Annual Audit Manual
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8016 CAS reporting considerations
Apr-2018
In This Section
CAS 210 Agreeing the terms of audit engagements
CAS 250 Consideration of law and regulations in an audit of financial statements
CAS 330 The Auditor’s Responses to Assessed Risks
CAS 402 Audit considerations relating to an entity using a service organization
CAS 501 Audit evidence—specific considerations for selected items
CAS 505 External confirmations
CAS 510 Initial audit engagements—opening balances
CAS 580 Written representations
Overview
This topic:
- Summarizes the CAS requirements which give rise to specific reporting considerations.
- Only includes those CAS requirements that give rise to a specific reporting requirement or identify an impact on the audit report which requires further consideration.
CAS Requirement
In all cases when reasonable assurance cannot be obtained and a qualified opinion in the auditor’s report is insufficient in the circumstances for purposes of reporting to the intended users of the financial statements, the CASs require that the auditor disclaim an opinion or withdraw (or resign) from the engagement, where withdrawal is possible under applicable law or regulation (CAS 200.12).
If an objective in a relevant CAS cannot be achieved, the auditor shall evaluate whether this prevents the auditor from achieving the overall objectives of the auditor and thereby requires the auditor, in accordance with the CASs, to modify the auditor’s opinion or withdraw from the engagement (where withdrawal is possible under applicable law or regulation). Failure to achieve an objective represents a significant matter requiring documentation in accordance with CAS 230 (CAS 200.24).
Related Guidance
For further guidance on applying the requirement and related application guidance, refer to OAG Audit 1010, OAG Audit 1020 and consult with Audit Services.
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.
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; 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.
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.
Related Guidance
Refer to CAS 705 and consult with Audit Services.
See OAG Audit 3040 for guidance on engagement letters.
CAS Requirement
If the auditor concludes that the identified or suspected non-compliance has a material effect on the financial statements, and has not been adequately reflected in the financial statements, the auditor shall, in accordance with CAS 705, express a qualified opinion or an adverse opinion on the financial statements (CAS 250.26).
If the auditor is precluded by management or those charged with governance from obtaining sufficient appropriate audit evidence to evaluate whether non-compliance that may be material to the financial statements has, or is likely to have, occurred, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements on the basis of a limitation on the scope of the audit in accordance with CAS 705 (CAS 250.27).
If the auditor is unable to determine whether non-compliance has occurred because of limitations imposed by the circumstances rather than by management or those charged with governance, the auditor shall evaluate the effect on the auditor’s opinion in accordance with CAS 705 (CAS 250.28).
Related Guidance
Refer to CAS 705 and consult with Audit Services.
See OAG Audit 7514 for additional information on impact of non-compliance with laws and regulations on reporting.
CAS Requirement
If the auditor has not obtained sufficient appropriate audit evidence as to a material financial statement assertion, the auditor shall attempt to obtain further audit evidence. If the auditor is unable to obtain sufficient appropriate audit evidence, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements (CAS 330.27).
Related Guidance
Refer to CAS 705 and consult with Audit Services.
CAS Requirement
The user auditor shall modify the opinion in the user auditor’s report in accordance with CAS 705 if the user auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by the service organization relevant to the audit of the user entity’s financial statements (CAS 402.20).
The user auditor shall not refer to the work of a service auditor in the user auditor’s report containing an unmodified opinion unless required by law or regulation to do so. If such reference is required by law or regulation, the user auditor’s report shall indicate that the reference does not diminish the user auditor’s responsibility for the audit opinion (CAS 402.21).
If reference to the work of a service auditor is relevant to an understanding of a modification to the user auditor’s opinion, the user auditor’s report shall indicate that such reference does not diminish the user auditor’s responsibility for that opinion (CAS 402.22).
Related Guidance
Refer to CAS 705 and consult with Audit Services.
