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1142 Evaluating, resolving, and communicating significant matters
This section explains
- how to evaluate and resolve significant matters, and
- how to document communication of significant matters with relevant parties.
CPA Canada Assurance Standards
Performance Audit, Special Examination, and Other Assurance Engagements
CAS 230.10 The auditor shall document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place. (Ref: Para. A14)
Documentation of Discussions of Significant Matters with Management, Those Charged with Governance, and Others (Ref: Para. 10)
CAS 230.A14 The documentation is not limited to records prepared by the auditor but may include other appropriate records such as minutes of meetings prepared by the entity's personnel and agreed by the auditor. Others with whom the auditor may discuss significant matters may include other personnel within the entity, and external parties, such as persons providing professional advice to the entity.
CAS 260.16 The auditor shall communicate with those charged with governance: (Ref: Para. A17-A18)
(a) The auditor's views about significant qualitative aspects of the entity's accounting practices, including accounting policies, accounting estimates and financial statement disclosures. When applicable, the auditor shall explain to those charged with governance why the auditor considers a significant accounting practice, that is acceptable under the applicable financial reporting framework, not to be most appropriate to the particular circumstances of the entity; (Ref: Para. A19-A20)
(b) Significant difficulties, if any, encountered during the audit; (Ref: Para. A21)
(c) Unless all of those charged with governance are involved in managing the entity:
(i) Significant matters, arising during the audit that were discussed, or subject to correspondence with management; and (Ref: Para. A22)
(ii) Written representations the auditor is requesting;
(d) Circumstances that affect the form and content of the auditor's report, if any; and (Ref: Para. A23-A25)
(e) Any other significant matters arising during the audit that, in the auditor's professional judgment, are relevant to the oversight of the financial reporting process. (Ref: Para. A26-A28)
Significant Matters Discussed, or Subject to Correspondence with Management (Ref: Para. 16(c)(i))
CAS 260.A22 Significant matters discussed, or subject to correspondence with management may include such matters as:
Other Communication Responsibilities
CSAE 3001.81 The practitioner shall consider whether, pursuant to the terms of the engagement and other engagement circumstances, any matter has come to the attention of the practitioner that is to be communicated with the responsible party, the engaging party, those charged with governance or others. (Ref: Para. A191-A197)
Other Communication Responsibilities (Ref: Para. 81)
CSAE 3001.A191 Matters that may be appropriate to communicate with the responsible party, the engaging party or others include fraud or suspected fraud.
Communications with Management and Those Charged with Governance
CSAE 3001.A192 Relevant ethical requirements may include a requirement to report identified or suspected non-compliance with laws and regulations to an appropriate level of management or those charged with governance. In some jurisdictions, law or regulation may restrict the practitioner's communication of certain matters with the responsible party, management or those charged with governance. Law or regulation may specifically prohibit a communication, or other action, that might prejudice an investigation by an appropriate authority into an actual, or suspected, illegal act, including alerting the entity, for example, when the practitioner is required to report the identified or suspected non-compliance to an appropriate authority pursuant to anti-money laundering legislation. In these circumstances, the issues considered by the practitioner may be complex and the practitioner may consider it appropriate to obtain legal advice.
Reporting of Identified or Suspected Non-Compliance with Laws and Regulations to an Appropriate Authority outside the Entity
CSAE 3001.A193 Law, regulation or relevant ethical requirements may:
(a) Require the practitioner to report identified or suspected non-compliance with laws and regulations to an appropriate authority outside the entity.
(b) Establish responsibilities under which reporting to an appropriate authority outside the entity may be appropriate in the circumstances.
CSAE 3001.A194 Reporting identified or suspected non-compliance with laws and regulations to an appropriate authority outside the entity may be required or appropriate in the circumstances because:
(a) Law, regulation or relevant ethical requirements require the practitioner to report;
(b) The practitioner has determined reporting is an appropriate action to respond to identified or suspected non-compliance in accordance with relevant ethical requirements; or
(c) Law, regulation or relevant ethical requirements provide the practitioner with the right to do so.
