501.09 does not require the auditor to communicate with the law firm

Transcription

From: John Kelly
Sent: Monday, February 09, 2015 1:02 PM
To:
Subject: Joint Policy statement
501.09 does not require the auditor to communicate with the law firm.
The three procedures in 501.09 are (sort of risk assessment} procedures which always must be
performed. Based on the results of those procedures and others (per 501.10) the auditor will then
decide whether direct communication is needed.
Many auditors automatically send a legal letter, whether they have assessed a RMM or not. That is their
choice, but it leads to audit inefficiency and (unnecessary) cost for the client.
The preamble to the JPS makes it sound as if communication is always required, which will heighten the
problem of unnecessary letters being sent.
Accordingly, I would recommend that the first paragraph be amended something like the following:
1. If the auditor assesses a risk of material misstatement regarding litigation or claims that have
been identified, or when audit procedures performed indicate that other material litigation or
claims may exist, the auditor shall, in addition to the procedures required by other CASs, seek
direct communication with the entity's external legal counsel. (CAS 501.10) When the auditor
determines that such communication is required, the purpose of this Statement is to assist
auditors and law firms, together with financial statement preparers (management), to
communicate effectively with respect to claims and possible claims as part of an audit of
financial statements prepared in accordance with the applicable financial reporting framework.
The first sentence proposed is the first line of 501.10. The other text proposed makes it clear that
communication is not always needed, but rather is the choice of the auditor, as described in 501.10.
John Kelly
100 – Five Donald Street
Winnipeg, MB
R3L 2T4
From: John Kelly
Sent: Tuesday, February 10, 2015 10:04 AM
To: Svetlana Berger
Subject: RE: Joint Policy statement - Character set not allowed
I should have added. I talk to a lot of practitioners, who have only read the JPS – the old one – which
also makes it sound as if you must always send a legal letter – causing them to send a legal letter on
every audit. (And perhaps not do the procedures in 501.09). And if you don’t do what 501.09 requires,
how do you know what to put in the legal letter. Or which lawyers to communicate with.
They are confused, because they have not read both the JPS and the Handbook section. Hence the
importance of making the JPS clear too.
5, Place Ville Marie, bureau 800, Montréal (Québec) H3B 2G2
T. 514 288.3256 1 800 363.4688 Téléc. 514 843.8375
www.cpaquebec.ca
Montréal, le 30 mars 2015
Monsieur Greg Shields, CPA, CA
Directeur, Normes d’audit et de certification
Conseil des normes d’audit et de certification
277, rue Wellington Ouest
Toronto (Ontario) M5V 3H2
Monsieur,
Vous trouverez ci-joint les commentaires du Groupe de travail technique — Certification de
l’Ordre des comptables professionnels agréés du Québec concernant l’exposé-sondage sur la
«Prise de position conjointe sur les communications avec les cabinets d’avocats au sujet des
réclamations en cours et des réclamations éventuelles lors de la préparation et de l’audit des
états financiers».
Nous vous serions reconnaissants de nous faire parvenir une copie de la traduction anglaise de
nos commentaires.
Veuillez prendre note que ni l’Ordre des comptables professionnels agréés du Québec, ni
quelque personne que ce soit ayant participé à la préparation des commentaires ne peuvent être
tenus responsables relativement à leur utilisation et ils ne sont tenus à aucune garantie de
quelque nature que ce soit découlant de ces commentaires, comme décrit dans le déni de
responsabilité joint à la présente.
Veuillez agréer, Monsieur Shields, mes salutations distinguées.
Annie Smargiassi, CPA auditrice, CA
Représentante du Groupe de travail technique – Certification
p. j.
Déni de responsabilité et commentaires
DÉNI DE RESPONSABILITÉ
Les documents préparés par le Groupe de travail technique — Certification de l’Ordre des
comptables professionnels agréés du Québec (Ordre) ci-après appelés les « commentaires »,
sont fournis selon les conditions décrites dans la présente, pour faire connaître leur opinion sur
des énoncés de principes, des documents de consultation, des exposés-sondages préliminaires
ainsi que des exposés-sondages publiés par le Conseil des normes comptables, le Conseil des
normes d’audit et de certification, le Conseil sur la comptabilité dans le secteur public, le Conseil
sur la gestion des risques et la gouvernance et d’autres organismes.
Les commentaires fournis par ce comité ne doivent pas être utilisés comme substitut à des
missions confiées à des professionnels spécialisés. Il est important de noter que les lois, les
normes et les règles sur lesquelles sont émis les commentaires peuvent changer en tout temps
et que, dans certains cas, les commentaires écrits peuvent être sujets à controverse.
Ni l’Ordre, ni quelque personne que ce soit ayant participé à la préparation des commentaires ne
peuvent être tenus responsables relativement à l’utilisation de ces commentaires et ils ne sont
tenus à aucune garantie de quelque nature que ce soit découlant de ces commentaires. Les
commentaires donnés ne lient pas, par ailleurs, les membres du Groupe de travail technique —
Certification, l’Ordre ou, de façon plus particulière, le Bureau du syndic de l’Ordre.
La personne qui se réfère ou utilise ces commentaires assume l’entière responsabilité de sa
démarche ainsi que tous les risques liés à l’utilisation de ceux-ci. Elle consent à exonérer l’Ordre
à l’égard de toute demande en dommages-intérêts qui pourrait être intentée par suite de toute
décision qu’elle aurait pu prendre en fonction de ces commentaires. Elle reconnaît également
avoir accepté de ne pas faire état de ces commentaires reçus via le Groupe de travail dans les
avis exprimés ou les positions prises.
COMMENTAIRES DU GROUPE DE TRAVAIL TECHNIQUE — CERTIFICATION DE L’ORDRE DES CPA DU QUÉBEC CONCERNANT L’EXPOSÉSONDAGE SUR LA «PRISE DE POSITION CONJOINTE SUR LES COMMUNICATIONS AVEC LES CABINETS D’AVOCATS AU SUJET DES
RÉCLAMATIONSENCOURSETDESRÉCLAMATIONSÉVENTUELLESLORSDELAPRÉPARATIONETDEL’AUDITDESÉTATSFINANCIERS».
2
MANDAT DU GROUPE DE TRAVAIL
Le Groupe de travail technique — Certification de l'Ordre des comptables professionnels agréés du
Québec a comme mandat notamment de recueillir et de canaliser le point de vue des praticiens
exerçant en cabinet et de membres œuvrant dans les affaires, dans les services gouvernementaux,
dans l'industrie et dans l'enseignement ainsi que le point de vue d’autres personnes concernées
œuvrant dans des domaines d’expertise connexes.
Pour chaque exposé-sondage ou autre document étudié, les membres du Groupe de travail
technique mettent leurs analyses en commun. Les commentaires ci-dessous reflètent les points de
vue exprimés et, sauf indication contraire, ces commentaires ont fait l'objet d'un consensus parmi les
membres du Groupe de travail ayant participé à cette analyse.
Les commentaires formulés par le Groupe de travail ne font l'objet d'aucune sanction de l'Ordre. Ils
n'engagent pas la responsabilité de celui-ci.
COMMENTAIRES GÉNÉRAUX
Définitions et terminologie utilisée
Des participants à l’analyse ont indiqué que la définition de « conseiller juridique interne » incluse à
l’alinéa 6 g) fait uniquement référence aux avocats alors qu’au Québec, les notaires agissent à titre de
conseillers juridiques dans les entreprises et sont responsables, tout comme les avocats, de gérer les
litiges en interne. Les membres croient que la Chambre des Notaires du Québec (entre autres) aurait
dû être impliquée dans le processus. Ils sont d’avis que le fait de ne pas considérer les notaires dans
les propositions créera un vide juridique qui n’est pas souhaitable, car la Charte des droits et libertés
de la personne du Québec ainsi que les tribunaux du Québec ont accordé au secret professionnel
des notaires le même statut que celui conféré aux avocats.
Les membres ont également relevé qu’il existe des différences entre la terminologie utilisée dans la
prise de position et le glossaire présenté dans le Manuel de CPA Canada – Certification. Ils croient
que plusieurs des définitions auraient dû être référées au glossaire directement. De plus, ils se sont
interrogés sur le fait que les NCA font référence aux « procès et litiges » alors qu’on n’utilise pas ces
termes dans la prise de position et qu’on n’y fait aucune référence. Ils sont d’avis que les différences
dans la terminologie utilisée créeront des difficultés d’application.
Les paragraphes 56 à 58 font référence à la « lettre de confirmation modifiée ». Les membres se sont
interrogés sur l’utilisation de cette expression en français. Le texte anglais fait référence à une lettre
COMMENTAIRES DU GROUPE DE TRAVAIL TECHNIQUE — CERTIFICATION DE L’ORDRE DES CPA DU QUÉBEC CONCERNANTL’EXPOSÉ-SONDAGE
SURLA«PRISEDEPOSITIONCONJOINTESURLESCOMMUNICATIONSAVECLESCABINETSD’AVOCATSAUSUJETDESRÉCLAMATIONSENCOURS
ETDESRÉCLAMATIONSÉVENTUELLESLORSDELAPRÉPARATIONETDEL’AUDITDESÉTATSFINANCIERS».