See OAG Audit 6044 for additional information in relation to reporting considerations when using a service organization
CAS Requirement
If attendance at physical inventory counting is impracticable, the auditor shall perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory. If it is not possible to do so, the auditor shall modify the opinion in the auditor’s report in accordance with CAS 705 (CAS 501.7).
Related Guidance
Refer to CAS 705 and consult with Audit Services.
See OAG Audit 7060 for additional information in relation to physical inventory observations.
CAS Requirement
If the auditor concludes that management’s refusal to allow the auditor to send a confirmation request is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures, the auditor shall communicate with those charged with governance in accordance with CAS 260. The auditor also shall determine the implications for the audit and the auditor’s opinion in accordance with CAS 705 (CAS 505.9).
Related Guidance
Refer to CAS 705 and consult with Audit Services.
See OAG Audit 7050 for additional information in relation to external confirmations.
CAS Requirement
If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor shall express a qualified opinion or disclaim an opinion on the financial statements, as appropriate, in accordance with CAS 70 (CAS 510.10).
If the auditor concludes that the opening balances contain a misstatement that materially affects the current period’s financial statements, and the effect of the misstatement is not appropriately accounted for or not adequately presented or disclosed, the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with CAS 705 (CAS 510.11).
If the auditor concludes that (CAS 510.12):
(a) the current period’s accounting policies are not consistently applied in relation to opening balances in accordance with the applicable financial reporting framework; or
(b) a change in accounting policies is not appropriately accounted for or not adequately presented or disclosed in accordance with the applicable financial reporting framework,
the auditor shall express a qualified opinion or an adverse opinion, as appropriate, in accordance with CAS 705.
If the predecessor auditor’s opinion regarding the prior period’s financial statements included a modification to the auditor’s opinion that remains relevant and material to the current period’s financial statements, the auditor shall modify the auditor’s opinion on the current period’s financial statements in accordance with CAS 705 and CAS 710 (CAS 510.13).
Related Guidance
Refer to CAS 705 and 710 and consult with Audit Services.
See OAG Audit 3050 for additional information on initial audit engagements.
CAS Requirement
Facts Which Become Known to the Auditor after the Date of the Auditor’s Report but before the Date the Financial Statements Are Issued
If management amends the financial statements, the auditor shall (CAS 560.11):
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Unless the circumstances in paragraph 12 apply:
i) Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new auditor’s report; and
ii) Provide a new auditor’s report on the amended financial statements. The new auditor’s report shall not be dated earlier than the date of approval of the amended financial statements.
Where law, regulation or the financial reporting framework does not prohibit management from restricting the amendment of the financial statements to the effects of the subsequent event or events causing that amendment and those responsible for approving the financial statements are not prohibited from restricting their approval to that amendment, the auditor is permitted to restrict the audit procedures on subsequent events required in paragraph 11(b)(i) to that amendment. In such cases, the auditor shall either (CAS 560.12):
(a) Amend the auditor’s report to include an additional date restricted to that amendment that thereby indicates that the auditor’s procedures on subsequent events are restricted solely to the amendment of the financial statements described in the relevant note to the financial statements; or
(b) Provide a new or amended auditor’s report that includes a statement in an Emphasis of Matter paragraph or Other Matter(s) paragraph that conveys that the auditor’s procedures on subsequent events are restricted solely to the amendment of the financial statements as described in the relevant note to the financial statements.
In some jurisdictions, management may not be required by law, regulation or the financial reporting framework to issue amended financial statements and, accordingly, the auditor need not provide an amended or new auditor’s report. However, if management does not amend the financial statements in circumstances where the auditor believes they need to be amended, then (CAS 560.13):
(a) If the auditor’s report has not yet been provided to the entity, the auditor shall modify the opinion as required by CAS 705 and then provide the auditor’s report; or
(b) If the auditor’s report has already been provided to the entity, the auditor shall notify management and, unless all of those charged with governance are involved in managing the entity, those charged with governance, not to issue the financial statements to third parties before the necessary amendments have been made. If the financial statements are nevertheless subsequently issued without the necessary amendments, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report.
