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HomeMy WebLinkAboutFIN 21-17r PICKERING Report to Executive Committee Report Number: FIN 21-17 Date: November 6, 2017 From: Stan Karwowski Director, Finance & Treasurer Subject: 2017 Year End Audit Recommendation: 1. That the Audit Service Plan as submitted by Deloitte LLP, included in this report, be received for information. Executive Summary: In accordance with generally accepted auditing standards, the Audit Plan is prepared to communicate the auditor's approach and reporting responsibilities to the Executive Committee, who has oversight responsibility for the financial reporting process. This plan is submitted prior to the commencement of the year end audit. Financial Implications: The base audit fee for City and Library is estimated at $70,000. This is the same fee as in the previous year. Sufficient provision is available in the 2017 budget. Discussion: In the Committee's role as the body responsible for oversight of the financial reporting process, it must review the Audit Plan for the 2017 year end audit. The Audit Plan includes the scope of the audit services to be provided, the auditor's reporting responsibilities and an outline of the audit approach. It is included as Attachment 1 to this report. Attachments: 1. 2017 Audit Service Plan FIN 21-17 Subject: 2017 Year End Audit November 6, 2017 Page 2 Prepared By: Kristine Senior, CPA, CA Manager, Accounting Services Approved/Endorsed By: Stan Karwowski, MBA, CPA, CMA Director, Finance & Treasurer Recomm of Picker' ed for the consideration ity Council Tony Preve..Eng. Chief Adminis native Officer ATTACHMENT# f TO REPORT# ice- ;1r Deloitte: The Corporation of the City of Pickering 2017 Audit service plan For the year ending December 31, 2017 To be presented to the Executive Committee November 6, 2017 Deloitte October 19, 2017 To the Members of the Executive Committee of The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 2017 Audit service plan Dear Executive Committee members: Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K OC3 Canada Tel: 416-601-6150 Fax: 416-501-6151 www,deioitte.ca We are pleased to present our 2017 audit service plan for The Corporation of the City of Pickering ("the City"), which describes our audit scope and strategy, our audit approach and our planned communications with you. Our audit will include: ▪ An audit of the City of Pickering's consolidated financial statements (the "Financial Statements") for the year ending December 31, 2017 prepared in accordance with Canadian Public Sector Accounting Standards ("PSAS") • An audit of the City of Pickering Public Library Board's financial statements for the year ending December 31, 2017 prepared in accordance with Canadian PSAS, and B An audit of the Trust Funds of the City of Pickering's financial statements for the year ending December 31, 2017 prepared in accordance with Canadian Accounting Standards for Not -for - Profit Organizations. We are providing this audit service plan to the Executive Committee ("the Committee") on a confidential basis. It is intended solely for the use of the Committee to assist you in discharging your responsibilities with respect to the Financial Statements and is not intended for any other purpose. Accordingly, we disclaim any responsibility to any other party who may rely on it, We look forward to discussing our Audit service plan with you and to answering any questions that you may have. Yours truly, ce-60:; LL Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering 1 Table of contents Table of contents Our audit explained 1 Significant audit risks 3 Appendices Appendix 1 - Audit approach Appendix 2 - Communication requirements Appendix 3 -- New and Revised Public Sector Accounting Standards © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Our audit explained Our audit explained Group audit i Vdhen designing our audit strategy, we consider: o The financial significance or relative importance of the consolidated entities or any government business enterprises accounted for on a modified } equity balls . The complexity and nature of the operations, internal control and accounting issues on each consolidated entity, and e The degree of centralization or decentralization of processes and controls. We intend to use the work of the auditor of Veridian Corporation. We will complete all required communications with the Component auditor, ensure [the accounting for the City's share of Veridian income ! is appropriate and ensure the disclosures in the Financial Statements are adequate. Audit scope and terms of engagement We have bean engaged to perform the audits of the City, Library, and Trust Fund's Financial Statements as at, and for the year ending, December 31, 2017 (the "Financial Statements") prepared in accordance with Canadian Public Sector Accounting Standards ("PSAS") for the City and the Library Board and Canadian Accounting Standards for Not -For -Profit Organizations for the Trust Funds. Our audits will be conducted in accordance with Generally Accepted Auditing Standards ("GAAS"). The terms and conditions of our engagement are described in the master services agreement which is dated October 28, 2016. We have scheduled the interim audit the week of November 20, 2017 and the year-end fieldwork commencing March 26, 2018. Scope and terms of engagement We are responsible for providing reasonable assurance that your Financial Statements as a whose are free from material n-iisstetement. Our materiality levels are based on professional judgment and will be determined using total expenses or fund balances as a reference