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HomeMy WebLinkAboutFIN 19-18C4 toe DICKERING Report to Executive Committee Report Number: FIN 19-18 Date: September 11, 2018 From: Stan Karwowski Director, Finance & Treasurer Subject: 2018 Year End Audit Recommendation: 1. That the Audit Service Plan as submitted by Deloitte LLP, included in this report, be received for information; and 2. That the Chief Administrative Officer and the Director, Finance & Treasurer be authorized to sign the confirmation of change to the master services agreement on behalf of the City. 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 2018 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 2018 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. The master services agreement (MSA) with Deloitte LLP (Deloitte), dated October 28, 2016, summarizes the services Deloitte will provide, their responsibilities and management's responsibilities. New and revised auditor reporting requirements have resulted in a new audit report for Financial Statement audits. The new reporting requirements and the expected form of the audit report are provided in the confirmation of change letter (Attachment 2). The signing of the confirmation of change confirms the mutual understanding of the changes to auditor reporting requirements and forms part of the master services agreement with Deloitte. FIN 19-18 September 11, 2018 Subject: 2018 Year End Audit Page 2 Attachments: 1. 2018 Audit Service Plan 2. Confirmation of Change Related to Auditor Reporting Requirements Prepared By: Kristine Senior, CPA, CA Manager, Accounting Services Approved/Endorsed By: Stan Karwowski, MBA, CPA, CMA Director, Finance & Treasurer Recommended for the consideration of Pickering City Council Tony Prevedel, P.Eng. Chief Administrative Officer e,,,,, 218 200 ATTACHMENT# / TO REPORT# 1c414 (et -18 Deloitte. The Corporation of the City of Pickering 2018 Audit service plan For the year ending December 31, 2018 To be presented to the Executive Committee September 11, 2018 Deloitte. August 23, 2018 Private and confidential To the Members of the Executive Committee of The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 2018 Audit service plan Dear Executive Committee members: Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca We are pleased to present our 2018 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, 2018 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, 2018 prepared in accordance with Canadian PSAS, and • An audit of the Trust Funds of the City of Pickering's financial statements for the year ending December 31, 2018 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, agio:a& Chartered Professional Accountants Licensed Public Accountants The Corporation of the City of Pickering I Table of contents Table of contents Our audit explained Audit risks 1 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 j Our audit explained Our audit explained Group audit When designing our audit strategy, we consider: • The financial significance or relative importance of the consolidated entities or any government business enterprises accounted for on a modified equity basis • The complexity and nature of the operations, internal control and accounting issues on each consolidated entity, and • 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 been engaged to perform the audits of the City, Library, and Trust Fund's Financial Statements as at, and for the year ending, December 31, 2018 (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, and the confirmation of changes dated August 23, 2018, to be signed on behalf of management and the Executive Committee. We have scheduled the interim audit the week of November 12, 2018 and the year-end fieldwork commencing March 25, 2019. Group Audit Materiality Audit risks Materiality We are responsible for providing reasonable assurance that your Financial Statements as a whole are free from material misstatement. 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 clearly 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. Audit risks Through our preliminary risk assessment process, we have identified the audit risks. These risks of material misstatement and related audit responses are described in the Audit risks section of this report. 1 © 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 their 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. Al,. Fraud Complete engagement 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: • This Audit Service Plan • Year End Communication, and • Our Auditor's Reports on the Financial Statements. Further details on our communication requirements can be found in Appendix 2. Our audit reports Communication with the Executive Committee Reliance on service organization 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 the 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. 