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« updated » soit une lettre qui a été mise à jour et non qui a été modifiée. Ils suggèrent au CNC
d’utiliser l’expression « lettre de mise à jour » pour adéquatement refléter le fait qu’il ne s’agit pas
d’une lettre modifiée. La lettre de confirmation mise à jour ne contient pas nécessairement de
l’information modifiée par rapport à la lettre de confirmation originale, mais fait une mise à jour des
informations par rapport à cette lettre initiale.
Les membres se sont également interrogés sur les informations présentées au paragraphe 8. En
effet, certaines entreprises canadiennes utilisent un référentiel qui est différent des référentiels
énumérés au paragraphe 8, par exemple un référentiel de conformité ou encore les principes
comptables américains (US GAAP). Ils sont d’avis que l’énumération des référentiels d’informations
financières ne devrait pas être abordée dans la prise de position car elle en alourdit inutilement le
contenu.
RÉPONSES AUX QUESTIONS SPÉCIFIQUES DU CNAC
1. Êtes-vous d’accord pour dire que l’objet et le champ d’application sont appropriés et
correctement décrits aux paragraphes 1 à 4 du projet de prise de position révisée? Plus
particulièrement, êtes-vous d’accord que la prise de position révisée s’applique aux situations
où le conseiller juridique interne de l’entité assume des fonctions juridiques généralement
exercées par un conseiller juridique externe et participe à ce titre aux communications au
sujet des réclamations en cours et des réclamations éventuelles?
Oui, les membres sont en accord avec ces propositions.
2. Êtes-vous d’accord pour dire que les indications contenues dans la prise de position
révisée concernant les rôles et les responsabilités de la direction, de l’auditeur et du cabinet
d’avocats, et les processus de communication entre eux, sont appropriés?
Les membres sont en accord, à l’exception des commentaires qu’ils ont notés ci-dessous au sujet des
responsabilités des divers intervenants.
Le secret professionnel exige que le conseiller juridique discute d’abord avec la direction,
préalablement à la transmission d’informations à des tiers, et lui en demande l’autorisation. Ainsi, les
membres ne comprennent pas pourquoi le paragraphe 40, contrairement au paragraphe 41 (et 42)
n’exige pas d’approbation du client préalablement à la communication par le conseiller juridique
externe des réclamations en cours non-inscrites dans la lettre de demande de confirmation initiale du
client. Ils sont inquiets que cette façon de procéder ne porte atteinte au secret professionnel entre le
conseiller juridique externe et son client. Selon eux, sur le point de vue juridique, il n’existe pas de
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différence entre les réclamations en cours et les réclamations individuelles qui justifierait un
processus différent. Ils sont d’avis que le client doit lever le secret professionnel dans tous les cas.
Des membres ont également indiqué ne pas être en accord avec l’information présentée au
paragraphe 8 concernant les types de secrets professionnels. En effet, selon eux, ces informations ne
sont pas utiles pour l’application des indications de la prise de position, car aucun autre paragraphe
des exigences n’y fait référence. Ils sont d’avis que les précisions sont inutiles dans le contexte et
qu’elles risquent plutôt d’ajouter de la confusion au lecteur à moins qu’elles ne soient référées à des
exigences ou directives précises.
Le paragraphe .23 fait référence aux référentiels comptables en ce qui concerne l’évaluation par la
direction des réclamations en cours et éventuelles. Certains membres indiquent que les exigences
des IFRS sont beaucoup plus claires au sujet de l’évaluation de ces réclamations par la direction que
les exigences présentes dans les NCECF. Ils craignent, comme les NCECF sont moins élaborées sur
le sujet de l’évaluation, que les concepts énoncés au paragraphe .23 soient mal appliqués. Ils
précisent que dans la pratique courante, c’est l’auditeur qui souvent aide la direction à procéder à ces
évaluations, dans le cas des entreprises à capital fermé. Ils croient que les concepts d’évaluation des
réclamations en cours et éventuelles devraient être plutôt clarifiés dans les NCECF.
Les membres ont questionné le fait que le paragraphe .26 soit rédigé de façon à mettre entre les
mains de l’auditeur, la responsabilité d’identifier les éléments qui pourraient être exclus de la
demande de confirmation. Ils sont d’avis que la responsabilité première relève de la direction et que
l’auditeur doit en évaluer le caractère approprié uniquement.
Les membres ont salué le fait que les propositions semblent leur donner plus de flexibilité au niveau
des dates prévues au processus.
3. Êtes-vous d’accord pour dire que les indications contenues dans la prise de position
révisée peuvent être bien comprises, et qu’il est possible de les interpréter et de les appliquer
avec cohérence?
Oui, en général les membres croient que les propositions sont plus claires que les indications
actuelles qui seront remplacées.
4. Êtes-vous d’accord avec le contenu des exemples proposés aux Appendices A à E? Dans la
négative, quels aspects ne sont pas utiles ou que manque-t-il? Plus précisément, que pensezvous de l’ajout, dans l’Appendice B de la prise de position révisée, d’exemples de l’évaluation
5
des réclamations en cours et des réclamations éventuelles faite par la direction dans sa lettre
de demande de confirmation?
Les membres sont d’accord avec les contenus proposés.
5. Êtes-vous d’accord pour dire que le projet de prise de position révisée est suffisamment
complet pour répondre à l’objectif d’aider les auditeurs et les cabinets d’avocats, ainsi que les
préparateurs d’états financiers, à communiquer efficacement à l’égard des réclamations en
cours et des réclamations éventuelles dans le cadre d’un audit d’états financiers? Dans la
négative, veuillez indiquer ce qu’il faudrait ajouter à la prise de position révisée.
Oui, les membres sont d’accord.
Les questions 6 et 7 s’adressent à ceux qui appliquent les Normes canadiennes d’audit.
6. Êtes-vous d’accord avec les modifications corrélatives qu’il est proposé d’apporter au
paragraphe CA25a de la NCA 501 et qui sont présentées à l’Annexe II?
Oui, les membres sont d’accord avec les modifications corrélatives.
7. Y aurait-il d’autres modifications corrélatives à apporter à la NCA 501 à la suite de la
révision de la prise de position actuelle? Dans l’affirmative, veuillez décrire la nature et
l’étendue de ces modifications. Il est à noter que toute modification proposée doit répondre
aux critères énoncés dans l’Annexe II, sous la rubrique « Critères de modification des normes
ISA en vue de leur adoption à titre de NCA ».
Les membres n’ont pas ajouté de commentaire additionnel au sujet de cette question.
6
HU Bennett
Jones
Bennett Jones LLP
4500 Bankers Hall East,855 - 2nd Street SW
Calgary, Alberta, Canada T2P 4K7
Tel: 403.298.3100 Fax: 403.265.7219
Scott H.D. Bower
Partner
Direct Line: 403.298.3301
e-mail: [email protected]
Our File No.: 30013.33
March 20, 2015
Via E-Mail ([email protected])
Ms. Sarah MacKenzie
Staff Lawyer - Legislation and Law Reform
The Canadian Bar Association
500-865 Carling Avenue
Ottawa, ON K1S 5S8
Dear Ms. MacKenzie:
Re:
Exposure Draft Proposed Draft Joint Policy Statement
Thank you for the opportunity to comment on the exposure draft of the proposed joint policy
statement. I am the partner responsible for coordinating the audit responses/confirmations for our
firm. I suspect I have seen over ten thousand audit letters and counting, I am afraid to say. I am also
fortunate to serve on the joint Canadian Bar Association and Alberta Law Society legislative review
committee for Alberta, so I have an inkling about the work that must have gone into this project.
Congratulations on an excellent draft. It is apparent to me that the committee has grasped the most
significant problems with the old policy and has made great attempts to solve them or at least try to
improve on them. I think it is a significant achievement that reads very well.
I offer my comments in tribute to the hard work that must have gone into the draft. The comments
are in the order of the paragraph numbers in the proposed joint policy statement. The following is
dry—image that, comments on audit letters being dry—and assumes the reader has a copy of the
exposure draft open so it can be referred to.
Paragraph # Comment
of Exposure
Draft
6(c) "claim"
The reference to "third parties" in the last sentence is odd, or at least loose.
Claims relate to litigation, and in litigation the term "third parties" has a special
meaning. You have plaintiffs, defendants and third parties (and fourth parties,
etc.), and each of those is different. Even outside the litigation context, it is a bit
odd to refer to those on the other side of a claim "third parties". They are more
www.bennettjones.com
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March 20, 2015
Page Two
Paragraph # Comment
of Exposure
Draft
like second parties.
How about rewriting that sentence to say instead, something like: "Accordingly,
claims include those against the entity as well as those infavour ofthe entity."
6(j) "possible This definition tracks that of "claim". Why not replicate the same format (i.e.
claim"
break it down into subparagraphs as in 6(c)), to make identifying the differences
easier for the reader?
