Annual Audit Manual
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2325 Engagement letters
Apr-2015
In This Section
Engagement letters issued at group level
Engagement letters issued at component level
Communicating engagement terms between the group engagement team and the component auditor
Overview
This section discusses:
- Engagement letters issued at group level
- Engagement letters issued at component level
- Communicating engagement terms between the group engagement team and the component auditor
CAS Requirement
The group engagement partner shall agree on the terms of the group audit engagement in accordance with CAS 210 (CAS 600.14).
CAS Guidance
The terms of engagement identify the applicable financial reporting framework. Additional matters may be included in the terms of a group audit engagement, such as the fact that (CAS 600.A20):
- the communication between the group engagement team and the component auditors should be unrestricted to the extent possible under law or regulation;
- important communications between the component auditors, those charged with governance of the component, and component management, including communications on significant deficiencies in internal control, should be communicated as well to the group engagement team;
- important communications between regulatory authorities and components related to financial reporting matters should be communicated to the group engagement team; and
- to the extent the group engagement team considers necessary, it should be permitted:
- access to component information, those charged with governance of components, component management, and the component auditors (including relevant audit documentation sought by the group engagement team); and
- to perform work or request a component auditor to perform work on the financial information of the components.
Restrictions imposed on (CAS 600.A21):
- the group engagement team's access to component information, those charged with governance of components, component management, or the component auditors (including relevant audit documentation sought by the group engagement team); or
- the work to be performed on the financial information of the components
after the group engagement partner's acceptance of the group audit engagement, constitute an inability to obtain sufficient appropriate audit evidence that may affect the group audit opinion. In exceptional circumstances it may even lead to withdrawal from the engagement where withdrawal is possible under applicable law or regulation.
OAG Guidance
It is the responsibility of the engagement leader of the group engagement team to communicate and consult early with component auditors prior to finalizing engagement letter terms to ensure where possible and practicable that there is consistency in the content of engagement letters. Coordination among the OAG teams is important, not only to ensure the highest standards of client service, but also to ensure that engagement terms are appropriate in the context of the overall engagement and client relationship.
The matters in CAS 600.A20 are considered for inclusion in the group engagement letter because CAS 210.6 requires that, as auditors of an entity's financial statements, we would have access to whatever records, documentation, or other information required in connection with the audit. However, the level of access required for the different components may vary depending on the significance of the component, the type of work performed by the component auditor, the level of control that the group have over the component, and other applicable measures. See OAG Audit 2324 for guidance on required level of access.
Detailed guidance relating to engagement letters is included in OAG Audit 3040. This section provides additional guidance for group audits.
See discussion related to withdrawal prohibited by law or regulation in OAG Audit 2321.
OAG Guidance
A component may prepare separate financial statements that are required to be audited for statutory or other purposes. In such instances, the component auditor obtains engagement letters and the guidance related to engagement letters in OAG Audit 3040 is applied. However in doing so, the component auditor also needs to be cognisant of policies applicable to the group auditor regarding engagement letters so that inappropriate language is not included in the component engagement letters. The component auditor also needs to ensure that the engagement letter does not contain references to impermissible services even if such services are not performed.
OAG Guidance
If the group engagement team identifies specific considerations relating to the issuance of engagement letters that are applicable to components, the group engagement team needs to consider including such guidance in the letter of instructions (OAG Audit 2341). Conversely, if the component engagement team identifies specific considerations affecting the issuance of the group engagement letter, the component engagement team needs to inform the group engagement team of such considerations.