point for the ultimate determination of materiality as follows: . Consolidated Financial Statements for the City -- 2.5 - 3.0% of expenses • City of Pickering Public Library Board - [ approximately 3% of expenses,' and [ . City of Pickering Trust Funds - approximately 3% of fund balances. We will inform the Executive Committee of all uncorrected misstatements Greater than a clearty trivial amount (5% of materiality) and any misstatements that are, in our judgment, qualitatively material. In accordance with Canadian GAAS, we will ask that any misstatements be corrected. Significant audit risks Through our preliminary risk assessment process, we have identified the significant audit risks. These risks of material misstatement and related audit responses are described in the Significant audit risks section of this report. @ Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Our audit explained Fraud risk We will develop our audit strategy to address the assessed risks of material misstatement due to fraud. Determining this strategy will involve: 1. Asking people involved in the financial reporting process about inappropriate or unusual activity. 2. Testing a sample of journal entries throughout the period as well as adjustments made at the end of the reporting period. 3. Identifying and obtaining an understanding of the business rationale for significant or unusual transactions that are outside the normal course of business. 4. Evaluating whether your accounting policies may be indicative of fraudulent financial reporting resulting from management's effort to manage results. 5, Evaluating whether the judgements and decisions related to management estimates indicate a possible bias. 6. Incorporating an element of unpredictability in selecting our audit procedures. We will also ask the Executive Committee for theft views about the risk of fraud, whether they know of any actual or suspected fraud affecting the City and their role in the oversight of management's antifraud programs. If we suspect fraud involving management, we will immediately inform the Executive Committee of our suspicions and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. Complete engagement t reporting Under Canadian GAAS, we are required [to communicate certain matters to the Executive Committee, The primary reports and formal communications through which we will address these matters are: o This Audlt Service Plan • Year End Communication, and s Our Auditor's Reports on the Financial Statements. Further details on our communication requirements can be found in Appendix 2. Reliance on ser' c The City employs the following third party service organization in an outsourcing arrangement that impacts financial reporting information: • ADP Canada (payroll) We intend to rely on the service auditor's report issued for this third party service organization. If our assessment does not provide us with sufficient appropriate audit evidence, we will need to perform additional audit procedures to address the risks of material misstatements in tbbe Financial Statements. We also intend to use the work of the City's actuary in their determination of the City's post -employment and worker's compensation benefits. We will review and test any data and assumptions used, ensure the disclosure in the Financial Statements is adequate and that the actuary is in good standing with the Canadian institute of Actuaries. Audit fees We propose audit fees of $64,250 (2016 - $64,250) for the audits of the City and Trust Funds' Financial Statements. We propose fees of $5,750 {2016 - $5,750) for the audit of the Library's Financial Statements. We will add FEST to our billings. 2 Q Deloitte LLP and affiliated entities TheCorporation of the City of Pickering 1 Significant audit risks Significant audit risks The following tables set out the significant audit risks that we identified during our preliminary planning activities, including our proposed response to each risk. Our planned audit response is based on our assessment of the likelihood of a risk's occurrence, the significance should a misstatement occur, our determination of materiality and our prior knowledge of the City. RFK r:PL e r�_'c F r6€L.�rBYra Audit Hsk Canadian GAAS include the presumption of a fraud risk involving improper revenue recognition. (Revenue/deferred revenue) ride -ztf inantrcr`e Audst =iek Under Canadian Auditing Standards, it is the responsibility of the management, with the oversight of those charged with governance, to place a strong emphasis on fraud 'prevention and detection. Oversight by those charged with governance includes considering the potential for override of controls or other inappropriate influence over the financial reporting process. Management override of controls is present in all entities. It is a risk of material misstatement resulting from fraud and therefore is considered as a significant risk, Our prop -t....4_ • Certain revenue streams are presumed areas of significant audit risk. We will test the design and implementation of controls in significant revenue streams and perform substantive analytic procedures and/or detailed testing in these areas, and • Substantive testing to determine if restricted contributions (i.e,, development -charges), and government transfers/grants have been recognized appropriately, (Revenue vs. deferred revenue). amidst r�Mp,os e a Engage in periodic fraud discussions with certain members of senior management and others ® Consider the potential for bias h judgments and estimates, including performing retrospective analysis of significant account ng estimates o Evaluate the business rationale for any significant unusual transactions ▪ Evaluate the City's fraud risk assessment and consider entity -level internal controls and internal controls over the closing and reporting process + Test journal entries that exhibit characteristics of possible management override of controls, identified using manual techniques. As we perform our audit procedures, we will inform you of any significant changes to the significant risks discussed above and the reasons for those changes. 