To that end, the main difference between a "claim" and a "possible claim" seems
to be whether or not a "demand or indication of a demand" has been sent or
received. Has thought been given to providing further guidance on that
difference? It is not trivial, since that determines whether a matter is reported to
an auditor or not.
In particular, while it is relatively straight-forward to determine whether a
demand has been made or not, it is not usually straight-forward to determine
whether an "indication of a demand" has been made, or even what an "indication
of a demand" is. An example might help.
I appreciate you might prefer instead to leave this definition "as is" so that it is
ambiguous.
8
This paragraph explains what litigation and solicitor-client privilege is. It is
accurate as of today, but will it prematurely date the policy and cause problems
in the future when the law changes? It would read very differently if it was
drafted in 1978 when the first joint policy was drafted. I appreciate it has some
explanatory value, so I wonder if it should be deleted and instead moved to some
introductory paragraph within the material AASB's sends to its accountants?
9
This paragraph should include litigation privilege and not be limited to only
solicitor-client privilege. Perhaps just refer to "privilege"?
13(c)
Make this subparagraph its own paragraph: the sub-paragraph does not belong
in this list, since it is a list of things that follow from the fact that an auditor must
keep the entity's affairs confidential. The fact that the law firm's response must
not be quoted from without the law firm's consent is a risk-management matter
for the law firm's benefit (and indirectly for the client's cost benefit); it is not (or
at least is not primarily) a client-confidentiality concern.
Ird
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Page Three
Paragraph # Comment
of Exposure
Draft
31
Add "as soon as possible" to the last sentence, so that it reads: "In such
circumstances, the auditor will request management to notify the law firm of the
shorter timeline as soon as possible and determine with the law firm a mutuallyagreeable response date."
I would choose to employ the "as soon as possible" language in these
circumstances over the "as soon as practicable" language used elsewhere in the
joint policy, as it crucial in these circumstances that law firms receive as much
notice as possible. In practice, I suspect this paragraph will be used in
combination with paragraph 27 to justify requests with 24 hours or less notice
(which unfortunately happens on occasion). Law firms should be justified in
refusing to respond in these circumstances. Of course, law firms will almost
always respond anyway, to accommodate the client whenever possible, but we
should not be off-side the policy if we cannot do so. Many of our lawyers are
literally throughout the world and in many different time-zones at any particular
moment. It is not always possible to track down every lawyer who needs to be
tracked down in 24 hours or less,
44
This should not be part of the joint policy. Reviewing, from a legal perspective,
the proposed wording of a note to the client's financial statements can carry
significant liability risk implications for the law firm and should be the subject of
a separate mandate between the lawyer and the client. Placing the mandate in
the joint policy tends to indicate that the mandate is a professional obligation of a
lawyer that the lawyer cannot refuse. While that view may be erroneous, even
mentioning it in the joint policy confuses the issue.
Further, unfortunately, while decreasing in number, there are still a few clients
that refuse to pay for audit confirmations/responses. Those clients should not be
able to force lawyers to provide further free services by getting them to review
the notes to their financial statements. It is not in the interests of the Canadian
Bar Association members to agree to such a provision. Reviewing financial
notes is outside of a policy that deals with communications between AASB and
CBA members and should be deleted, in my view.
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ird
March 20, 2015
Page Four
Thank you again for the opportunity to make comments.
Your truly,
T ONES LLP
c tt H.1. Bower
SFIDB/cr
Iid
WSLegal\030013\00033\11696480v1
1 April 2015
Greg Shields, CPA, CA
Director, Auditing and Assurance Standards
Auditing and Assurance Standards Board
277 Wellington Street West
Toronto ON M5V 3H2
Sarah MacKenzie
Staff Lawyer − Legislation & Law Reform
Ottawa ON K1S 5S8
RE: Exposure Draft - Joint Policy Statement Concerning Communications with Law
Firms Regarding Claims and Possible Claims in Connection with the Preparation
and Audit of Financial Statements
Dear Sir and Madam:
Thank you for the opportunity to comment on the above Exposure Draft. I am
responding on behalf of the Office of the Auditor General of Canada.
Our responses to the specific questions posed in the Exposure Draft are provided below.
Please do not hesitate to contact me if you require any further information.
Sincerely,
Stuart Barr
Assistant Auditor General
Enclosure
-2-
Specific Matters
1. Do you agree that the purpose and scope set out in paragraphs 1-4 of the proposed
revised Statement are appropriate and adequately described? In particular, do you
agree that this revised Statement should apply to circumstances when communications
regarding claims and possible claims involve the entity’s in-house legal counsel who is
acting in a legal capacity by performing a role that would commonly be performed by
external legal counsel?
We agree that the purpose and scope set out in paragraphs 1-4 of the proposed revised
Statement are appropriate and adequately described.
We agree that this revised Statement may apply to circumstances when communications
external legal counsel.
As the Statement applies not only to communication with external but also in-house legal
counsel and CAS 501.10 requires the auditor seek direct communication with the entity's
external legal counsel only, the AASB should consider ways to clarify whether
communication with the in-house legal counsel satisfies the requirements of CAS
501.10. See also our reply to question 6.
2. Do you agree that the guidance in the proposed revised Statement addressing the roles,
responsibilities and communication processes of management, the auditor and the law
firm is appropriate?
The Exposure Draft describes clear roles and responsibilities and communication
processes for management, the auditor and the law firm and/or in-house legal counsel.
We agree therefore that the guidance is appropriate.
3. Do you agree that the guidance in the proposed revised Statement is capable of being
clearly understood and consistently interpreted and applied?
We agree that the guidance in the proposed revised Statement is capable of being
clearly understood and consistently interpreted and applied.
-3-
4. Do you agree with the proposed content of the examples in Schedules A through E? If
not, what aspects are not useful, or what is missing? Specifically, what are your views
about including in the revised Statement illustrations of management’s evaluation of
claims and possible claims in an inquiry letter, as set out in Schedule B?
We agree with the proposed content of the examples in Schedules A through E. The
illustrations provided demonstrate key differences in the application of two distinct
applicable accounting frameworks.
5. Do you agree that the proposed revised Statement is sufficiently comprehensive for the
purpose of assisting auditors and law firms, together with financial statement preparers,
to communicate effectively with respect to claims and possible claims as part of the
auditor’s examination of financial statements? If not, please specify what other material
should be added to the revised Statement.
We agree that the proposed revised Statement is sufficiently comprehensive for the
auditor’s examination of financial statements.
6. Do you agree with the proposed conforming amendments to paragraph CA25a of CAS
501 set out in Appendix II?
Proposed conforming amendments to CAS 501 paragraph CA25a generalize references
to legal counsel since the legal inquiry letter may also be directed at in-house counsel.
They further explain that the Joint Policy Statement also applies to written
communication between auditors and the entity’s in-house counsel.
Given the extension of the Joint Policy Statement to communications with in-house
counsel, it is unclear whether the Joint Policy Statement aligns with the scope and
requirements of CAS 501 which requires direct communication with external legal
counsel where certain circumstances exist. CAS 501 does not appear to envision
communication being limited to in-house counsel.
The AASB should consider options to clarify circumstances in which communication with
in-house legal counsel may be appropriate and how such communication satisfies CAS
501.10. For instance, the AASB may provide additional wording within the Joint Policy
Statement or alternatively, conforming amendments to CAS 501, if such amendments
would meet the amendment criteria used by the AASB when adopting ISAs as CASs.
-4-
7. Are there any other conforming amendments required to CAS 501 as a result of revising
the existing Statement? If so, please describe the nature and extent of the changes.
Note that any amendments proposed would need to meet the criteria set out in Appendix
II, under the heading “Criteria for amending ISAs when adopting them as CASs.”
No other conforming amendments were identified from our review of this proposed
standard and CAS 501.
PROVINCIAL AUDITOR
of Saskatchewan
April 6, 2015
Mr. Greg Shields, CPA, CA
TORONTO, ON M5V 3H2
Dear Mr. Shields:
Re:
Joint Policy Statement Concerning Communications with Law Firms Regarding Claims
and Possible Claims in Connection with the Preparation and Audit of Financial Statements
(November 2014)
We support the proposed amendments to the Joint Policy Statement, as they represent a significant
improvement to the current guidance as they better define the roles and responsibilities of law firms,
entity management and the auditor which should foster improved communications. The attachment sets
out our responses to the specific questions listed in the exposure draft.
Yours truly,
66/
Judy Ferguson, FCPA, FCA
Acting Provincial Auditor
BL/
Attachment
1300 Chateau Tower -1920 Broad Street Regina, Saskatchewan S4P 3V2
t 306.787.6398 f 306.787.6383 e [email protected]
uninv.auditor.sk.ca
Mr. Greg Shields
April 6, 2015
Responses to Specific Questions — Provincial Auditor Saskatchewan
Joint Policy Statement Concerning Communications with Law Firms
Question
Page 1
Response
1
Do you agree that the purpose and scope set out in paragraphs 1-4 of the
proposed revised Statement are appropriate and adequately described? In
particular, do you agree that this revised Statement should apply to
circumstances when communications regarding claims and possible claims
involve the entity's in-house legal counsel who is acting in a legal capacity by
performing a role that would commonly be performed by external legal counsel?
