Annual Audit Manual

COPYRIGHT NOTICE — This document is intended for internal use. It cannot be distributed to or reproduced by third parties without prior written permission from the Copyright Coordinator for the Office of the Auditor General of Canada. This includes email, fax, mail and hand delivery, or use of any other method of distribution or reproduction. CPA Canada Handbook sections and excerpts are reproduced herein for your non-commercial use with the permission of The Chartered Professional Accountants of Canada (“CPA Canada”). These may not be modified, copied or distributed in any form as this would infringe CPA Canada’s copyright. Reproduced, with permission, from the CPA Canada Handbook, The Chartered Professional Accountants of Canada, Toronto, Canada.

11023 Considering “other matters” in annual audits
Apr-2018

In This Section

Responsibility and risk

Identifying potential “other matters”

Audit evidence and documentation

Factors to take into consideration when assessing the significance of an “other matter”

Consultations

Overview

This section explains:

  • The responsibility of the Auditor General to report significant “other matters”
  • Types of issues that may be considered as “other matters”
  • The documentation needed in the audit file
  • The factors to consider when assessing the significance of an “other matter”
  • Who the audit team should consult when dealing with an “other matter” issue
Responsibility and risk

CAS Guidance

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)

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)

Paragraphs 43-45 of this CAS permit combined presentation of other reporting responsibilities and the auditor’s responsibilities under the CASs only when they address the same topics and the wording of the auditor’s report clearly differentiates the other reporting responsibilities from those under the CASs. Such clear differentiation may make it necessary for the auditor’s report to refer to the source of the other reporting responsibilities and to state that such responsibilities are beyond those required under the CASs. Otherwise, other reporting responsibilities are required to be addressed in a separate section in the auditor's report with a heading “Report on Other Legal and Regulatory Requirements,” or otherwise as appropriate to the content of the section. In such cases, paragraph 45 requires the auditor to include reporting responsibilities under the CASs under a heading titled “Report on the Audit of the Financial Statements.” (CAS 700.A60)

OAG Guidance

The Financial Administration Act, the Auditor General Act and professional assurance standards collectively permit the Auditor General to bring to the attention of Parliament any “other matter” he believes should be brought to the attention of parliamentarians. This gives the Auditor General unparalleled access to Parliament to convey both information and advice on matters of an appropriate nature and significance in an annual audit context.

Parliamentarians expect the Office to have a comprehensive knowledge of the operations of any entity we audit—an expectation that can extend beyond the knowledge level necessary to complete a traditional annual audit. When something goes “wrong” in a federal entity, or there are instances of weak internal control processes or suspected unethical business conduct, Parliamentarians are likely to look to the Auditor General to explain why it happened and to provide advice on what actions might be appropriate. Reporting “other matters” helps meet these expectations.

Given that the objective of reporting “other matters” is to bring issues to the attention of Parliament, we should be conscious of the following:

  • Matters reported should be of an appropriate nature and/or significance.
  • Although we should not shy away from politically sensitive and/or controversial matters, we should not exploit such opportunities to draw attention to our Office.
  • “Other matters” should be an integral part of the planning, executing and reporting phases of all annual audits. That is to say, we should constantly be on the alert for potential “other matters.”
  • When we do identify significant “other matters,” we should ensure that we bring them to the attention of Parliament.
  • Whether or not something is an “other matter” is a question of discretion / judgment.
  • We could be at risk for failing to report information that parliamentarians considered to be an “other matter.”

The risks related to reporting “other matters” are managed by adhering to our System of Quality Control and, in particular, by making extensive use of consultation.

Identifying potential “other matters”

OAG Guidance

Annual auditors have a responsibility to identify and report on “other matters” that, in their opinion, should be brought to the attention of Parliament. During the planning phase of the annual audit, the auditor should identify issues that may have the potential to be of significance and/or of a nature that they should be brought to the attention of Parliament. Such matters have not been defined in legislation; they are left to the judgment of the auditor(s).

