Annual Audit Manual
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8042 Consent letters
Jun-2019
In This Section
Overview
This section explains:
- Why consent letters are issued by an auditor
- A description of the difference between an offering document and a designated document
- Which standards in the CPA Canada Handbook to follow when providing consent
CPA Canada Objectives
The objective of the auditor is to obtain an appropriate basis to consent to the use of a report of the auditor that will be included in an offering document. Obtaining an appropriate basis includes the resolution of matters that have come to the auditor’s attention as a result of performing the procedures in this Section (Section 7150.4).
The objective of the auditor is to obtain an appropriate basis to consent to the use of the auditor’s report in connection with the designated document. Obtaining an appropriate basis includes the resolution of matters that have come to the auditor’s attention as a result of performing the procedures in this Section (Section 7170.4).
OAG Guidance
A consent letter acknowledges that the auditor agrees to the use of a report of the auditor in an offering document or another designated document.
If an entity has requested that the Office consent to the inclusion or incorporation by reference of the auditor’s report in an document to be provided to a securities regulatory authority, the auditor must first determine if the consent is related to an offering document or a designated document.
The form and content of the consent letter differs between the two standards and it is important that an auditor understand the nature of the document which includes or incorporates by reference his or her auditor’s report.
If the consent is related to an offering document, the requirements in Section 7150, Auditor’s Consent to the use of a Report of the Auditor Included in an Offering Document is applicable.
If the consent is related to a designated document, the requirements in Section 7170, Auditor’s Consent to the Use of the Auditor’s Report in connection with a designated document is applicable.
If an entity incorporates by reference or includes an auditor’s report in a document in connection with an offering document or a designated document (described below), the auditor must provide his or her consent to the reference or inclusion of his/her report in these documents.
Offering Documents
Section 7150, Auditor’s Consent to the use of a Report of the Auditor Included in an Offering Document and Section 7170, Auditor’s Consent to the Use of the Auditor’s Report in connection with a designated document provide guidance on how to provide this consent based on the nature of the document incorporating by reference or including the auditor’s report.
An offering document is a document that offers securities, whether in a primary or secondary offering, in exchange for cash, debt, other securities or other assets. An offering document is used the first time a security is offered for sale.
An offering document contemplated by Section 7150 includes preliminary prospectuses, prospectuses, private placement offering memoranda, statements of material facts, takeover bid circulars, issuer bid circulars and information circulars.
The most common type of offering document is a prospectus. A prospectus is a disclosure document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company’s business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. In the context of an individual securities offering, such as an initial public offering, a prospectus is distributed by underwriters or brokerages to potential investors.
Designated Documents
A designated document, for the purposes of providing consent under Canadian assurance standards, is a document other than a document addressed by Section 7150 filed with securities regulatory authorities.
Companies that are reporting issuers (e.g. entities that have issued securities under a prospectus, and are subject to the continuous disclosure requirements of securities laws) must regularly make certain information about their activities and financial status available to the public. This information is provided to the public through filing continuous disclosure requirements with securities regulatory authorities.
The following are of some of the common continuous disclosure requirements under securities legislation in Canada:
Financial Statements: Reporting issuers are often required to file annual and interim financial statements with a securities regulatory authority. There are often rules regarding whether annual and/ or interim financial statements are required to be filed, comparative financial statement requirements and the deadlines for filing.
Management’s Discussion and Analysis (MD&A): Often, financial statements must be accompanied by the MD&A. The MD&A is a narrative explanation, through the eyes of management, of how a company performed during the period covered by the financial statements, and of the company’s financial condition and future prospects. The MD&A supplements, but does not form part of, financial statements and is often required to be filed at the same time as the financial statements.
Forward-Looking Information: Companies are often required or encouraged to provide forward-looking information in the disclosure they provide to the public if they have a reasonable basis for doing so. For example, the preparation of MD&A necessarily involves some degree of prediction or projection. The MD&A requires a discussion of known trends or uncertainties that are reasonably likely to affect a company’s business.
Annual Information Form (AIF): Companies are often required to file an AIF every year, usually 90 days after the end of the company’s most recent financial year. An AIF provides material information about a company and its business in the context of its historical and possible future development. It describes the company and its operations, prospects, risks and other factors that impact its business.
Disclosure of Material Changes: Reporting issuers are often required under securities legislation to publicly disclose any material changes to the issuer’s affairs, including a change in the business, operations or capital of a company.
Business Acquisition Reports: A company must file a BAR after completing a significant acquisition. The BAR describes the significant business(es) acquired and the effect of the acquisition on the company.
Proxies and Information Circulars: A proxy is a form by which a shareholder appoints a person or company to act on the shareholders’ behalf at a shareholder meeting.
Form of Report
Auditors should refer to the appendices included in Section 7150 and Section 7170 which provide examples of the form the consent letter could take. Audit Services recommend using the same wording as that in the appendices when drafting consent letters.