2 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Audit risks Audit risks The following tables set out the 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, Revenue recognition* Audit risk Canadian GAAS includes the presumption of a fraud risk involving improper revenue recognition. (Revenue/deferred revenue) Management override of controls* Audit risk Under Canadian GAAS, 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. Proposed merger of Veridian Corporation and Whitby Hydro Energy Corporation Audit risk The shareholders of Veridian Corporation and Whitby Hydro Energy Corporation have approved a merger. There is a risk that the status of the merger and the impact is not appropriately disclosed or accounted for in the financial statements. *Significant audit risks Our proposed audit response • 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). Our proposed audit response • Engage in periodic fraud discussions with certain members of senior management and others • Consider the potential for bias in judgments and estimates, including performing retrospective analysis of significant accounting estimates • 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. Our proposed audit response • Engage in regular discussions with management to remain abreast of merger status. • Review merger agreements, if available, and monitor approval process by the Ontario Energy Board, to ensure disclosures in the financial statements are appropriate and adequate. 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 © 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. 1. Initial planning 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 2. Assessing and responding to engagement risk 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. 4 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 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 computercontrols. 3. Developing and executing the audit plan The performance of an audit includes evaluating the design and assessing 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. 5 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 1 - Audit approach The extent to which deficiencies in interhal 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 will 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 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. Reporting and assessing performance 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. 6 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 2 - Communication requirements Appendix 2 -Communication requirements Required communication Reference Audit Service Plan 1. Our responsibilities under Canadian GAAS, including forming and expressing an CAS1260.14 opinion on the financial statements 2. An overview of the overall audit strategy, addressing: a. Timing of the audits b. Significant risks, including fraud risks, and c. Planned responsibilities of other independent public accounting firms or others that perform audit procedures in the audits CAS 260.15 3. Significant transactions outside of the normal course of business, including related CAS 260 App. 2, party transactions CAS 550.27 Enquiries of those charged with governance 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 internal control that management has established to mitigate these risks 5. Any known suspected or alleged fraud affecting the City CAS 240.21 6. Whether the City is in compliance with laws and regulations CAS 250,14 Year-end communication 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 260.16 a. conclusions 9. Alternative treatments for accounting 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 260.16d. 15. Modifications to our opinions CAS 260.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 1 CAS: Canadian Auditing Standards - CAS are issued by the Auditing and Assurance Standards Board of CPA Canada 7 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 2 — Communication requirements Required communication Reference 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 significant matters arising during the audits in connection with the City's CAS 550.27 related parties 8 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 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 will 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-setting Activities Digest included in our Centre for Financial Reporting (www.cfr.deloitte.ca). Title Description Effective date 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 PS 3320 - Contingent 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 on or after April 1, 2017. Earlier • adoption is permitted. Section PS 3380 - Contractual rights 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 — Inter- 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. 9 © Deloitte LLP and affiliated entities The Corporation of the City of Pickering 1 Appendix 3 — New and Revised Public Sector Accounting Standards Title Description Effective date 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 program 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 — Foreign 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, 2021. Earlier adoption is permitted. Section PS 3450 — Financial 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, 2021. Earlier adoption is permitted. Section PS 1201 — Financial statement presentation This Section establishes general reporting 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, 2021. 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. Section PS 3280 — Asset This Section establishes standards for retirement obligations reporting legal obligations associated with the retirement of long lived tangible capital assets currently in productive use. This Section is effective for fiscal years beginning on or after April 1, 2021. Earlier adoption is permitted. Section PS 3400 - Revenue This Section establishes standards that apply to revenues of governments and government organizations other than government transfers and tax revenue. This standard addresses recognition, measurement and presentation. This Section is effective for fiscal years beginning on or after April 1, 2022. Earlier adoption is permitted. 