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Newsletter Archive

Changing Reporting Standards
December 2003

 The standards for financial reporting in Canada have changed. There are also new procedures in place to confirm the objectivity of auditors reporting on financial statements in Canada.

Reporting
The Canadian Institute of Chartered Accountants (CICA) has released the new section 5600 of the CICA Handbook which lays out the new reporting requirements for entities (including social housing providers) reporting on a basis of accounting other than generally accepted accounting principles (GAAP).

 With requirements from funders to prepare the accounts in a manner other than in accordance with GAAP, social housing providers will have an audit report that is different than last year’s report.  The changes were effective October 1, 2003. 

 This change compels reporting entities to abide by GAAP in their annual financial statements unless their funder imposes a specific requirement that violates GAAP.  In this case the auditor must add a fourth paragraph to the Auditors’ Report indicating that the financial statements are not prepared in accordance with GAAP and that the reader should take this into account when they read the statements.

 This is the situation with many social housing providers in Canada.

 This requirement will also necessitate a note to the financial statements explaining what the non-GAAP basis of accounting is.  In many cases providers may already have this note in their financial statements.

 This change will clarify the basis on which the figures are being reported.  The changes are intended to inform the reader that the statements are not in accordance with GAAP. Rather, they are prepared using a non-GAAP basis of accounting, which is required by the provider and the funder. This new standard lays down a prescribed method for non-GAAP reporting that was previously being done using a variety of methods.

 You should look for changes in the Auditors’ Report, the engagement letter and the letter of management representations.  These changes affect them all.

 We are pleased with the introduction of these changes.  In 1999 PYC made a presentation to the CICA about the then proposed changes to the reporting standards and these changes are in line with many of the points we made in our presentation.

 We support the changes and believe they will improve the financial reporting to our clients.

Independence
A fundamental principle of an auditor reporting on an organization’s financial statements is that the auditors have no financial or other interest in that client’s financial results and can therefore report objectively.  They are independent of that client. 

There are new requirements that the auditor communicate with each client at each year end that they are independent from that client in accordance with our rules of professional conduct for chartered accountants. 

This communication has become known at PYC as the ‘independence letter’ and is included in our pre audit package which goes out to every one of our audit clients each year.

 The history of this new requirement relates back to the problems that have occurred in the USA with a number of large public companies where the auditor’s independence was questionable.

 The change here relates to process only.  We have always been required to be independent of any audit client we report on.  We are now required to send a letter and actually analyze our objectivity and conclude that we are independent of the client and can report objectively on that client’s annual financial statements. 

If you have any questions about any of these changed standards please feel free to contact us at any time and we will be pleased to meet with you to address any of your concerns.