Annual Audit Manual
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3046 Additional considerations in engagement acceptance
Apr-2018
In This Section
Financial reporting frameworks supplemented by law or regulation
Undertaking the audit required by law or regulation
Layout or wording of the auditor’s report prescribed by law or regulation
Overview
This topic explains:
- Financial reporting frameworks supplemented by law or regulation
- Conditions to accept the audit engagement in case of an unacceptable financial reporting framework prescribed by law or regulation
- Undertaking the audit required by law or regulation
- Layout or wording of the auditor’s report prescribed by law or regulation
- Guidance specific to Legislative Auditors
CAS Requirement
If financial reporting standards established by an authorized or recognized standards setting organization are supplemented by law or regulation, the auditor shall determine whether there are any conflicts between the financial reporting standards and the additional requirements. If such conflicts exist, the auditor shall discuss with management the nature of the additional requirements and shall agree whether (CAS 210.18):
(a) The additional requirements can be met through additional disclosures in the financial statements; or
(b) The description of the applicable financial reporting framework in the financial statements can be amended accordingly.
If neither of the above actions is possible, the auditor shall determine whether it will be necessary to modify the auditor’s opinion in accordance with CAS 705.
CAS Guidance
In some jurisdictions, law or regulation may supplement the financial reporting standards established by an authorized or recognized standards setting organization with additional requirements relating to the preparation of financial statements. In those jurisdictions, the applicable financial reporting framework for the purposes of applying the CASs encompasses both the identified financial reporting framework and such additional requirements provided they do not conflict with the identified financial reporting framework. This may, for example, be the case when law or regulation prescribes disclosures in addition to those required by the financial reporting standards or when they narrow the range of acceptable choices that can be made within the financial reporting standards (CAS 210.A36).
CAS Requirement
If the auditor has determined that the financial reporting framework prescribed by law or regulation would be unacceptable but for the fact that it is prescribed by law or regulation, the auditor shall accept the audit engagement only if the following conditions are present (CAS 210.19):
(a) Management agrees to provide additional disclosures in the financial statements required to avoid the financial statements being misleading; and
(b) It is recognized in the terms of the audit engagement that:
(i) The auditor’s report on the financial statements will incorporate an Emphasis of Matter paragraph, drawing users’ attention to the additional disclosures, in accordance with CAS 706; and
(ii) Unless the auditor is required by law or regulation to express the auditor’s opinion on the financial statements by using the phrases “present fairly, in all material respects,” or “give a true and fair view” in accordance with the applicable financial reporting framework, the auditor’s opinion on the financial statements will not include such phrases.
CAS Guidance
Law or regulation may prescribe that the wording of the auditor’s opinion use the phrases “present fairly, in all material respects” or “give a true and fair view” in a case where the auditor concludes that the applicable financial reporting framework prescribed by law or regulation would otherwise have been unacceptable. In this case, the terms of the prescribed wording of the auditor’s report are significantly different from the requirements of CASs (see paragraph 21) (CAS 210.A37).
CAS Requirement
If the conditions outlined in paragraph 19 are not present and the auditor is required by law or regulation to undertake the audit engagement, the auditor shall (CAS 210.20):
(a) Evaluate the effect of the misleading nature of the financial statements on the auditor’s report; and
(b) Include appropriate reference to this matter in the terms of the audit engagement.
CAS Requirement
In some cases, law or regulation of the relevant jurisdiction prescribes the layout or wording of the auditor’s report in a form or in terms that are significantly different from the requirements of CASs. In these circumstances, the auditor shall evaluate (CAS 210.21):
(a) Whether users might misunderstand the assurance obtained from the audit of the financial statements and, if so,
(b) Whether additional explanation in the auditor’s report can mitigate possible misunderstanding.
If the auditor concludes that additional explanation in the auditor’s report cannot mitigate possible misunderstanding, the auditor shall not accept the audit engagement, unless required by law or regulation to do so. An audit conducted in accordance with such law or regulation does not comply with CASs. Accordingly, the auditor shall not include any reference within the auditor’s report to the audit having been conducted in accordance with Canadian generally accepted auditing standards.
OAG Guidance
Should any of these circumstances arise during engagement acceptance, please consult in accordance with OAG Audit 3081.
CAS Guidance
CASs require that the auditor shall not represent compliance with CASs unless the auditor has complied with all of the CASs relevant to the audit. When law or regulation prescribes the layout or wording of the auditor’s report in a form or in terms that are significantly different from the requirements of CASs and the auditor concludes that additional explanation in the auditor’s report cannot mitigate possible misunderstanding, the auditor may consider including a statement in the auditor’s report that the audit is not conducted in accordance with CASs. The auditor is, however, encouraged to apply CASs, including the CASs that address the auditor’s report, to the extent practicable, notwithstanding that the auditor is not permitted to refer to the audit being conducted in accordance with CASs (CAS 210.A38).
CAS Guidance
In the public sector, specific requirements may exist within the legislation governing the audit mandate; for example, the auditor may be required to report directly to a minister, the legislature or the public if the entity attempts to limit the scope of the audit. (CAS 210.A39)