Annual Audit Manual
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11015 Reporting on compliance with authorities
Sep-2020
In This Section
Legislative mandate related to reporting on compliance with authorities
Reporting on compliance with specified authorities
Elements of report on compliance with specified authorities
When modifications are required
Communication with the Audit Committee and OAG Policy
Overview
This topic explains:
- Understanding our legislative mandate related to reporting on compliance with authorities
- Reports on compliance with specified authorities for transactions coming to the auditor’s notice during the audit of financial statements
- Modified opinions
- The need to communicate with the Audit Committee when we expect to report non-compliance with authorities
- The modification to the management representation letter when non-compliance is reported
OAG Guidance
Reporting on auditing compliance with authorities must be done in accordance with the legislative audit mandate or the terms of the engagement.
The Auditor General Act, the federal and territorial Financial Administration Acts (FAA) or the enabling legislation of an entity may require the OAG to report on compliance with authorities and/or on any significant matter that came to his notice during the audit of the financial statements. (See OAG Audit 11011 Understand our legislative annual audit mandate).
CAS Requirement
If the auditor addresses other reporting responsibilities in the auditor’s report on the financial statements that are in addition to the auditor’s responsibilities under the CASs, these other reporting responsibilities shall be addressed in a separate section in the auditor’s report with a heading titled “Report on Other Legal and Regulatory Requirements” or otherwise as appropriate to the content of the section, unless these other reporting responsibilities address the same topics as those presented under the reporting responsibilities required by the CASs in which case the other reporting responsibilities may be presented in the same section as the related report elements required by the CASs (CAS 700.43).
CAS Guidance
In some jurisdictions, the auditor may have additional responsibilities to report on other matters that are supplementary to the auditor’s responsibilities under the CASs. For example, the auditor may be asked to report certain matters if they come to the auditor’s attention during the course of the audit of the financial statements. Alternatively, the auditor may be asked to perform and report on additional specified procedures, or to express an opinion on specific matters, such as the adequacy of accounting books and records, internal control over financial reporting or other information. Auditing standards in the specific jurisdiction often provide guidance on the auditor’s responsibilities with respect to specific additional reporting responsibilities in that jurisdiction (CAS 700.A58).
CPA Canada Guidance
When expressing an opinion on whether transactions that came to the auditor’s notice during the audit of the financial statements complied with specified authorities, the following contents are appropriate in the auditor’s report on compliance (AuG-49.13a):
(a) Following the section containing the auditor’s report on the financial statements under the heading “Report on the Audit of the Financial Statements,” a separate section in the auditor’s report subtitled “Report on Compliance with Specified Authorities,” or another appropriate title, to address the report on compliance.
OAG Guidance
During the audit of the financial statements, transactions are examined for compliance with specified authorities. AuG-49 provides guidance on the form of the auditor’s report when expressing an audit opinion on whether the transactions that have come to the auditor’s notice during the audit of financial statements complied with specified authorities. The compliance opinion is reported in a separate section of the auditor’s report subtitled “Report on Compliance with Specified Authorities”.
Refer to the CAS Auditor’s Report Template for guidance on the format and style of reporting on compliance with specified authorities in a CAS audit report.
When our legislative mandate does not require an opinion on compliance with specified authorities, significant non-compliance with authorities may be reported nonetheless. An emphasis of matter paragraph in the auditor’s report could be considered if the auditor considers it necessary to draw users’ attention to non-compliance with authorities. (See OAG Audit 8014 Emphasis of matter and other matter paragraphs).
CPA Canada Guidance
When expressing an opinion on whether transactions that came to the auditor’s notice during the audit of the financial statements complied with specified authorities, the following contents are appropriate in the auditor’s report on compliance (AuG-49.13):
(b) A description of the nature of the audit, specifying:
(i) that the audit relates to transactions coming to the auditor’s notice during the audit of the financial statements; and
(ii) the authorities against which compliance is being reported.
(c) The auditor’s opinion on whether the transactions coming to the auditor’s notice during the audit of the financial statements have complied, in all material respects, with the specified authorities. The phrase “in all material respects” is used for expressing the opinion on the transactions audited for compliance.
(d) A statement of management’s responsibility for compliance with specified authorities, and for such internal control as management determines is necessary to enable the entity to comply with the specified authorities.
(e) A statement of the Auditor’s Responsibilities related to the compliance opinion, including the responsibility to:
(i) plan and perform procedures to provide an audit opinion; and
(ii) express an audit opinion on whether the transactions that have come to the auditor’s notice during the audit of the financial statements complied with specified authorities.