10 © 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. © Deloitte LLP and affiliated entities. Deloitte. August 23, 2018 Private and confidential Mr. Tony Prevedel Chief Administrative Officer The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 Mr. Stan Karwowski Director, Finance and Treasurer The Corporation of the City of Pickering 1 The Esplanade Pickering ON L1V 6K7 ATTACHMENT/4 AOC _TO REPORT # Lt rJ " `7--1 Deloitte LLP 400 Applewood Crescent Suite 500 Vaughan ON L4K 0C3 Canada Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Re: Confirmation of Change Related to Auditor Reporting Requirements Dear Mr. Prevedel and Mr. Karwowski: This letter is issued to you further to the master services agreement ("MSA") between The Corporation of the City of Pickering (the "City") and Deloitte LLP. ("Deloitte") dated October 28, 2016. This letter is subject to the terms of the MSA, the appendices to the MSA and the general business terms that form part of the MSA, all as may be updated or amended from time to time. The purpose of this letter is to confirm our mutual understanding of the changes to auditor reporting requirements under Canadian Auditing Standards (CAS) effective for audits of financial statements for periods ending on or after December 15, 2018 and updates to the general business terms. Ms. Pina Colavecchia will be responsible for the services that we perform for the City. Changes to Auditor Reporting Requirements The new and revised auditor reporting requirements have resulted in a new audit report for the following engagement: • Financial Statement Audits (CAS 700 report) Furthermore, the appendix attached to this confirmation of change letter reflects the new auditor reporting requirements (the "Amended Appendix"). The City and Deloitte herein agree that the Amended Appendix forms part of the agreement between the parties for the Services and supersedes the following documents as originally attached to the MSA and/or as amended): • Appendix A — Financial statement audit The Corporation of the City of Pickering August 23, 2018 Page 2 This confirmation of change letter (including any appendices and documents incorporated by reference) will continue in force for future services provided by us to you unless amended. Yours truly, Chartered Professional Accountants Licensed Public Accountants Enclosure The Corporation of the City of Pickering August 23, 2018 Page 3 The services and terms set forth in and incorporated into this letter are acknowledged and approved by the Corporation of the City of Pickering: Signature Title Date Signature Title Date Appendix A Financial statement audit The Corporation of the City of Pickering August 23, 2018 Our audit services and audit scope The financial statements We may be requested by you from time to time to audit the financi I st Cements of the City. These financial statements comprise the statement of financial position as at the fiscal year end of the City ("Fiscal Year"), the statements of operations, change in ne L_ nancial'assets and cash flows for the Fiscal Year, and a summary of significant accounting policies and ej`explanatory information. The financial statements subject to audit are those of the City, prepared by management, with oversight from those charged with governance ("Executive ComOtte " Tho -objective of our audit is to express an, opinion on whether the Financial Statements are fai s ed, in aq)naterial respects, in accordance with Canadian Public Sector Accounting Standards (" PSA !7'We plan and perform the audit to obtain reasonable assurance that the Financial Staten is as a holeya free from material misstatement, whether due to fraud or error. C L; Our audit report On completion of our audit pr ce .cares, yue expel -to issue an audit report in the draft form set out in Appendix A(i). The final form of our audi--qeRport rri:differ based on our audit findings in which case, we willprovideyou with an dared draft form4.b� fore it is issued. If we are unable to issue or decline to issue an audit report, we will disbuss the reasons y ith you and the Executive Committee. Our responsibilities Performance of the audit We will conduct our audit in accordant(with Canadian generally accepted auditing standards ("Canadian GAAS"). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Because of the inherent limitations of an audit, together with the inherent limitations of internal control, there is an unavoidable risk that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with Canadian GAAS. Appendix A 1 Financial statement audit The Corporation of the City of Pickering August 23, 2018 Page 2 Information on internal controls We do not consider internal controls in order to express any opinion to you on their effectiveness. We consider internal controls relevant to the City's preparation and fair presentation of the Financial Statements in making our risk assessments and in order to design appropriate audit procedures. We will, however, communicate to you in writing concerning any significant deficiencies in internal control relevant to the audit of the Financial Statements that come to our attention during the course of our engagement. Reporting considerations Going concern If, based on the audit evidence obtained, we conclude that a material uncertainty exists related to events or conditions that may cast significant doubt on the City's ability to continue as a going concern, we are required to draw attention in our audit report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our co cli Bions will be based on the audit evidence obtained upto the date of our audit report. Other