Yes, the purpose and scope are appropriate and adequately
described. The revised statement should apply to any party
providing legal counsel to an entity, regardless of whether
counsel is provided externally or internally.
2
Do you agree that the guidance in the proposed revised Statement addressing
the roles, responsibilities and communication processes of management, the
auditor and the law firm is appropriate?
Yes, the guidance in the proposed revised statement
addressing the roles, responsibilities and communication
processes of management, the auditor and the law firm is
appropriate.
3
Do you agree that the guidance in the proposed revised Statement is capable of
being clearly understood and consistently interpreted and applied?
Yes, the guidance in the proposed revised statement is
capable of being clearly understood and consistently
interpreted and applied.
4
Do you agree with the proposed content of the examples in Schedules A through
E? If not, what aspects are not useful, or what is missing? Specifically, what are
your views about including in the revised Statement illustrations of
management's evaluation of claims and possible claims in an inquiry letter, as
set out in Schedule B?
Yes, it is helpful to include illustrations of management's
evaluation of claims and possible claims within the revised
Statement, as it provides management and the auditor with
examples of how to adequately describe the various types of
claims that may be relevant to an entity's circumstances.
5
Do you agree that the proposed revised Statement is sufficiently comprehensive
for the purpose of assisting auditors and law firms, together with financial
statement preparers, to communicate effectively with respect to claims and
possible claims as part of the auditor's examination of financial statements? If
not, please specify what other material should be added to the revised
Statement.
Yes, the proposed revised statement is sufficiently
comprehensive.
Mr. Greg Shields
April 6,2015
Responses to Specific Questions - Provincial Auditor Saskatchewan
Joint Policy Statement Concerning Communications with Law Firms
Question
Page 2
Response
6
Do you agree with the proposed conforming amendments to paragraph CA25a
of CAS 501 set out in Appendix II?
Yes, the proposed conforming amendments assists the
auditor in obtaining sufficient appropriate audit evidence that
possible contingencies are appropriately recorded or
disclosed, the joint policy statement should apply to any party
providing legal counsel to an entity, regardless of whether
counsel is provided externally or internally.
7
Are there any other conforming amendments required to CAS 501 as a result of
revising the existing Statement? If so, please describe the nature and extent of
the changes. Note that any amendments proposed would need to meet the
criteria set out in Appendix II, under the heading "Criteria for amending ISAs
when adopting them as CASs."
No other conforming amendments required to CAS 501 as a
result of revising the existing statement have been identified.
Deloitte LLP
2 Queen Street East
Suite 1200
P.O. Box 8
Toronto ON M5C 3G7
Canada
Tel: 416-601-6374
Fax: 416-601-6610
www.deloitte.ca
April 6, 2015
By email: [email protected]
Toronto Ontario M5V 3H2
Dear Mr. Shields,
Re: Exposure Draft: Proposed Joint Policy Statement Concerning Communications with Law
Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit of
Financial Statements – November 2014
We are pleased to respond to the Auditing and Assurance Standards Board’s (AASB) request for
comments on the above-noted exposure draft and provide our thoughts and suggestions herein.
Overall we are appreciative and supportive of the efforts made by the AASB, in partnership with the JPS
Review Committee of the Canadian Bar Association, in revising the existing Joint Policy Statement to
reflect further developments in the accounting and auditing standards, and the legal environment, and to
provide enhanced guidance regarding the auditors’ and law firms’ communications responsibilities.
Responses to the questions contained in the exposure draft:
1. Do you agree that the purpose and scope set out in paragraphs 1-4 of the proposed revised
Statement are appropriate and adequately described? In particular, do you agree that this
revised Statement should apply to circumstances when communications regarding claims and
possible claims involve the entity’s in-house legal counsel who is acting in a legal capacity by
Yes, we agree that the purpose and scope set out in paragraphs 1-4 of the proposed revised Statement
are appropriate and adequately described. We also agree that this revised Statement should apply to
circumstances when communications regarding claims and possible claims involve the entity’s inhouse legal counsel who is acting in a legal capacity by performing a role that would commonly be
performed by external legal counsel. It has become more common for entities to use in-house legal
counsel in a legal capacity for some or all legal matters, rather than referring those matters to external
legal counsel. In such cases, legal inquiries in connection with the audit of an entity’s financial
statements are being directed to in-house legal counsel. Therefore, it would only be expected that
their responsibilities and communications in this respect, be governed by the same Statement that
applies to external legal counsel.
April 6, 2015
Page 2
responsibilities and communication processes of management, the auditor and the law firm is
appropriate?
Yes, we agree that the guidance in the proposed revised Statement addressing the roles,
appropriate. However, we believe that additional guidance is required to identify circumstances when
the auditor would be required to assess the competence and expertise of in-house legal counsel acting
in a legal capacity as well as identifying the nature and type of enquiries that the auditor should
perform in these circumstances. It is important that when in-house legal counsel will be responding to
audit inquiries regarding claims and possible claims, the auditor has sufficient knowledge that inhouse legal counsel has the legal expertise and competence in the area of litigation in question. Inhouse legal counsel may not have relevant and current experience in the area of law for which a claim
or possible claim has been identified, when the analysis is dependent on complex or evolving case
law. Examples of some possible areas of law which may require specialized training or recent
experience could include employment law and/or bankruptcy law. If the results of additional
enquiries performed by the auditor results in a determination that in-house legal counsel may not have
the competence and expertise to appropriately respond to audit inquiries regarding claims and
possible claims, then it may be appropriate to provide guidance on the procedures that should be
performed by the auditor to respond to this circumstance. The inclusion of this additional guidance in
the proposed revised Statement is one option, or alternatively, it could be reflected as an adjustment
to Canadian Auditing Standards (“CASs”). For instance, further guidance could be added in CAS 500
Audit Evidence, that in-house legal counsel may be considered as a management’s expert, in which
case the auditor would need to comply with the requirements set out in paragraph 8. Such reference
could also be added to paragraph CA25a in CAS 501 Audit Evidence – Specific Considerations for
Selected Items.
3. Do you agree that the guidance in the proposed revised Statement is capable of being clearly
understood and consistently interpreted and applied?
Yes, we agree that guidance in the proposed revised Statement is capable of being clearly
understood and consistently interpreted and applied. However we recommend an adjustment to
the definitions of “In-house legal counsel” and “Law firm” stated in the Introduction section of
the proposed revised Statement. Recommended additional text is shown using bold underline;
recommended deletions to the text are shown using strikethrough.
In-house legal counsel – A lawyer or lawyers employed by the entity or by another entity
within the same group of related entities.who acts in a legal capacity by performing a role
that commonly would be performed by external legal counsel.
Law firm – A sole practitioner, two or more lawyers practicing together in a partnership,
corporation or other entity, or in-house legal counsel who acts in a legal capacity by performing
a role that commonly would be performed by external legal counsel.
The current proposed definition of in-house legal counsel is too generic and we believe that it is
necessary to clarify their role in the context of the proposed revised Statement, that is, they are
acting in a legal capacity by performing a role that commonly would be performed by external
April 6, 2015
Page 3
legal counsel. Therefore we have removed such wording from the definition of law firm. We
believe this edit is necessary to clarify the specific role of in-house legal counsel when that
term is used throughout the proposed revised Statement.
4. Do you agree with the proposed content of the examples in Schedule A through E? If not, what
aspects are not useful, or what is missing? Specifically, what are your views about including in
the revised Statement illustrations of management’s evaluation of claims and possible claims in
an inquiry letter, as set out in Schedule B?
Yes, we agree with the proposed content of the examples in Schedules A through E. However, we
believe it would also be useful to include an example of an inquiry letter when there are no claims or
possible claims to be listed as is included in the existing Statement, as well as an example of a
corresponding response letter.
We are also in agreement with the inclusion of sample illustrations of management’s evaluation of
claims and possible claims in an inquiry letter as set out in Schedule B, as it will assist management
in drafting their evaluation of claims and possible claims with respect to the structure and nature and
extent of information that should be included, allowing for increased consistency amongst inquiry
letters sent to legal counsel for the purposes of conducting a financial statement audit. However,
consistent with example Claim 1.C in Illustration 1, we believe it would also be useful to include an
example in Illustration 2 with the following criteria, “Claim 2.D: It is determined by the entity’s
management that a loss is not likely to occur.”
5. Do you agree that the proposed revised Statement is sufficiently comprehensive for the purpose
of assisting auditors and law firms, together with financial statement preparers, to
communicate effectively with respect to claims and possible claims as part of the auditor’s
examination of financial statements? If not, please specify what other material should be added
to the revised Statement.
Except for the recommended additional guidance discussed in our response to question 2 above, we
agree that the proposed revised Statement is sufficiently comprehensive for the purpose of assisting
auditors and law firms, together with financial statement preparers, to communicate effectively with
respect to claims and possible claims as part of the auditor’s examination of financial statements.
6. Do you agree with the proposed conforming amendments to paragraph CA25a of CAS 501 set
out in Appendix II?