Facts Which Become Known to the Auditor after the Financial Statements Have Been Issued
If management amends the financial statements, the auditor shall (CAS 560.15):
(a) Carry out the audit procedures necessary in the circumstances on the amendment.
(b) Review the steps taken by management to ensure that anyone in receipt of the previously issued financial statements together with the auditor’s report thereon is informed of the situation.
(c) Unless the circumstances in paragraph 12 apply:
i) Extend the audit procedures referred to in paragraphs 6 and 7 to the date of the new auditor’s report, and date the new auditor’s report no earlier than the date of approval of the amended financial statements; and
ii) Provide a new auditor’s report on the amended financial statements.
(d) When the circumstances in paragraph 12 apply, amend the auditor’s report or provide a new auditor’s report as required by paragraph 12.
The auditor shall include in the new or amended auditor’s report an Emphasis of Matter paragraph or Other Matter(s) paragraph referring to a note to the financial statements that more extensively discusses the reason for the amendment of the previously issued financial statements and to the earlier report provided by the auditor (CAS 560.16).
If management does not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements is informed of the situation and does not amend the financial statements in circumstances where the auditor believes they need to be amended, the auditor shall notify management and, unless all of those charged with governance are involved in managing the entity, those charged with governance, that the auditor will seek to prevent future reliance on the auditor’s report. If, despite such notification, management or those charged with governance do not take these necessary steps, the auditor shall take appropriate action to seek to prevent reliance on the auditor’s report (CAS 560.17).
Related Guidance
Refer to CAS 705 and 560 and consult with Audit Services.
See OAG Audit 9043 and OAG Audit 9044 for additional information on impact of subsequent events.
CAS Requirement
If the financial statements have been prepared using the going concern basis of accounting but, in the auditor’s judgment, management’s use of the going concern basis of accounting in the preparation of the financial statements is inappropriate, the auditor shall express an adverse opinion (CAS 570.21).
If adequate disclosure about the material uncertainty is made in the financial statements, the auditor shall express an unmodified opinion and the auditor’s report shall include a separate section under the heading “Material Uncertainty Related to Going Concern” to (CAS 570.22):
(a) Draw attention to the note in the financial statements that discloses the matters set out in paragraph 19; and
(b) State that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the auditor’s opinion is not modified in respect of the matter.
If adequate disclosure about the material uncertainty is not made in the financial statements, the auditor shall (CAS 570.23):
(a) Express a qualified opinion or adverse opinion, as appropriate, in accordance with CAS 705; and
(b) In the Basis for Qualified (Adverse) Opinion section of the auditor’s report, state that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern and that the financial statements do not adequately disclose this matter.
If management is unwilling to make or extend its assessment when requested to do so by the auditor, the auditor shall consider the implications for the auditor’s report (CAS 570.24).
Related Guidance
Refer to CAS 705 and consult with Audit Services.
For detailed guidance on evaluation of whether modifications are required and how we deal with them in our audit report, refer to CAS 705.
CAS Requirement
If management does not provide one or more of the requested written representations, the auditor shall (CAS 580.19):
(a) Discuss the matter with management;
(b) Reevaluate the integrity of management and evaluate the effect that this may have on the reliability of representations (oral or written) and audit evidence in general; and
(c) Take appropriate actions, including determining the possible effect on the opinion in the auditor’s report in accordance with CAS 705, having regard to the requirement in paragraph 20 of this CAS.
The auditor shall disclaim an opinion on the financial statements in accordance with CAS 705 if (CAS 580.20):
(a) The auditor concludes that there is sufficient doubt about the integrity of management such that the written representations required by paragraphs 10 and 11 are not reliable; or
(b) Management does not provide the written representations required by paragraphs 10 and 11.
Related Guidance
Refer to CAS 705 and consult with Audit Services.
See OAG Audit 9050 for further information on written representations.