3 0 Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 1 - Audit approach Appendix 1 - Audit approach Deloitte's audit approach is a systematic methodology that enables us to tailor our audit scope and plan to address the unique issues facing the City. The following steps are not necessarily sequential nor are they mutually exclusive. For example, once we have developed our audit plan and the audit is being performed, we may become aware of a risk that was not identified during the planning phase. Based on that new information, we would reassess our planning activities and adjust the audit plan accordingly. Tna la- pi nn na. The Deloitte audit approach begins with an extensive planning process that includes: • Assessing your current business and operating conditions • Understanding the composition and structure of your business and organization • Understanding your accounting processes and internal controls • • Understanding your information technology systems • Identifying potential engagement risks • Planning the scope and timing of internal control and substantive testing that take into account the specific identified engagement risks y. mr=s r _ ice. Etc afEr n em r, ri5k Our audit approach combines an ongoing identification of risks with the flexibility to adjust our approach when additional risks are identified. Since these risks may impact our audit objectives, we consider materiality in our planning to focus on those risks that could be significant to your financial reporting. Consideration of the risk of fraud When we identify a misstatement or control deficiency, we consider whether it may be indicative of fraud and what the implications of fraud and significant error are in relation to other aspects of the audit, particularly the reliability of management representations. In determining our audit strategy to address the assessed risks of material misstatement due to fraud, we will: • Assign and supervise personnel, taking into account the knowledge, skill and ability of individuals with significant engagement responsibilities and our assessment of the risks of material misstatement due to fraud for the engagement. • Evaluate whether the City's selection and application of accounting policies, particularly those related to subjective measurements and complex transactions, may be indicative of fraudulent financial reporting resulting from management's effort to manage results. • Incorporate an element of unpredictability when selecting the nature, timing and extent of our audit procedures. © Deloitte LLP and affiliated entities The Corporation of the City of Pickering j Appendix 1 - Audit approach We will inquire directly of the Executive Committee regarding: • Its views about the risk of fraud • Whether it has knowledge of any actual or suspected fraud affecting the City, and • The role it exercises in the oversight of fraud risk assessment and the establishment of mitigating controls. We will also inquire if the Executive Committee is aware of tips or complaints regarding the City's financial reporting and, if so, the Executive Committee's responses to such tips and complaints and whether it is aware of matters relevant to the audit, including, but not limited to, violations or possible violations of laws or regulations. If we suspect fraud involving management, we will communicate these suspicions to the Executive Committee and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. Information technology An important part of our audit planning process involves gaining an understanding of: 1. The importance of the computer environment relative to the risks to financial reporting 2. The way in which that environment supports the control procedures we intend to rely on when conducting our audit, and 3. The computer-based information that supports our substantive procedures. The objective of our review of computer controls is to identify potential areas of risk and assess the relevance, reliability, accuracy and completeness of the data produced by the systems. We also assess the design and implementation of the computer environment and determine the reliability of the financial information used to generate the financial statements. To accomplish this, we gain an up-to-date understanding of your organization's computer processing environment and our understanding of the • relevant general computer controls.. t k as yew - _h The performance of an audit includes evaluating the design and determining the implementation of internal controls relevant to the audit, testing the operational effectiveness of the controls we intend to rely on, and performing substantive audit procedures. Audit procedures The timing of our audit procedures is dependent upon a number of factors including the need to coordinate with management for the provision of supporting analysis and other documentation. Generally, we perform our audit procedures to allow us sufficient time to identify significant issues early, thereby allowing more time for analysis and resolution. Tests of controls As part of our audit, we will review and evaluate certain aspects of the systems of internal control over financial reporting to the extent we consider necessary in accordance with Canadian GAAS. The main objective of our review is to enable us to determine the nature, extent and timing of our audit tests and establish the degree of reliance that we can place on selected controls. An audit of the financial statements is not designed to determine whether internal controls were adequate for management's purposes or to provide assurance on the design or operational effectiveness of internal control over financial reporting. 