1141 Identifying significant matters

Apr-2018

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 Engagements (CSAE) 3001—Direct Engagements, as an area of focus on the subject of Review and Engagement Quality Control Review. Given the limited guidance on Identifying Significant Matters in other Canadian assurance standards, the Office also refers to Canadian Auditing Standards for the principles and guidance on Identifying Significant Matters. To view the requirements and application guidance found in CAS, click the “more” feature displayed in the standards information above.

Identifying significant matters

A significant matter is a finding or issue that, in the auditor’s judgment, is significant to the procedures performed, evidence obtained, or conclusions reached. Significant matters either are, or could be, important to our audit opinion/report, or to the support for the assurance engagement opinion/conclusion(s). These matters frequently require consultation. Significant matters require appropriate resolution and documentation by the audit team, and timely review by the engagement leader and quality reviewer (where appointed).

Determining which issues during an audit are to be recorded and resolved as significant matters depends on their significance, complexity, and degree of judgment required, as evaluated by team members in consultation with more senior members of the audit team, the engagement leader or others, as appropriate. Whether a matter is treated as a significant matter will also depend on factors such as whether the involvement of the quality reviewer, where appointed, or consultation with others, is necessary.

All assurance engagements

Judging the significance of a matter requires an objective analysis of the facts and circumstances. At a minimum, the following should be identified as significant matters in all assurance engagements:

• any matter that requires significant professional judgment requires the involvement of the engagement leader;
• critical areas of judgment, including those relating to difficult, complex or contentious matters that required consultation (see OAG Audit 3081). The subject-matter of a consultation will ordinarily be treated in the audit file as a significant matter.
• differences of opinion among members of the engagement team, or with others consulted on the engagement, on significant accounting or auditing matters;
• circumstances where, after consultation, the agreed action is not implemented;
• circumstances that cause the auditor significant difficulty or judgments in applying necessary audit procedures (Source: CAS 230.A8);
• the alternative procedures performed, where the team considers it is necessary to depart from a CAS/CPA Canada requirement, and the justification for this. In these situations, appropriate consultation shall take place in accordance with OAG Audit 3081 (Source: CAS 230.12 and CAS 200.24);
• any fraud or suspected fraud, or other irregularity (Source: CAS 240.41, 250.A34);
• significant matters that come to the attention of the internal audit function, which may affect the Office’s audit work (Source : CAS 610.A4);
• failure to achieve a CAS/CPA Canada objective, in which case the significant matter shall include consideration of the implications for the overall audit objective and the audit report/chapter/opinion. In these situations, appropriate consultation shall take place in accordance with OAG Audit 3081 (Source: CAS 200.24, CSAE 3001.21).
• significant issues relating to the competence, integrity, ethical value or diligence of management, or about its commitment to or enforcement of these (Source : CAS 580.A25);
• other areas the engagement leader considers important (Source: CAS 220.A19).

Annual audit

In addition to the matters identified for all assurance engagements above, the following should also be identified as significant matters when performing Annual Audits:

• any matters relating to the consideration or issuance of a qualified or otherwise modified audit opinion;
• significant matters regarding the appropriate selection, application, and consistency of accounting principles with regard to the financial statements, including related disclosures. Such matters often relate to accounting for complex or unusual transactions or estimates and uncertainties and, if applicable, the related management assumptions.
• results of audit procedures identifying a significant deficiency in the entity's internal control (Source: CAS 265.9);
• results of audit procedures indicating that the financial statements are or could be materially misstated, including identified misstatements, whether corrected, or expected to be corrected or not by the entity, that could either individually or when aggregated have a material effect on the financial statements of the entity (CAS 230.A8);
• issues of known or possible non-compliance with authority, or departures from laws or regulations by the entity that have come to our attention (Source CAS 250.30, CAS 550.A50);
• material misstatements of the other information that have been corrected (CAS 260.A27);
• any doubts about whether the entity is a going concern;
• the Summary of Uncorrected Misstatements (SUM);
• significant matters that the engagement team intends to report to those charged with governance.