Yes, we agree with the proposed conforming amendments to paragraph CA25a of CAS 501 set out in
Appendix II.
7. Are there any other conforming amendments required to CAS 501 as a result of revising the
existing Statement? If so, please describe the nature and extent of the changes. Note that any
amendments proposed would need to meet the criteria set out in Appendix II, under the
heading “Criteria for amending ISAs when adopting them as CASs.”
Please refer to our response to question 2 above where we have recommended additional guidance to
be added either to the proposed revised Statement or to the CASs. Other than that, there are no other
April 6, 2015
Page 4
conforming amendments that we believe are required to CAS 501 as a result of revising the existing
Statement.
We would be pleased to discuss our letter with you or your staff at your convenience. If you have any
questions, please contact Julie Corden, National Assurance Services Leader at 416-601-6374.
Yours truly,
Julie Corden, CPA, CA
Partner
National Assurance Services Leader
Deloitte LLP
April 6, 2015
Toronto, Ontario
M5V 3H2
Email: [email protected]
Re: Exposure Draft – Joint Policy Statement Concerning Communications with Law Firms
Regarding Claims and Possible Claims in Connection with the Preparation and Audit of
Financial Statements
Dear Greg:
We are pleased to have the opportunity to comment on the above Exposure Draft (ED) issued
by the Auditing and Assurance Standards Board (AASB).
Overall Comments
Overall, we support the intention of the proposed revised Statement. We have set out below
our responses to the AASB’s specific questions in the ED. We have also included additional
comments on specific paragraphs in the ED.
revised Statement are appropriate and adequately described? In particular, do you agree
that this revised Statement should apply to circumstances when communications
external legal counsel?
We agree that the purpose and scope set out in paragraphs 1 – 4 of the proposed revised
Statement are appropriate and adequately described.
We also agree that this revised Statement should apply to circumstances when
communications regarding claims and possible claims involve the entity’s in-house legal
counsel who is acting in a legal capacity by performing a role that would commonly be
performed by external legal counsel.
2. Do you agree that the guidance in the proposed revised Statement addressing the
roles, responsibilities and communication processes of management, the auditor and the
law firm is appropriate?
We agree that the guidance in the proposed revised Statement addressing the roles,
appropriate.
clearly understood and consistently interpreted and applied?
We agree that the guidance in the proposed revised Statement is capable of being clearly
understood and consistently interpreted and applied except as noted below:
Definition of Claims and Possible Claims
The definition of claims and possible claims in paragraph 6 of the proposed revised Statement
includes the words: “demand or indication of a demand”, however the concept of “demand or
indication of a demand” is not explained in the proposed revised Statement. We believe this
needs to be defined or explained for the auditor to carry out his/her role.
Role of In-house Legal Counsel
While we understand that the proposed revised Statement applies to the entity’s in-house
legal counsel who is acting in a legal capacity by performing a role that commonly would be
performed by external legal counsel, we believe that the proposed revised Statement doesn’t
address what the auditor should do when in-house legal counsel is acting in this capacity as
well as potentially acting as management.
Given the knowledge that in-house legal counsel will have related to the claims and possible
claims that they would have been involved in when acting in a legal capacity, we question
whether there may circumstances where management will ask in-house legal counsel for help
in drafting the inquiry letter, the result of which would be in-house legal counsel acting both
in a legal capacity and as management.
The proposed revised Statement should include guidance on how the auditor should address
this perceived objectivity issue when assessing the adequacy of the inquiry letter. CAS 500,
Audit Evidence, contains requirements and guidance when obtaining audit evidence from
“management’s expert.” Should auditors look to this standard when the above situation
exists?
Proposed Revised Statement – Paragraph 26
There seems to be a word missing in paragraph 26 of the proposed revised Statement to
connect the two sentences in this paragraph so that they are read together as a complete
thought. This paragraph reads:
“In such cases, the auditor will request management to describe in the inquiry letter
the nature of matters that may be excluded from the law firm’s response. The
auditor should recognize that a claim or a possible claim, immaterial in itself, may
provide an indication of the probability of further similar claims or possible claims
(for example, claims by a customer in respect of a defect in a major product line of
the entity)”.
It seems as if these two sentences are mutually exclusive from one another.
We believe that they should be connected so that it is clear that the auditor should consider
the indication of the probability of further similar claims or possible claims before concluding
that certain matters be excluded from the law firm’s response.
We suggest revised wording as follows:
“In such cases, the auditor will request management to describe in the inquiry letter
the nature of matters that may be excluded from the law firm’s response. However,
Tthe auditor should recognize that a claim or a possible claim, immaterial in itself,
may provide an indication of the probability of further similar claims or possible
claims (for example, claims by a customer in respect of a defect in a major product
line of the entity)”.
2
There seems to be an inconsistency between paragraphs 34 and 18 of the proposed revised
Statement.
Paragraph 18 of the proposed revised Statement reads:
“….the auditor is responsible for ensuring that management has adequately prepared
the inquiry letter and that the inquiry letter is sent to the law firm”.
“An auditor’s involvement in monitoring the quality of the inquiry letter does not
reduce management’s responsibility for evaluating the entity’s claims and possible
claims.
We believe that the word “quality” in paragraph 34 should be replaced with “adequacy” to be
consistent with paragraph 18.
It is unclear from the wording in paragraph 40 of the proposed revised Statement how the
lawyer will respond to items omitted from the letter that are identified in paragraph 26 of
the proposed revised Statement.
Paragraph 26 proposed revised Statement reads:
“In some cases, following discussion with management, the auditor may be of the
view that the inquiry letter need not list: (a) Matters of an identified type (for
example, routine collections); and (b) Matters involving amounts that aggregate to
less than a stated amount. In such cases, the auditor will request management to
describe in the inquiry letter the nature of matters that may be excluded from the
law firm’s response”.
“If the law firm identifies outstanding claims that have been omitted from the inquiry
letter, the law firm will specify such claims in the response letter”.
Is the law firm expected to comment on the omissions identified in paragraph 26? We do not
believe that was the intention, so we believe the proposed revised Statement should clarify
this. We suggest using wording similar to that in paragraph 50(g)(iv) which states: “…, taking
into account any exclusions specified in the inquiry letter”.
It is unclear from the wording in paragraph 42 of the proposed revised Statement how
possible claims omitted from the inquiry letter will be communicated to the auditor.
“If the law firm identifies possible claims that have been omitted from the inquiry
letter, the law firm will discuss such possible claims with management to ensure that
management is aware of its responsibility to inform the auditor of possible claims
omitted from the inquiry letter, and to make any appropriate adjustment of, or
disclosure in, the financial statements.”
3
However, there is nothing under management’s responsibilities in the proposed revised
Statement that requires management to communicate to auditor about such claims.
Since the auditor is reviewing the letter for adequacy, it would be difficult to do this without
this information.
We recognize that CAS 501 contains a requirement for written representations from
management as to the completeness of all known actual or possible litigation and claims
whose effects should be considered when preparing the financial statements.
We believe that the proposed revised Statement should identify management’s
responsibilities falling out of paragraph 42 which would be consistent with the requirement
for written representations in CAS 501.
Paragraph 50 of the proposed revised Statement explains the form and content of the inquiry
letter.
Paragraph 50(b) notes that the addressee of the inquiry letter is (are) the responsible
lawyer(s) within the law firm.
We questioned whether it was clear enough as to whom this would be, especially in the case
of in-house legal counsel where there could be multiple lawyers working in the department;
would the auditor need to ensure that a letter is sent to each member of the department to
ensure completeness of the letter?
We believe that the proposed revised Statement should provide guidance as to whom the
responsible lawyer within a law firm would be.
4. Do you agree with the proposed content of the examples in Schedules A through E? If
not, what aspects are not useful, or what is missing? Specifically, what are your views
about including in the revised Statement illustrations of management’s evaluation of
claims and possible claims in an inquiry letter, as set out in Schedule B?
We agree with the proposed content of the examples in Schedules A through E. However we
wondered if the there should be sample wording in the inquiry letter (Schedule A) for when
management has not identified any claims or possible claims? We believe this could be
addressed in a footnote to Schedule A.
5. Do you agree that the proposed revised Statement is sufficiently comprehensive for the
auditor’s examination of financial statements? If not, please specify what other material
should be added to the revised Statement.
Except as already noted, we agree that the proposed revised Statement is sufficiently
comprehensive for the purpose of assisting auditors and law firms, together with financial
statement preparers, to communicate effectively with respect to claims and possible claims
as part of the auditor’s examination of financial statements.
6. Do you agree with the proposed conforming amendments to paragraph CA25a of CAS
We agree with the proposed conforming amendments to paragraph CA25a of CAS 501 set out
in Appendix II.
4
the existing Statement? If so, please describe the nature and extent of the changes. Note
that any amendments proposed would need to meet the criteria set out in Appendix II,
under the heading “Criteria for amending ISAs when adopting them as CASs.”
While we understand that there are specific criteria to meet to amend an ISA when adopting
it as a CAS, we believe it is confusing that the scope of the proposed revised Statement
applies to “….circumstances when communications regarding claims and possible claims
involve the entity’s in-house legal counsel….”, yet paragraph 10 of CAS 501 only requires
direct communication with the entity’s external legal counsel.
