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Non-GAAP Reporting Standards June 2004 Wondering about why your audited statements have
changed? The following article, first run in December 2003, outlines the reasons for these
changes and their impact on your audited financial statements. 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 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 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. 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 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.
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