The following list illustrates some of the types of issues that are significant and would merit reporting to Parliament as “other matters”:

  • examples of “Other Matters” previously reported in OAG Auditor’s Reports (see OAG Audit 11024.1, OAG Audit 11024.2 and OAG Audit 11024.3);
  • significant transactions (especially those exceeding materiality) that, while permitted under enabling legislation, appear to be unusual or unexpected given the entity’s mandate;
  • spending on initiatives that do not seem to have normal Parliamentary authority;
  • operating activities that contravene accepted standards of government or corporate behaviour (e.g. payments to “agents” that appear to be excessive);
  • major acquisitions made without due regard for economy (e.g. relating to investments, capital assets, etc.);
  • exposure to significant losses that may have to be funded by the Consolidated Revenue Fund;
  • conduct, actions or transactions that could damage the reputation of Canada either domestically or internationally;
  • non-responsiveness to financially-oriented recommendations made to the entity by the Public Accounts Committee or other standing committees;
  • allegations of improprieties that are confirmed during an annual audit; and
  • corporate behaviour that appears to be inconsistent with traditional “public sector values.”
Audit evidence and documentation

OAG Guidance

“Other matters” are unlikely to be clear-cut and may be open to more than one interpretation. Accordingly, a full understanding of the issues surrounding a potential “other matter” should be obtained and documented by the audit team. In many cases, “other matters” revolve around facts known to the entity. For example, the issue may be already reflected in corporate plans and budgets, and/or in one or more of the entity’s communications with Parliament. However, the auditor’s independence and objectivity may lead to viewing the known facts in a different light.

A full appreciation of management’s perspective of the matter should always be documented. To the extent that other federal entities are involved directly or indirectly (i.e. Treasury Board), their perspective should also be captured. As well, important facts that are crucial to the understanding of the “other matter” should be confirmed with the source of that information.

Factors to take into consideration when assessing the significance of an “other matter”

OAG Guidance

Determining whether or not a potential “other matter” should be reported requires professional judgment and consultation. The overriding characteristic of all “other matters” is significance to Parliament. Significance can be determined through the following types of questions:

  • Does the subject have an important impact on results?
  • Is it an area of high risk?
  • Is it an isolated incident or indicative of a systemic problem?
  • Does it involve material amounts?
  • Does it have the potential to result in improved performance, accountability, or value for money? Will it make a difference?
  • Is it an issue with visibility or of current concern?
  • Is it of interest to Parliamentarians?
  • Is the timing opportune for the audit and to meet the needs of the client?

Issues that may constitute “other matters” are generally complex and difficult to evaluate. Generally, a process similar to that recommended for evaluating compliance with authority issues should be followed:

  • The facts should be reconfirmed through discussion with the entity.
  • There should be consultation with specialists in the Office, as appropriate.
  • The critical factors used in arriving at the conclusion should be explained.
  • The “other matter” and its final resolution should be properly documented.
Consultations

OAG Guidance

Office policy requires the audit team to consult when dealing with significant, complex, unusual or unfamiliar issues, contentious matters or other matters requiring specialized knowledge or experience. “Other matters” generally meet all of these criteria and, accordingly, there should be extensive consultation within the Office. At the early stages of evaluating potential “other matters,” consultation would normally be expected with

  • the Quality Reviewer, if applicable;
  • Legal Services;
  • Audit Services;
  • the Internal Specialist-Compliance with Authorities; and
  • any other relevant Internal Specialists (for example, the Audit Principal responsible for the annual audit of the Public Accounts of Canada, or the Internal Specialist for Fraud).

In cases of identified or suspected fraud, consult in accordance with the OAG Policy at OAG Audit 5510.

Related guidance

Documenting significant matters and related significant professional judgments—OAG Audit 1143

Consultation—OAG Audit 3081 and OAG Audit 3082