We acknowledge that paragraph 9(a) of CAS 501 does require an auditor to “inquire” of inhouse legal counsel, however the focus on the proposed revised statement is on the inquiry
letter itself (i.e. what we see as the “direct communication” referred to in paragraph 10 of
CAS 501), and doesn’t make it clear if the inquiries required in paragraph 9(a) of CAS 501
must only be done through an inquiry letter.
In addition, the conforming amendments to paragraph CA25a of CAS 501 state that the
proposed revised Statement applies to written communications between auditors and the
entity’s in-house legal counsel.
We believe the proposed revised Statement and/or CAS 501 needs to clarify when written
communications with in-house legal counsel are required.
Yours sincerely,
BDO Canada LLP
Patricia Gonsalves
Associate – Assurance Standards
5
Toronto, ON
M5V 3H2
Via email: [email protected]
Ms. Sarah MacKenzie
Staff Lawyer – Legislation and Law Reform
Ottawa, ON
K1S 5S8
Via email: [email protected]
Re: Exposure Draft – Joint Policy Statement Concerning Communications with Law Firms Regarding
Claims and Possible Claims in Connection with the Preparation and Audit of Financial Statements
Dear Sirs:
The member firms of NEXIA CANADA welcome the opportunity to comment on the Exposure Draft –
Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible
Claims in Connection with the Preparation and Audit of Financial Statements.
RESPONSES TO QUESTIONS
Statement are appropriate and adequately described? In particular, do you agree that this
revised Statement should apply to circumstances when communications regarding claims and
possible claims involve the entity’s in-house legal counsel who is acting in a legal capacity by
We agree that the purpose and scope set out in paragraphs 1 – 4 are appropriate and
adequately described. We also agree that the Statement should apply to in-house legal counsel
acting in a legal capacity by performing a role that would commonly be performed by external
legal counsel.
–2–
appropriate?
Yes, we agree.
Yes, we agree.
4. Do you agree with the proposed content of the examples in Schedules A through E? If not, what
Yes, we agree. We believe that the provision of illustrations of management’s evaluation of
claims and possible claims, as set out in Schedule B are useful.
of assisting auditors and law firms, together with financial statement preparers, to communicate
effectively with respect to claims and possible claims as part of the auditor’s examination of
financial statements? If not, please specify what other material should be added to the revised
Statement.
Yes, we agree.
out in Appendix II?
Yes, we agree
amendments proposed would need to meet the criteria set out in Appendix II, under the heading
“Criteria for amending ISAs when adopting them as CASs.”
We are not aware of any other conforming amendments.
–3–
Should you wish to discuss the contents of our comments or require further elaboration on any of the
items presented herein, please do not hesitate to contact us.
Yours truly,
NEXIA CANADA
As represented by its affiliate firms:
Grant Block, CA
Davidson & Company
Vancouver, British Columbia
John J. Geib, CA
John J. Geib, Chartered Accountant
Calgary, Alberta
Graham Sweett, CA
Lyle, Tilley, Davidson
Halifax, Nova Scotia
Stephen Schecter, CPA, CA
Nexia Friedman
Montreal, Quebec
Dov Wolman, CPA, CA
Perreault Wolman Gryzwacz and Co.
Montreal, Quebec
Laurence W. Zeifman, CPA, CA
Zeifmans LLP
Toronto, Ontario
April 6, 2015
Mr. Greg Shields, CPA CA
Toronto, ON M5V 3H2
And
Ms. Sarah MacKenzie
Staff Lawyer – Legislation & Law Reform
Ottawa, ON K1S 5S8
Dear Mr. Shields and Ms. MacKenzie
Joint Policy Statement Concerning Communication with Law Firms Regarding Claims and
Possible Claims in Connection with the Preparation and Audit of Financial Statements
We welcome and thank you for the opportunity to comment on the proposed Joint Policy Statement
Concerning Communication with Law Firms Regarding Claims and Possible Claims in Connection with
the Preparation and Audit of Financial Statements (revised Statement).
Overall comments
Specific questions raised by AASB and CBA Committee
revised Statement are appropriate and adequately described? In particular, do you
agree that this revised Statement should apply to circumstance when communications
regarding claims and possible claims involved the entity’s in-house legal counsel who is
external legal counsel ?
We agree with the purpose and scope of the proposed revised Statement, and in particular we agree
that the revised Statement apply to communications with in-house legal counsel.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, www.pwc.com/ca
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Mr. Greg Shields and Ms. Sarah MacKenzie
The Canadian Institute of Chartered Accountants
responsibilities and communication processes of management, the auditor and the law
firm is appropriate?
We agree with the guidance, however, because the inquiry letter refers to a request that the law firm
acknowledges receipt to management and the auditor of the inquiry letter, we believe that this should
be added to the responsibilities of the law firm in the revised Statement and not only included in the
form and content of the inquiry and response letter.
clearly understood and consistently interpreted and applied ?
Paragraph 50 and 53 should address the circumstances where there are no known claims and possible
claims outstanding. CAS 501.A22, contemplates that it is appropriate to send a general inquiry letter
and we know that in practice general inquiry letters are used often to provide assurance on
completeness of claims. As a result, we believe that it would be more appropriate to provide guidance
in order to improve consistency in the application.
4. Do you agree with the proposed content of the examples in Schedules A though E? If
not, what aspects are not useful, or what is missing? Specifically, what your view about
including in the revised Statements illustrations of management’s evaluation of claims
and possible claims in an inquiry letter, as set out in Schedule B?
We agree with the content of the examples, however, we believe that an example of an inquiry letter
and a response letter to confirm that there are no claims or possible claims are outstanding, would be
useful. Such example is included in the current joint policy statement.
5. Do you agree that the proposed revised Statements is sufficiently comprehensive for the
purpose of assisting auditors and law firms, together with financial statement
preparers, to communicate effectively with respect to claims and possible claims as part
of the auditor’s examination of financial statements? If not, please specify what other
material should be added to the revised Statement.
We agree that the proposed revised Statements is sufficiently comprehensive.
6. Do you agree with the proposed confirming amendments to paragraph CA25a of CAS
We agree with the conforming amendment.
2
Mr. Greg Shields and Ms. Sarah MacKenzie
The Canadian Institute of Chartered Accountants
the existing Statement? If so, please describe the nature and extent of the changes.
Note that any amendments proposed would need to met the criteria set out in Appendix
II under the heading “Criteria for amending ISAs when adopting them as CASs.”
We do not believe that further confirming amendments are required to CAS 501.
We trust that our comments will be helpful to the Board. We would be happy to discuss them at your
convenience. Any questions can be directed to Edyta Jewula (edyta. [email protected] or 905-8156377) or to Kerry Gerber ([email protected] or 416-365-8834).
Yours very truly,
[Signed PricewaterhouseCoopers LLP]
Chartered Professional Accountants
3
April 6, 2015
Director, Auditing and Assurance Services
Toronto, ON M5V 3H2
Grant Thornton LLP
12th Floor
50 Bay Street
Toronto, ON
M5J 2Z8
T +1 416 366 4240
F +1 416 360 4944
www.GrantThornton.ca
Raymond Chabot Grant Thornton LLP
Suite 2000
National Bank Tower
600 De La Gauchetière Street West
Montréal, Québec
H3B 4L8
T + 514 878 2691
F + 514 878 2127
www.rcgt.com
Sarah MacKenzie
Staff Lawyer – Legislation & Law Reform
Ottawa, ON K1S 5S8
Email: [email protected] and [email protected]
Dear Mr. Shields and Ms. MacKenzie:
Subject: Exposure Draft – Joint Policy Statement Concerning Communications with Law Firms
Regarding Claims and Possible Claims in Connection with the Preparation and Audit of Financial
Statements
We are pleased to have the opportunity to comment on the Audit and Assurance Standards Board (the “AASB”)
and the Canadian Bar Association Committee’s (the “CBA Committee”) exposure draft Joint Policy Statement
Concerning Communications with Law Firms Regarding Claims and Possible Claims in Connection with the Preparation and Audit
of Financial Statement (the “Exposure Draft”). We believe that there is a need for an updated Joint Policy
Statement between Auditors and Lawyers as much has changed in both the accounting, auditing and legal worlds
since the current Joint Policy Statement (the “Statement”) was issued in 1978. For example:



Multiple accounting frameworks are now used in practice, requiring law firms to be familiar with all current
standards in order to appropriately respond under the Statement;
In-house legal counsel are now being used in addition to (or in place of) the traditional external legal counsel
for litigation matters; and
More stringent dates are required for the dating of the legal letter response, resulting in a much shorter
timeline for the law firms to prepare their response.
Member of Grant Thornton International Ltd
However, as detailed in our responses listed in Sections 1 and 2 of this letter, we have concerns about how the
interpretation of some of the wording in the Exposure Draft could have in practice.
Should you wish to discuss any of our comments, please do not hesitate to contact Katherine Schamerhorn
([email protected]) or Jean-François Trépanier ([email protected]).