information �� Where the City issues other information (for example, a Financial Statement Discussion and Analysis or a Glossy annual report), we are required to read the other informatn and, in do nig so, consider whether the other information is materially inconsistent with the,Financial Statements or our knowledge obtained in the audit or otherwise appears to be materially missp:F.. Ailfe'will report on the results of our procedures appropriately based on the revised CAS 720, The Auditor'?'RewponsibiIieies Relating to Other Information. Communication with the Executive Comnitt e� The Executive Committee is responsible foi-theioversigt of "financial reporting process and our work as auditors. We are required to communicate tfiih the E ex cutive Committee about certain matters that may arise during our audit and,tha inay be sTgrificant to their role. These matters may include, but are not limited, to: • the planned scope and tiing of the alkli ; • our views about significai�;tt 4ualitative,sects of the City's accounting practices, including accounting policies, accounting estimate nd finial statement disclosures; • any significant matters arising f the audit in connection with the City's related parties; • any events or conditions identified that may cast significant doubt on the City's ability to continue as a going concern, including whether the events or conditions constitute a material uncertainty; • any significant difficulties encountered during the audit; • any significant matters that were discussed or subject to correspondence with management; • written representations we are requesting; • where CAS 720 applies, any uncorrected material inconsistencies between the other information and the Financial Statements or our knowledge obtained in the audit, and any uncorrected material misstatements of the other information we identify from reading the financial and non-financial information included in the City's annual report containing or accompanying the Financial -Statements and our audit report; and • any other matters that in our professional judgment are significant to the oversight of the financial reporting process. Appendix A 1 Financial statement audit The Corporation of the City of Pickering August 23, 2018 Page 3 Fraud and illegal acts An audit designed and executed in accordance with Canadian GAAS may not detect fraud or illegal acts. However, it is possible that actual and potential fraud or illegal acts may be discovered during the course of our audit. We will communicate actual or potential fraud or illegal acts identified during the audit to, in our sole judgement, the appropriate level of management and/or the Executive Committee depending on the type and significance of the issue. Your responsibilities Financial statements and internal control The audit of the Financial Statements does not relieve management or the Executive Committee of their responsibilities. You are responsible for the preparation and fair presentation :offth Fit z"› You Statements in accordance - with PSAS. You are also responsible for establishing internal control necces azy for the po� epa� tion of Financial Statements that are free from material misstatement, whether` due. o fraud or. error. You must determine what internal control is required, including how it is desig-fied, imple ented and maintained. You will advise us of any deficiencies identified and any changes-inu(nternal 03[1trol over financial reporting. .2 Access to information and personnel You are responsible for providing us with access�to all ifrmatjo'fhat is relevant to your preparation of the Financial Statements and any addition I\ip ormation at,' may request for the purpose of the audit. You will also provide unrestricted access tocpe ons in the Oltf or others from whom we determine we need to obtain evidence for our audit; °! Prevention of fraud and eyror You are responsible for design] g and impleEm'enting programs and controls to prevent and detect fraud, illegal acts and error. You will inform us about all known or suspected fraud, illegal acts or errors affecting the City. You will further inform us of any/allegations of fraud, illegal acts or potential errors received in • communications (written or oral) froon err ployees, former employees or any other parties external to the City. Compliance with laws and regulations You are responsible for identifying and ensuring that the City complies with the laws and regulations applicable to its activities. You will inform us of any known or possible violations of these laws or regulations. Related parties You will identify the City's related parties and whether the City entered into any transactions with these related parties in the time period under audit. Subsequent events You will advise us of whether any events have occurred between.the date of the balance sheet and the date our audit report is released, that mayaffect the Financial Statements. Correction of material errors You are responsible for adjusting the Financial Statements to correct material misstatements identified during the course of our audit engagement. Appendix A 1 Financial statement audit The Corporation of the City of Pickering August 23, 2018 Page 4 Representation letter As part of our engagement procedures, you will provide written confirmation of representations made to us in connection with the audit. Disclosure of report We are engaged solely by the City to perform an audit engagement the purpose of which is to provide an opinion as to whether the Financial Statements are free from material misstatement. You