Annual Audit Manual
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11024.3 Examples of “other matters” reported in other entities auditor’s reports
Oct-2012
In This Section
Reporting “other matters” in other entities auditor’s reports
Overview
This topic explains:
- General considerations when reporting “other matters” in other entities, and
- Examples of reporting “other matters” in other entities auditor’s reports.
OAG Guidance
As mentioned in OAG Audit 11022, there is a wide variety of legislation governing our annual audit mandate in entities other than Crown corporations. We use the flexibility provided in Canadian Auditing Standards to report “other matters” in these entities.
When the existence of an “other matter” is confirmed in one of these separate opinion engagements, it should be reported whenever:
- The auditor’s report is tabled before Parliament; and
- The “other matter” is directly related to amounts reported (or matters disclosed) in the financial statements or it is directly related to specific authorities subject to examination in the engagement. In either case, the “other matter” could reasonably have been expected to fall under the scope of the auditor’s examination.
The latter point merits additional discussion. “Other matters” can arise as a result of decisions made principally by senior government officials and/or central agencies, and not necessarily as a result of decisions made by entity management. For example, the government may identify a particular entity as the most appropriate vehicle to deliver a specific initiative. Although the resultant transactions “flow through” the entity, responsibility for the program may reside elsewhere. Nevertheless, if an “other matter” were to be identified in respect of such an activity, it would be reported in the entity where the transactions originate. “Other matters” are reported in the context of an annual audit, and consequently they are linked to the financial statements (or financial information) impacted by the related transactions. In other words, “other matters” are reported where they are taking place, and not necessarily where managerial responsibility resides. In such a case, the auditor would also consider potential value-for-money issues such as whether using the entity as the program delivery agent makes sense or whether responsibility and accountability are clear, and potential compliance with authority issues such as whether the entity has the legislative authority to deliver the program.
OAG Guidance
Canada Deposit Insurance Corporation (1992)
I wish to draw to your attention that, as described in Note 3 to the financial statements, the Corporation is facing exposure to losses which could be material. No provision for losses has been taken in the financial statements in respect to this exposure, as the Corporation is not in a position at this time to estimate it. However, if these losses materialize, they could have a significant impact on future years’ operating results.
Canada Pension Plan Account and the Canada Pension Plan Investment Fund (1998)
I wish to draw to your attention that, as disclosed in Note 5, overpayments for disability benefits occur. Plan administrators have taken additional measures to prevent, detect, and estimate the occurrence of mispayments. At the present time, these measures are not fully operational. This situation will require close monitoring to ensure that these measures, including sufficient reassessments to verify the continuing eligibility of beneficiaries, are implemented satisfactorily
Employment Insurance Account (1999)
I wish to draw to your attention that the surplus of the Employment Insurance Account has increased during the current year by $7.3 billion to $21 billion. Under the Employment Insurance Act, and as described in Note 5 to the financial statements, premium rates should be established at a level sufficient to ensure that there will be enough revenue over a business cycle to pay the amounts authorized, while maintaining relatively stable rates throughout the cycle. The Act does not define the level of surplus or reserve deemed sufficient to meet the objective. However, according to a report by the Chief Actuary of the Department of Human Resources Development on employment insurance premium rates for 1999, a reserve of between $10 and $15 billion, attained just before an economic downturn, should allow meeting all additional costs during the period of decline. In my opinion, in view of the current level of surplus, clarification and disclosure of the factors to be used in determining an appropriate level of reserve are necessary.
Employment Insurance Account (2000)
Last year, because of the level of the accumulated surplus as at 31 March 1999, I reported that it is necessary to clarify and disclose the factors used in determining an appropriate level of reserve for the Account. As described in Note 6 to the financial statements, the Employment Insurance Act requires that in setting premiums the Employment Insurance Commission ensure that the rate levels provide enough revenue to cover program costs and maintain relatively stable rate levels throughout a business cycle. Since 31 March 1999, the accumulated surplus has increased a further $7.2 billion to $28.2 billion at 31 March 2000, almost twice the maximum amount considered sufficient by the Chief Actuary of Human Resources Development Canada in his report for 2000. In view of the size and the continued rate of growth of the accumulated surplus, it is important that the Commission clarify and disclose the way it interprets the Act in setting premiums. In my opinion, such clarification and disclosure are necessary to ensure that the intent of the Employment Insurance Act has been observed.
Employment Insurance Account (2001)
I wish to draw your attention to the continuing concerns that I have with the size and the rate of growth of the accumulated surplus. As described in Note 5 to the financial statements, the Employment Insurance Act lays out the requirements for setting premiums. Although recent amendments to the Act have suspended these requirements for 2002 and 2003, they remain in effect for the year ended 31 March 2001. The accumulated surplus increased by about $8 billion during the year to $36 billion at 31 March 2001 which is well in excess of $15 billion, the maximum amount considered necessary by the Chief Actuary of Human Resources Development Canada. The Employment Insurance Commission was unable to provide an adequate justification for the size and the rate of growth of the accumulated surplus. Accordingly, I am unable to conclude that the intent of the Employment Insurance Act has been observed in setting the 2001 premium rates.