Katherine Schamerhorn, CA
Grant Thornton LLP
Jean-François Trépanier, CPA, CA
Raymond Chabot Grant Thornton LLP
Section 1 – Comments requested from both the AASB and the CBA Committee
Statement are appropriate and adequately described? In particular, do you agree that this revised
Statement should apply to circumstances when communications regarding claims and possible
claims involve the entity’s in-house legal counsel who is acting in a legal capacity by performing
a role that would commonly be performed by external legal counsel?
We agree that the purpose and scope in paragraphs 1-4 of the proposed revised Statement is sufficient.
Communications should include in-house legal counsel when acting in a legal capacity as there are many
instances where client will use in-house legal counsel as opposed to external legal counsel. Therefore,
inclusion is appropriate to ensure that the audit team obtains sufficient audit evidence for any outstanding
litigation claims or possible claims, whether the claim is being dealt with by in-house legal counsel or
external counsel.
However, please refer to Question 2 below for our concern regarding the objectivity of the in-house legal
counsel.
It should be noted that in the province of Quebec, a Notary Public is a trained lawyer who is licensed to
practice law, allowing the notary to represent clients in all matters as legal counsel otherwise would, with
the exception of pleading in court. If the new scope is to be updated to include in-house legal counsel, it
would be appropriate to include in the definitions in Paragraph 5 that a Quebec Notary Public can fulfill
the role of legal counsel. Communications regarding claims and possible claims must also be sent to such
notaries if management has used these professionals for legal advice.
appropriate?
We have concerns regarding the objectivity of in-house legal counsel. It is understood that in-house legal
counsel will not be independent the way an external legal counsel would be, however, we are concerned
by their objectivity, even when working in a legal capacity. Depending on the in-house legal counsel’s
chain of reporting (i.e. do they report to management or the board of directors/audit committee), there
may be potential for a bias or conflict that would impact the response letter. Throughout the proposed
revised Statement, it is clear that an inquiry letter would only be sent to in-house legal counsel when
acting in a legal capacity, however there is no discussion regarding the impact of the in-house legal
counsel working closely with management, such aswhen the in-house legal counsel assisted in developing
an estimate.
We recommend that, similar to the guidance provided in CAS 620 when an auditor’s expert is also
management’s expert, steps are taken to overcome the threat to objectivity. Written representation from
the in-house legal counsel may be appropriate to gain assurance that in-house counsel has responded with
an objective state of mind.
Particular wording in Paragraph 14 could be interpreted as it is acceptable for management to withhold
information on claims or possible claims based on exercising its right of privilege. As auditors, this
wording leads us to believe there is a risk of a quantitative or qualitative impact on the financial
statements if management believes they can withhold claims or potential claims. Per paragraph 14, if
potential claims are withheld, the auditor cannot obtain the necessary sufficient and appropriate audit
evidence regarding the completeness and accuracy of potential claims. Guidance is not provided to
ensure management understands all claims and potential claims must be included, regardless of the
concept of right of privilege.
Although there are safeguards in place to ensure the auditor is aware of all claims (requirements per CAS
501, including obtaining written representation from management that claims and possible claims have
been disclosed), more concrete guidance needs to be included.
Similarly, Paragraph 50(f) allows for management (in conjunction with discussions with their auditor) to
exclude specific quantitative thresholds below which, claims and possible claims from the inquiry letter.
This allows for a two-fold problem that could materially impact the financial statements:


There may be many individual small claims or possible claims where the quantitative amount is below
the agreed upon threshold, but in the aggregate could materially impact the financial statements; and
A claim may be estimated by management to be under a specific quantitative threshold and therefore
excluded from the inquiry letter. There is the possibility that the claim has been understated. By
excluding this claim due to the threshold amount, legal counsel will not review the claim to determine
if the estimate is realistic.
We recommend that additional detail be added to the proposed revised Statement which instructs that
management must include all claims and possible claims on the inquiry letter, regardless of right of
privilege or amounts below a certain quantitative threshold. This will remove the ambiguity for
management as to what is to be included versus excluded in the inquiry letter. This will allow the auditor
to ensure that they are able to independently review the response letter which includes every claim to
determine appropriate financial statement note disclosure when necessary. If the ability to exclude claims
is maintained paragraph 40 should be revised to make reference to exclusions specified in the inquiry
letter, par.50(g)(iv).
4. Do you agree with the proposed content of the examples in Schedules A through E? If not, what
Schedules A through E will provide management and law firms useful examples for which to model their
inquiry letters and the response letters from. However, as discussed above in Question 3, the proposed
revised Statement allows management to exclude claims and possible claims below a certain quantitative
threshold from the inquiry letter. We do not believe this paragraph allowing claims below a certain
quantitative threshold should be part of the example financial statements for reasons discussed in
Question 3.
Schedule B includes realistic and straightforward examples for management to model their inquiry letters
after. These illustrations will provide context for management as well as give them a starting point for
their own inquiry letters. The existing joint policy statement provides an example where there are no
claims or possible claims listed; a similar illustration should be included in the new joint policy statement.
Statement.
Other than our concerns as noted above in Questions 2 and 3, we agree that the proposed revised
Statement provides sufficient detail and guidance for auditors, management and law firms to
communicate effectively regarding claims and possible claims as part of the auditor’s examination of
financial statements.
Section 2 – Comments requested from those applying Canadian Auditing Standards
out in Appendix II?
Yes. The proposed conforming amendments make it clear that legal counsel will also include in-house
legal counsel when acting in legal capacity.
amendments proposed would need to meet the criteria set out in Appendix II, under the heading
“Criteria for amending ISAs when adopting them as CASs.”
We do not think there are any additional conforming amendments required to CAS 501.
Memo to the members of the CBA on the JPS task force Object: the French translation of the JPS These are commentaries on the French translation of the Exposure Draft of the proposed JPS (as proposed by the AASB). I do not pretend to be a translator. I also do not pretend to be an accountant or an auditor. These comments are of two kinds: some address directly the logic behind the JPS and the fact that this logic is lost in translation; others address directly the translation itself. 1.
Logical issues with the translation 1.1
Privilege The first difficulty encountered in the text relates to the concept of privilege. As I understand the Exposé that is contained in the Fundamental concepts section, the word “privilege” in English encloses both the Solicitor -‐ Client privilege and the Litigation privilege. In Blank, justice Fish of the Supreme court of Canada wrote that these privileges are not part of the same concept but are distinct. In fact, under the Quebec Charter of Rights and Freedoms (paragraph 49), the Solicitor -‐ Client privilege has been encased as a fundamental right as the « secret professionnel de l’avocat ». The litigation privilege has not been treated as such. In the French version of the JPS, I believe that there is confusion between the two concepts. English version French version Suggestion 1. … such access does not … cet accès ne nuise pas au … cet accès ne nuise pas au affect confidentiality and caractère confidentiel des caractère confidentiel des privilege communications ni au communications entre l’avocat secret professionnel de et son client ni au privilège l’avocat… relatif au litige… 8. … there are two types Il y a deux types de secret Il y a deux types de privilège : of privilege: … litigation professionnel 1 : … le … le privilège relatif au litige… privilege … solicitor-‐ privilège relatif au litige… le le secret professionnel de client privilege … secret professionnel de l’avocat… l’avocat… 11. Privilege can be La protection du secret Le secret professionnel de lost… professionnel peut l’avocat et le privilège relatif à 1 This is patently false. In Quebec law, there is only one « secret professionnel de l’avocat », and one « privilège de l’instance ». In Informatique Côté, Coulombe inc. c. Groupe Son X Plus inc., 2012 QCCA 2262, the Court of Appeal in Quebec reminded us that, in Blank, it had been decided that the «secret professionnel de l’avocat» and the «privilège relatif à l’instance» were two distinct concepts and not part of a unique concept. disparaître lorsque les informations couvertes par le secret professionnel sont divulguées… 12. Management’s La lettre de demande… sont inquiry letter … are censées demeurer intended to remain protégées par le secret privileged… professionnel… 14. … right to privilege … l’instance peuvent disparaître lorsque les informations qu’ils protègent sont divulguées… La lettre de demande… sont censées demeurer protégées par le secret professionnel de l’avocat et le privilège relatif au litige… … droit au secret … droit au secret professionnel professionnel… de l’avocat et au privilège relatif au litige… … le secret professionnel de … le secret professionnel de l’avocat et le caractère l’avocat et le privilège relatif confidentiel … au litige … 41. … that confidentiality and privilege of lawyer – client communication be maintained2. 50. and 53. “Privileged «Strictement confidentiel» and confidential” «Protégé par le secret professionnel et le privilège relatif au litige »3 1.2
Law firm For some reasons that are now unclear to me, we have decided to use in the main text the expression “law firm” which has a plural connotation and we have defined that expression as including a sole practitioner or an in-‐house counsel. The French version is even worse as it uses the expression « cabinet d’avocats » (note the “s” in the word « avocats »), which is definitely a plural expression, and then proceeds to define it as including one professional acting as an individual or one in-‐house counsel. It seems to me that, when you write a law, you first assert concepts in general / singular and then proceed to include other cases under the definition of these concepts, if necessary. It would be more logical to describe a lawyer and then include in the notion of lawyer a law firm or an in-‐house counsel. In French, it would make more sense to describe an « avocat » and then include into that notion a « cabinet d’avocats » and a « conseiller juridique interne ». 2 Both concepts relate to the same object: confidentiality of the relation between a lawyer and her / his client. Isn’t it possible that what was meant, in English, was that both privileges would be maintained: litigation and solicitor – client privileges? 3 The question is: do we, as lawyers, try to adapt a document so that it has the exact same meaning and utility in both official languages or do we recognize some differences between the two legal systems? If the idea is to extend both privileges to the English-‐ and French-‐speaking lawyer, then, I respectfully submit, the English expression “privilege” should be translated to « secret professionnel de l’avocat et privilège relatif au litige » in the entire French text, even though it is much longer that way. In fact, when it comes to auditors, the Statement does not define an audit firm as including an auditor or vice versa. I strongly believe that the same should go for lawyers. 1.3
Intended In paragraph 11, the phrase « Disclosures pursuant to this statement are not intended to waive privilege » whereas in French, it says « Il n’est pas prévu que la communication … entraine … ». The phrase « Il n’est pas prévu que… » does not have the same meaning as the English version. Although the word « intended » can sometimes mean « prévu », I believe that here, the intent was to affirm the privilege or right, in English as in French: 11. Disclosures … do not waive privilege. La communication … n’entraîne pas la renonciation au secret professionnel ni au privilège relatif au litige. The same would apply to paragraph 12: 12. Management’s inquiry letter and the La lettre de demande … demeurent response… remain privileged… protégées par le secret professionnel de l’avocat et le privilège relative au litige… 2.
