• In the statement of financial position:
  • The net debt indicator would be removed and instead a revised net debt calculation would be moved to its own statement, the statement of net debt or net financial assets
  • The accumulated surplus (deficit) indicator would be relabelled as net assets (net liabilities)
  • A new third component, accumulated other, would be added to net assets or net liabilities (existing Section PS 1201 includes two components of net assets or net liabilities: accumulated operating surplus or deficit and accumulated remeasurement gains and losses)
  • The structure would be amended to present financial assets, then non-financial assets, followed by liabilities, to arrive at the net assets or net liabilities position
• The statement of operations would be renamed as the statement of surplus or deficit;
• The statement of remeasurement gains and losses would be expanded to reconcile the balances of and changes in all the components of net assets or net liabilities and it would be renamed as the statement of changes in net assets or net liabilities;
• Financing activities would be isolated in the statement of cash flows;
• The statement of changes in net debt would be removed; and
• The budget amounts on the financial statements would be presented using the same basis of accounting, following the same accounting principles, for the same scope of activities, and using the same classifications as the actual amounts.

The PSAB plans to publish exposure drafts for the revised conceptual framework and reporting model subject to comments received on the Statement of Concepts and Statement of Principles, and following its due process. Both the Statement of Concepts and Statement of Principles are open for comment until November 28, 2018.

Appendix D – Auditing developments