0 Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 1 - Audit approach The extent to which deficiencies in internal control may be identified through an audit of financial statements is influenced by a variety of factors including our assessment of materiality, our preliminary assessment of the risks of material misstatement, our audit approach, and the nature, timing and extent of the auditing procedures that we conduct. Accordingly, we gain only a limited understanding of controls as a result of the procedures that we conduct during an audit of financial statements. We will inform the Executive Committee and management of any significant deficiencies that are identified in the course of conducting the audit. Substantive audit procedures Our substantive audit procedures consist of a tailored combination" of analytical procedures and detailed tests of transactions and balances. These procedures take into account the results of our controls tests and are designed to enable us to obtain reasonable assurance that the. financial statements are free from -material misstatements. To obtain this assurance, misstatements that we identify while performing substantive auditing procedures, wilt be considered in relation to the financial statements as a whole. Any misstatements that we identify, other than those that are clearly trivial (the clearly trivial threshold has been set at 5% of materiality), will be reported to management and the Executive Committee. In accordance with Canadian GAAS, we will request that misstatements be corrected. Use of the work of specialists The Deloitte audit is distinguished by the use of a broad range of industry and functional specialists who are integral to the audit team and carry a deeper understanding of specific topics. These specialists augment the core engagement audit team in understanding business processes and related risks, and help the audit engagement team apply an appropriate level of professional skepticism to challenge significant management assumptions. For the audit, we will use Deloitte computer assurance specialists to assist us in performing our audit procedures to test the design and implementation of general computer controls. Our specialists are actively involved in the planning and risk assessment process, and will be available to the audit team and the City management year-round to discuss ongoing risk assessments, industry developments and other matters of interest. 4.f TTS tFFr.g rd aEseEs,int4 Perform post -engagement activities We will analyze the results of the audit procedures performed throughout the year and, prior to rendering our report, we will conclude whether: • The scope of the audits was sufficient to support our opinion, and • The misstatements identified during the audits do not result in the financial statements being materially misstated. - Independence We have developed important safeguards and procedures to protect our independence and objectivity. If, during the year, we identify a breach of independence, we will communicate it to you in writing. Our communication will describe the significance of the breach, including its nature and duration, the action taken or proposed to be taken, and our conclusion as to whether or not the action will satisfactorily address the consequences of the breach and have any impact on our ability to serve as independent auditor to the City. We are independent of the City and we will reconfirm our independence in our final report to the Executive Committee. © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 2 - Communication requirements Appendix 2 - Communication requirements n'_ Frs d --„rtcfa urlict'un ��=ter ertcG AuditService Man' 1. Our responsibilities under Canadian GAAS, including forming and expressing an CAS 260.14 opinion on the financial statements 2. An overy€ew of the overall audit strategy, addressing:. a. Timing of the audits b. Significant risks, including fraud risks, and planned responsibilities of other independent public accounting firms or others that perform audit procedures ir• the audits CAS 260.15 3. Significant transactions -outside of the normal course of business, including related CAS 260 App. 2, party transactions GAS 550.27 Enquiries of thos,e4ilatige 4. How those charged with governance exercise oversight over management's process CAS 240.20 for identifying and responding to the risk of fraud and the interna[ control that management has established to mitigate these risks 5. Any known suspected oralleged fraud affecting the City CAS 240.21 6. Whether the City is in compliance with laws and regulations CAS 250.14 Yeas =end lcommunication 7. Fraud or possible fraud identified through the audit process CAS 240.40-.42 8. Significant accounting policies, practices, unusual transactions, and our related CAS 250.16 a. conclusions 9. Alternative treatments for accountinc policies and practices that have been CAS 260.16 a. discussed with management during the current audit period 10. Matters related to going concern CAS 570.23 11. Management judgments and accounting estimates CAS 260.16 a. 12. Significant