Translation and textual issues 2.1 Definitions In the Definitions section, the word “Claim” is defined as “a matter … that is, or may become, litigious” whereas the French version defines « Réclamation » as « tout dossier litigieux », which excludes matters that may become litigious. It should say « toute affaire litigieuse ou qui pourrait le devenir » or something equivalent. In subsection ii) of the same definition, the French version translates the word “demand” by « réclamation » which introduces a circular definition, as a « réclamation » is therefore a « réclamation », which is also a « réclamation », and so on. I would respectfully suggest to retain the word « demande » for “demand”. In definition k), “docket entries” has been translated by « registre des réclamations ». I have a vague idea of what such a register is, but I am quite sure that it does not correspond to docket entries. According to Wikipedia, a docket in the United States is the official summary of proceedings in a court of law. Although I am usually suspicious of Wikipedia’s entries, this one seems pretty consistent. I am wondering if someone would have a better term to propose either in English or French. 2.2 Opinion without reservation This expression, found in paragraphs 14 and 47, has been translated by « opinion non modifiée » (unmodified opinion), which I do not believe to be true to the meaning of reservation… I am not an expert in accounting or auditing but I believe that, in that context, the French expression « sans réserves » (in the sense of without doubt) would be more appropriate. 2.3 Risk of material misstatement In paragraphs 18 and 30, this expression was rendered in French by « risque d’anomalies significatives ». Again, I am not an expert in accounting or auditing but, in law, a misstatement is somewhat more than an « anomaly ». I suggest therefore the use of « risque d’inexactitude importante »4. 2.4 Matters In paragraph 26 (and in the definition of Claims), the translation of “Matters” is « Dossiers », which roughly translates back to “Files”, “Records” or “Cases”. In general, I would suggest the word « Affaires »5. 2.5 Other comments on the quality of the writing This is one of my pet peeves, which is not shared by many, I fear. In these lengthy texts, the quality of the writing is not always good or uniform. The translation renders “17. Management of the entity is responsible for:” by an indirect expression in French: « Il incombe à l’entité de : ». It seems to me (!) that this would have been more appropriate: « 17. La direction de l’entité doit : » In general, I believe a normative text should be more direct than indirect. Another example: paragraph 23 requires assessing the likelihood of a possible cash flow associated with a possible outcome. In a world of so many possibilities, how is one supposed to assess that? How can someone transform a triple possibility into an assessment? In French, the same paragraph requires to assess the probability of these 4 Vocabulaire de la vérification publique / Vocabulary of public sector auditing, Gagnon, Louiselle, Ottawa, Secrétariat d'État du Canada / Secretary of State, Bureau de la traduction, Direction de la terminologie et des services linguistiques, 1992. This would have also the advantage of avoiding what we call an «anglicisme». 5 « Affaire », in this context, does not translate back to “Affair” (as in The End of the Affair, the famous Graham Greene novel, La fin d’une liaison, in French). possibilities. In law, it has been decided many decades ago that two possibilities do not make one probability. But who am I to judge of the divinatory powers of an auditor? The French version of paragraph 25 is even less clear than the English version. Where the English version states that “the amounts recorded … are not attributable to the law firm”, the French version introduces further convolution in stating that “one should not consider that the amounts … emanate from the law firm…” Wouldn’t it have been easier to write: «25. Les montants … ne sont pas imputables au cabinet…», therefore simply copying the structure of the English version? In section 36, instead of writing «… présentées par l’entité ou dont celle-‐ci fait l’objet », it would have been simpler to write: « … présentées par ou contre l’entité. » This concludes my comments on the translation of the JPS. My only concern was to make this document more logical, coherent and readable. It is a very long document, written in often technical terms, which are then to be read by laymen (and women), most of them lawyers who won’t even bother to read the JPS, only its appendices. It should not be viewed as a critic against translators nor against auditors. Marc Lemaire Tremblay Bois Mignault et Lemay, Quebec city April 5, 2015 6 April 2015
Board
Toronto ON M5V 3H2
[email protected]
Ms. Sarah MacKenzie
Staff Lawyer- Legislation & Law Reform
Ottawa ON K1S 5S8
[email protected]
Dear Mr. Shields/Ms. MacKenzie
Re: Proposed Joint Policy Statement Concerning Communications with Law Firms
We are pleased to provide comments on the proposed revised “Joint policy statement concerning
communications with law firms regarding claims and possible claims in connection with the
preparation and audit of financial statements” (the “Statement”).
Overall we are supportive of the changes to the Statement and believe these will significantly
improve communications among management, the auditor and law firms with respect to claims
and possible claims as part of the financial statement audit. The Statement provides greater
clarity on the respective responsibilities of the parties involved and we agree that it should be
applied in circumstances where in-house legal counsel is acting in a legal capacity by performing a
role that commonly would be performed by external legal counsel.
We have provided specific responses to the questions asked in the Statement in the attached
Appendix.
We hope our comments are useful to the Auditing and Assurance Standards Board and Canadian
Bar Association Committee in their deliberations on the Statement. If you have any questions
please contact Kam Grewal (e-mail: [email protected]).
Yours sincerely
A member firm of Ernst & Young Global Limited
Page 2
Appendix
Joint Policy Statement Concerning Communications with Law Firms Regarding Claims and Possible
Claims in Connection with the Preparation and Audit of Financial Statements
Responses to Questions in Proposed Revised Joint Policy Statement
Question 1
Do you agree that the purpose and scope set out in paragraphs 1-4 of the proposed revised
Statement are appropriate and adequately described? In particular, do you agree that this revised
Statement should apply to circumstances when communications regarding claims and possible
claims involve the entity’s in-house legal counsel who is acting in a legal capacity by performing a
role that would commonly be performed by external legal counsel?
Response:
We agree. In our assurance engagements we currently receive letters from internal counsel of
varying quality and consistency. Having greater formality around our communications with
internal counsel is a welcome improvement.
Question 2
Do you agree that the guidance in the proposed revised Statement addressing the roles,
appropriate?
Response:
Overall we agree the guidance in the proposed revised Statement addressing the respective roles,
responsibilities and communications of the parties involved is appropriate.
Question 3
Do you agree that the guidance in the proposed revised Statement is capable of being clearly
Response:
We agree the guidance in the proposed revised Statement is capable of being clearly understood
and consistently interpreted and applied.
Question 4
Do you agree with the proposed content of examples in Schedules A through E? If not, what
aspects are not useful, or what is missing? Specifically, what are your views about including in the
Page 3
revised Statement illustrations of management’s evaluation of claims and possible claims in an
inquiry letter, as set out in Schedule B?
Response:
The illustrations are helpful and will promote greater consistency.
Questions 5
Do you agree that the proposed revised Statement is sufficiently comprehensive for the purpose
Statement.
Response:
Consideration should be given to providing guidance on when it is appropriate for the auditor to
request an updated response letter versus sending a new inquiry letter.
Question 6
Do you agree with the proposed conforming amendments to paragraph CA25a of CAS 501 set out
in Appendix II?
Response:
We agree with the proposed conforming amendments to paragraph CA25a of CAS 501.
Question 7
Are there any other conforming amendments required to CAS 501 as a result of revising the
existing Statement?
Response:
We are not aware of any other conforming amendments required.

501.09 does not require the auditor to communicate with the law firm

Transcription

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