The following are examples of issues that, depending on the circumstances of the particular annual audit engagement, may also be considered significant matters. This list is not intended to be all-inclusive:

• significant audit queries or follow-ups that are not resolved (e.g., missing information bearing on the ownership, existence or valuation of an asset);
• any other significant concern about the sufficiency or quality of our audit evidence on a material item;
• where new information or new significant risks are identified that suggest the previously planned audit approach is inadequate. See Significant Risks treated as Significant Matters for further guidance on determining when a significant risk is documented as a significant matter.
• significant matters of judgment in relation to significant risks identified during the audit and the audit response;
• any significant changes in the assessed level of risk for a particular audit area, including any significant risks related to areas such as accounting estimates, including fair value accounting estimates and related disclosures, contingencies, related party transactions, etc;
• issues arising from accounting principles employed by the entity or a subsidiary, including:
  • changes in accounting principles (including those made to comply with new rules or regulations),
  • departures from generally accepted accounting principles,
  • non-compliance with the accounting principles prescribed by a parent company;
• matters arising in relation to management's significant accounting estimates;
• significant unusual transactions;
• the impact of significant accounting or auditing standards that have been applied for the first time or that are expected to become significant in the near future;
• audit implications of significant related party relationships and transactions;
• material disagreements with management, whether resolved or unresolved;
• significant events or transactions that occurred during the year. (Source: CAS 260.A22);
• business conditions affecting the entity, and business plans and strategies that may affect the risks of material misstatement. (Source: CAS 260.A22);
• concerns about management's consultations with other accountants on accounting or auditing matters (Source: CAS 260.A22);
• discussions or correspondence in connection with the initial or recurring appointment of the auditor regarding accounting practices, the application of auditing standards, or fees for audit or other service (Source: CAS 260.A22);
• significant matters on which there was disagreement with management, except for initial differences of opinion because of incomplete facts or preliminary information that are later resolved by the auditor obtaining additional relevant facts or information. (Source: CAS 260.A22);
• any other information, not otherwise obvious, that needs consideration by the engagement leader in evaluating the results of the audit, or in discussing the financial statements with the entity or other matters that need to be formally communicated to the entity.

With respect to matters for reporting to the entity (e.g., deficiencies in the entity's internal control and the related implications) where there are a number of separate but related issues that only collectively constitute a significant matter, it may be more efficient to document them in one significant matter to facilitate review. Matters deemed to be individually significant on their own are ordinarily treated as separate significant matters.

Significant risks treated as significant matters

Consider the following when determining whether a significant risk that has been identified during planning requires treatment as a significant matter, or whether a new matter identified later should be so treated:

• the complexity and magnitude of the risk ;
• whether significant professional judgment is involved;
• whether the risk warrants particular engagement leader attention.

Where the assessment of the risk identified or the planned response to significant risks of material misstatement does not require significant professional judgment, there will be no need to document such risks as significant matters.

The work done in response to a significant risk may not cause particular concern that the previously planned response was inadequate, but may give rise to a matter not previously considered, or that otherwise involves significant professional judgment, or that qualifies to be treated as a significant matter in accordance with the above general guidance. In circumstances where the results of audit procedures or matters arising in respect of a significant risk are not considered for documentation as significant matters, it is important that conclusions are clearly identified in the relevant audit step so that there is a clear audit trail of how the risks considered significant were addressed during the audit.

The above guidance is complementary to, and does not override the requirements of the CASs with respect to identification, resolution and documentation of significant risks. Regardless of whether engagement teams document significant risks as significant matters, significant risks may be communicated to management and those charged with governance (CAS 260.16), with documentation of those communications. Significant matters are also required to be so communicated, as explained in OAG Audit 1142.

Performance audits and special examinations

In addition to the matters identified for all assurance engagements above, the following shall also be identified as significant matters when performing performance audits and special examinations:

• any disagreements between the entity and the audit team regarding the report;
• evidence obtained and the resulting conclusions reached relating to areas identified as having high risk;
• a proposed significant deficiency in a special examination.