CAS Requirement
The group engagement partner is responsible for the direction, supervision and performance of the group audit engagement in compliance with professional standards and applicable legal and regulatory requirements, and whether the auditor’s report that is issued is appropriate in the circumstances. As a result, the auditor’s report on the group financial statements shall not refer to a component auditor, unless required by law or regulation to include such reference. If such reference is required by law or regulation, the auditor’s report shall indicate that the reference does not diminish the group engagement partner’s or the group engagement partner’s firm’s responsibility for the group audit opinion (CAS 600.11).
If the group engagement partner concludes that (CAS 600.13):
(a) it will not be possible for the group engagement team to obtain sufficient appropriate audit evidence due to restrictions imposed by group management; and
(b) the possible effect of this inability will result in a disclaimer of opinion on the group financial statements,
the group engagement partner shall either:
(a) in the case of a new engagement, not accept the engagement, or, in the case of a continuing engagement, withdraw from the engagement, where withdrawal is possible under applicable law or regulation; or
(b) where law or regulation prohibits an auditor from declining an engagement or where withdrawal from an engagement is not otherwise possible, having performed the audit of the group financial statements to the extent possible, disclaim an opinion on the group financial statements.
Related Guidance
For detailed guidance on audit opinions for group audits including the work of component auditors refer to CAS 600.
Refer to CAS 600 and 705 and consult with Audit Services.
See OAG Audit 2300 for additional information relating to group audits.
CAS Requirement
The auditor shall not refer to the work of an auditor’s expert in an auditor’s report containing an unmodified opinion unless required by law or regulation to do so. If such reference is required by law or regulation, the auditor shall indicate in the auditor’s report that the reference does not reduce the auditor’s responsibility for the auditor’s opinion (CAS 620.14).
If the auditor makes reference to the work of an auditor’s expert in the auditor’s report because such reference is relevant to an understanding of a modification to the auditor’s opinion, the auditor shall indicate in the auditor’s report that such reference does not reduce the auditor’s responsibility for that opinion (CAS 620.15).
Related Guidance
Refer to CAS 620 and consult with Audit Services.
See OAG Audit 3095 for additional information in relation to reporting considerations when using the work of an expert.
CAS Requirement
If the auditor concludes that a material misstatement exists in other information obtained prior to the date of the auditor’s report, and the other information is not corrected after communicating with those charged with governance, the auditor shall take appropriate action, including (CAS 720.18):
(a) Considering the implications for the auditor’s report and communicating with those charged with governance about how the auditor plans to address the material misstatement in the auditor’s report (see paragraph 22(e)(ii)); or
(b) Withdrawing from the engagement, where withdrawal is possible under applicable law or regulation.
If the auditor concludes that a material misstatement exists in other information obtained after the date of the auditor’s report, the auditor shall (CAS 720.19):
(a) If the other information is corrected, perform the procedures necessary in the circumstances; or
(b) If the other information is not corrected after communicating with those charged with governance, take appropriate action considering the auditor’s legal rights and obligations, to seek to have the uncorrected material misstatement appropriately brought to the attention of users for whom the auditor’s report is prepared.
Related Guidance
Refer to CAS 720 and consult with Audit Services.
CAS Requirement
- OAG Audit 8011 - Forming an Opinion
- OAG Audit 8012 - Audit Report
- OAG Audit 8013 - Modified Audit Opinion
- OAG Audit 8014 - Emphasis of Matter and Other Matter Paragraphs
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).
In the public sector, the actions taken in accordance with paragraph 13 when management does not amend the financial statements may also include reporting separately to the legislature, or other relevant body in the reporting hierarchy, on the implications of the subsequent event for the financial statements and the auditor’s report (CAS 560.A15).
In some jurisdictions, entities in the public sector may be prohibited from issuing amended financial statements by law or regulation. In such circumstances, the appropriate course of action for the auditor may be to report to the appropriate statutory body (CAS 560.A19).
In the public sector, withdrawal from the engagement may not be possible. In such cases, the auditor may issue a report to the legislature providing details of the matter or may take other appropriate actions (CAS 720.A47).