difficulties, if any, encountered during the audits CAS 260.16 b. 13. Material written communications between management and us, including CAS 260.16 c. management representation letters 14. Other matters that are significant to the oversight of the financial reporting process CAS 250.16d. 15. Modifications to our opinions CAS 250.A18 '16. Our views of significant accounting or auditing matters for which management CAS 260.A19 consulted with other accountants and about which we have concerns 17. Significant matters discussed with management CAS 260.A.19 CAS: Canadian Auditing Standards - CAS are issued by the Auditing and Assurance Standards Board of CPA Canada O Deloitte LLP and affiliated entities The Corporation of the City of Pickering Appendix 2 - Communication requirements 18. Matters involving non-compliance with laws and regulations that come to our CAS 250.23 attention 19. Significant deficiencies in internal control, if any, identified by us in the conduct of CAS 265 the audits of the financial statements 20, Uncorrected misstatements and disclosure items CAS 450.12-13 21, Any sig: ificant matters arising during the audits in connection with the City's CAS 550.27 related parties C Dekoitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 3 — New and Revised Public Sector Accounting Standards Appendix 3 - New and Revised Public Sector Accounting Standards The following is a summary of certain new Public Sector Accounting Standards, amendments and proposals that wil€ become effective in 2018 and beyond. To review all recent amendments that will impact your organization in the foreseeable future, we invite you to review our revamped Standard-settinc= Activities Dloest, included in our Centre for Financial Reporting (www.cfr.deloitte.ca). Section PS 2200 — This Section defines a related party and This Section applies to fiscal years Related party disclosures establishes disclosures required for beginning. on or after April 1, 2017. Earlier related party transactions. adoption is permitted. Section PS 3210 — Assets This Section provides guidance for This Section applies to fiscal years applying the definition of assets and beginning•on or after April 1, 2017. Earlier establishes general disclosure standards adoption is permitted. for assets; but does not include standards for recognition and disclosure of specific types of assets, which are dealt with in other Handbook Sections. Section RS 332€ — Continoent assets This Section defines and establishes disclosure standards on contingent assets; but does not Include disclosure standards for specific types of contingent assets. This Section applies to fiscal years beginning an or after April 1, 2017. Earlier adoption is permitted. Section PS 3380 — Contractual riohts This Section defines and establishes disclosure standards on contractual rights; but does not include disclosure standards for specific types of contractual rights, and does not include those contractual rights to exchange one asset for another where revenue does not arise. This Section applies to fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted. Section PS 3420 — Enter- This Section establishes standards on entity transactions how to account for and report transactions between public sector entities that comprise a government's reporting entity from both a provider and recipient perspective. This Section applies to fiscal years beginning on or after April 1, 2017. Earlier adoption is permitted. Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 3 - New and Revised Public Sector Accounting Standards Tei ._W ,••.• offs L-=ve defe Section PS 3430 - Restructuring transactions This Section establishes standards on how to account for and report restructuring transactions by both transferors and recipients of assets and/or liabilities, together with related prograrn or operating responsibilities. This Section applies to restructuring transactions occurring in fiscal years beginning on or after April 1, 2018. Earlier adoption is permitted, Section PS 2601 - Foreicgn currency This section establishes standards on how to account and report transactions that are denominated in a foreign currency. - This Section is effective for: (i) Government organizations - fiscal years beginning on or after April 1, 2012, and (ii) Governments - fiscal years beginning on or after April 1,• 2019. Earlier adoption is permitted. Section PS 3450 - Financtal instruments This Section establishes standards on how to account for and report all types of financial instruments including derivatives. This Section is effective for; (i) Government organizations -- fiscal years beginning on or after April 1, 2012, and • (ii) Governments - fiscal years beginning on or after April 1, 2019. Earlier adoption is permitted. Section PS 1201 - F•irsancial statement presentation This Section establishes general repotting principles and standards for the disclosure of information in government financial statements. This Section is effective for: (i) government organizations for fiscal years beginning on or after April 1. 2012, and (ii) governments for fiscal years beginning on or after April 1, 2019. Earlier adoption is permitted. Section PS 3041 - Portfolio Investments This Section establishes standards on - how to account for portfolio investments. This Section applies in the period Financial Statement Presentation PS 1201, Foreign Currency Translation PS 2601 and Financial instruments PS 3450 are adopted. © Deloitte LLP and affiliated entities Deloitte www.deloitte. ca .Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. C Deloitte LLP and affiliated entities.