Reporting on matters beyond the financial statements

How much will reports on supplementary matters change now that CSRS 4460 is in place? In most cases, a lot.

Regulators, funders and others often want to know about specific matters regarding an entity they are dealing with, such as whether the entity maintains adequate books and records or has made changes to its bylaws during the year. In their view, who better to provide such information than the independent public accountant who has audited or reviewed the entity’s financial statements? Is it easy for a public accountant to respond to such requests?

Not always. This is because this information goes beyond what is reported in an entity’s financial statements — it’s supplementary in nature. Public accountants often have difficulty determining how best to respond to requests for supplementary information. Plus, there is not much consistency in the way public accountants provide such information.

To help, the Auditing and Assurance Standards Board issued a new standard in June 2014: Canadian Standard on Related Services (CSRS) 4460, Reports on Supplementary Matters Arising from an Audit or a Review Engagement.

Who is affected by this standard? Auditors or reviewers of financial statements of not-for-profit organizations (such as hospitals, municipal organizations and First Nations) are most often asked to provide supplementary information. Public accountants, their clients and the regulator or funder of these types of organizations will all be directly affected by the standard.

What is involved in providing supplementary information and who does what? Regulators or funders have to clearly state the types of matters on which they want more information. The public accountant has to determine whether he or she is in a position to provide what the regulator or funder needs; and if so, what work will be required over and above that already performed in auditing or reviewing the entity’s financial statements. The entity’s management also has to know what information needs to be provided to enable the public accountant to develop an appropriate communication.

How much will reports on supplementary matters change?

In most cases, a lot. In the past, public accountants were often asked to sign a report written by the regulator or funder. Now they will be submitting reports written according to the new standard. These reports will more clearly set out what the public accountant has done and the related limitations of the result of such work. The public accountant is not performing an audit or review of this supplementary information.

Will there be an increase in work and related costs? That depends on the particular circumstances, including the nature and extent of supplementary information that needs to be reported. The work might be as simple as asking additional questions of management. In other cases, more time might be needed to determine what the regulator or funder wants. This may increase the cost of the service provided, but the result will be reports that are more consistent and informative.

When will these changes happen? The standard is effective for reports dated on or after April 1, 2016. While that seems far in the future, keep in mind that these reports are related to audit or review engagements that may have year-ends as early as December 31, 2015. This means that entities with fiscal years starting as early as January 1, 2015, may be affected.

A careful reading of CSRS 4460 will help you understand what to expect and exactly how it may affect you.