(f) When applicable:
(i) a statement indicating that the specified authorities include requirements that are subject to significant interpretation; and
(ii) a description of the significant interpretation(s).
OAG Guidance
Refer to the CAS Auditor’s Report Template for guidance on the format and style of reporting on compliance with specified authorities in a CAS audit report.
CPA Canada Guidance
When the auditor modifies the auditor’s opinion on compliance, the auditor uses the heading “Qualified Opinion,” “Adverse Opinion” or “Disclaimer of Opinion,” as appropriate, for the opinion paragraph (AuG-49.16).
When the auditor determines that it is necessary to modify the opinion when reporting in accordance with this Guideline, in addition to the specific elements set out in paragraph 13, the auditor includes a paragraph in the auditor’s report on compliance that provides a description of the matter(s) causing the modification. This paragraph is placed immediately after the opinion paragraph in the auditor’s report on compliance and uses the heading “Basis for Qualified Opinion,” “Basis for Adverse Opinion” or “Basis for Disclaimer of Opinion,” as appropriate (AuG-49.21).
In describing the basis for modification, the auditor specifies the authorities not complied with and describes the non-compliance matter(s) (AuG-49.22).
OAG Policy
Audit teams shall consult Audit Services when proposing a modified opinion on the financial statements or financial information, emphasis of matter paragraphs, or other matter paragraphs. [Sep-2020]
OAG Guidance
When the auditor identifies significant non-compliance with specified authorities, the circumstances may lead to a qualified opinion, adverse opinion or disclaimer of opinion.
OAG Policy
Within our audit file we shall document known or possible departures from laws or regulations by the entity that have come to our attention as a significant matter. [Nov–2015]
When material instances of non-compliance are identified the engagement leader shall consult with the Internal Specialist—Compliance with Authorities and Legal Services. [Nov–2015]
Other than when the matters are clearly inconsequential, where the engagement leader believes there may be non-compliance and management does not provide satisfactory information confirming compliance, we shall consult client’s legal counsel and communicate with senior management, the Audit Committee and the Board of Directors, as appropriate. [Nov–2015]
We shall report to those charged with governance any material instances of non-compliance which we believe to be intentional, without delay. [Nov-2015]
If we suspect that members of senior management are involved in a material instance of non-compliance, and there is no higher authority at the client to whom we can report the issue, or if we believe that the report may not be acted upon or are unsure as to the person to whom to report, we shall consult the assistant auditors general of the practice and, where appropriate, the Internal Specialist—Compliance with Authorities, OAG Legal Services or the Internal Specialist for Fraud. [Nov–2015]
CAS Requirement
If the auditor expects to include an Emphasis of Matter or an Other Matter paragraph in the auditor’s report, the auditor shall communicate with those charged with governance regarding this expectation and the proposed wording of this paragraph (CAS 706.12).
CAS Guidance
The communication required by paragraph 12 enables those charged with governance to be made aware of the nature of any specific matters that the auditor intends to highlight in the auditor’s report, and provides them with an opportunity to obtain further clarification from the auditor where necessary. Where the inclusion of an Other Matter paragraph on a particular matter in the auditor’s report recurs on each successive engagement, the auditor may determine that it is unnecessary to repeat the communication on each engagement, unless otherwise required to do so by law or regulation (CAS 706.A18).
OAG Guidance
These CAS requirement and guidance also apply in the case of non-compliance with authorities.
When we expect to report non-compliance with authorities, we shall communicate with the Audit Committee on a timely basis. We communicate in a manner that explains the nature of any specific matters. We provide the Audit Committee with the opportunity to obtain further clarification where necessary and provide proposed wording to be included in the Auditor’s report. The significance of the matter and the Audit Committee’s ability to help resolve or clarify the matter if necessary will affect the timing of this communication. If significant and the Audit Committee may help resolve a matter, communication should occur as soon as practicable.
OAG Guidance
Office practice is to obtain a management representation letter on each of our annual audit engagements. When non-compliance with authorities is reported in the Auditor’s Report, the entity’s management representation letter should address this non-compliance.
OAG Guidance
Audit teams use the CAS Auditor’s Report Templates available on our Intranet to ensure a consistent and appropriate form and content of our Auditor’s Reports. These templates provide guidance on format and presentation of matters related to our legislative reporting requirements (non-compliance with authorities).
Related Guidance
OAG Audit 2220 Communicating Deficiencies in internal control to those charged with Governance and Management
OAG Audit 8010 Audit Reporting
OAG Audit 9050 Management representations
OAG Audit 11016 Examples of reporting non-compliance with authorities