CSAE 3001.A195 The reporting of identified or suspected non-compliance with laws and regulations in accordance with law, regulation or relevant ethical requirements may include non-compliance with laws and regulations, that the practitioner comes across or is made aware of when performing the engagement but which may not affect the underlying subject matter. Under this CSAE, the practitioner is not expected to have a level of understanding of laws and regulations beyond those affecting the underlying subject matter. However, law, regulation or relevant ethical requirements may expect the practitioner to apply knowledge, professional judgment and expertise in responding to such non-compliance. Whether an act constitutes actual non-compliance is ultimately a matter to be determined by a court or other appropriate adjudicative body.
CSAE 3001.A196 In some circumstances, the reporting of identified or suspected non-compliance with laws and regulations to an appropriate authority outside the entity may be precluded by the practitioner's duty of confidentiality under law, regulation or relevant ethical requirements. In other cases, reporting identified or suspected non-compliance to an appropriate authority outside the entity would not be considered a breach of the duty of confidentiality under the relevant ethical requirements.
CSAE 3001.A197 The practitioner may consider consulting internally (e.g., within the firm or network firm), obtaining legal advice to understand the professional or legal implications of taking any particular course of action, or consulting on a confidential basis with a regulator or a professional body (unless doing so is prohibited by law or regulation or would breach the duty of confidentiality).
Auditors shall document discussions and communications of significant matters with audit entity senior management, those charged with governance when required, and others, including the nature of the significant matters discussed and when and with whom the discussions took place. [Nov-2011]
Reference to CAS in forming Office policy and guidance
The concept of significant matters is recognized in other Canadian assurance standards, most notably in Canadian Standard on Assurance Engagement (CSAE) 3001 Direct Engagements, as an area of focus in Review and Engagement Quality Control Review. Without general guidance on evaluating, resolving, and communicating significant matters in other Canadian assurance standards, CAS 230—Audit Documentation, and CAS 260—Communication with Those Charged with Governance have been referred to for the principles and guidance on evaluating, resolving, and communicating significant matters for all assurance engagements conducted by the Office. CAS 230 replaced the previous Handbook Section 5145—Documentation. The requirements and application guidance found in CAS may be viewed by clicking the “more” feature displayed in the standards information above.
Evaluating significant matters
Teams are encouraged to discuss potential significant matters with senior team members or the engagement leader as they arise and, as part of this communication process, determine whether these matters are significant and how they will document them.
Recording a significant matter before discussing it is discouraged, provided that teams can still perform the documentation on a timely basis. Teams are encouraged to adopt effective working practices to discuss such matters as they arise and, as part of this communication process, determine who else should be brought into the discussion and what the nature and extent of documentation will be.
Resolving significant matters
Team members need to resolve all significant matters on a timely basis once identified. This contributes to effective risk management and engagement efficiency. When resolving significant matters, team members consider the following factors:
- Significant matters require an unambiguous response and final conclusions, taking into account the documentation guidance included in OAG Audit 1143.
- The engagement leader reviews each significant matter on a timely basis. OAG Audit 1143 provides guidance on the engagement leader's significant matters review, including the timeliness of such review.
- The quality reviewer (where appointed) confirms that significant matters have been satisfactorily resolved and records his or her review in the audit file (OAG Audit 1143).
Teams can easily resolve most issues arising on the audit by making an immediate assessment and documenting their response; these issues will not affect significant matters or the audit opinion. For example, the issue may be a matter of fact and the team may note the matter was resolved in the Results section of the related audit step, or the team may agree with the entity that the financial statement treatment or disclosure requires revision. Some matters are more complex, involve significant professional judgment, may be more difficult to resolve, and/or potentially may have a significant effect on the audit. Teams record and resolve these instances as a significant matter. OAG Audit 3082 provides guidance on situations where there are differences of opinion.
Documenting communication of significant matters
Communicating with entity senior management is one of the engagement leader's important responsibilities. The engagement leader discusses significant matters with the entity on a timely basis. Making management and those charged with governance aware of significant matters, potential issues, and risks early helps reduce surprises and allows for timely resolution. When discussing significant matters with management, the engagement leader properly documents what was discussed, with whom, when, the comments obtained, and any follow up and conclusion reached.
When working through significant matters, the engagement leader discusses them with management as soon as possible to minimize surprises, gather all relevant facts, and listen to their points of view. By taking early accountability for resolving these difficult issues, the engagement leader will enhance the entity's confidence in the Office's judgments and its handling of difficult issues.
Significant matters that are discussed with management need to be communicated to those charged with governance.
The engagement leader documents discussions with the entity regarding significant matters according to the requirements set out in OAG Audit 1143.