will not, without obtaining our prior written consent: • publish or reproduce our report in any document that contains the Financial Statements; • make reference to our firm in a document which contains othe information in addition to the Financial Statements; or • place our report on an electronic site. In order for us to consider granting such written consent, yo st provid ,, sate notice of your request as well as provide any draft document which is proposed o �ccontain/refer to our report. If written consent is provided by us, you are solely responsible for'ifLi accura£e)and complete reproduction of our report and the financial statements on which we repo fed )\ Other information You acknowledge your responsibility for the o r inform tion' applicable, and to provide us with the other information prior to the date of our audit report wheta, dssible. To the extent the other information is expected to be available after the date of btu Kidit report, you agree to provide us with such other information when available, d_prior to being sI "sued by the City, so that we are able to fulfill our responsibilities under CAS NO. Independence For purposes of the following three paragrapps, "Deloitte" shall mean Deloitte LLP and Deloitte Touche Tohmatsu Limited, including related.mer,�'iger firms and affiliates. Independence matters as a result Of restrictions on providing certain services In connection with our engagement, Deloitte, management, and the Executive Committee will assume certain roles and responsibilities in an effort to assist Deloitte in maintaining independence and ensuring compliance with applicable independence rules. It is your responsibility to have policies and procedures in place to confirm that the City (together with its subsidiaries and other related entities) does not engage us or accept services from us that may impair our independence under applicable professional rules. All potential services are to be discussed with Ms. Pina Colavecchia. In connection with the foregoing, the City agrees to furnish to Deloitte and keep Deloitte updated with respect to a corporate tree that identifies the legal names of the City's affiliates (e.g., parents, subsidiaries, investors or investees, variable interest entities or special purpose entities (as applicable)), together with the ownership relationship among such entities. Deloitte intends to capture this information in systems that may be accessed and used by its affiliates in order to assist Deloitte_ in meeting its independence obligations. Deloitte will not be requesting nor accepting any personal information for this purpose. Deloitte agrees to discuss any concerns raised regarding privacy or confidentiality with the City. Appendix A 1 Financial statement audit The Corporation of the City of Pickering August 23, 2018 Page 5 Independence matters relating to hiring In order to assist us in maintaining independence, you will also notify us of any substantive employment conversations that have occurred with current or former Deloitte personnel. Executive Committee's responsibilities .The Executive Committee is responsible for the oversight of the financial reporting process, including management's preparation of the Financial Statements and monitoring of the City's internal controls related to financial reporting and oversight of our work. Appendix A(i) Expected form of report The Corporation of the City of Pickering August 23, 2018 We will provide you with our report on the Financial Statements, which is expected to be in the following form. However, the final form will reflect the results of our audit. If there are any changes to the expected form of report in future years, we will provide you with an updated draorm before it is issued. Independent Auditor's Report To the Members of Council of The Corporation of the City of Pickering Opinion We have audited the consolidated financial stat`eents pf°The C o poration of the City of Pickering (the "City"), which comprise the consolidated statement of figariccciacposition as at December 31, 2018, and the consolidated statements of operations, cha geiin net finarieiahassets and cash flows for the year then ended, and notes to the financial staterzents, inc1uding a summary of significant accounting policies (collectively referred to as th 4aneial'st temen s"). In our opinion, the acconl�a�iying financial ttements present fairly, in all material respects, the financial position of the City as at Dege' ber 31, 200, and the results of its operations, changes in net financial assets, and its cash flows for the\year the r7 ended in accordance with Canadian public sector accounting standards. Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the City in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the City's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting. Appendix A(i) Expected form of report The Corporation of the City of Pickering August 23, 2018 Page 2 Those charged with governance are responsible for overseeing the City's financial reporting process. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement Otthe firi3'l ial statements, whether due to fraud or error, design and perform audit procedures respconsie to tka.te risksland obtain audit evidence that is sufficient and appropriate to provide a bag:Nor our opj.00on le risk of not detecting a material misstatement resulting from fraud is higher th h—C or one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misre .resenta't qs, or the override of internal control. '\ • Obtain an understanding of internal control rele t64\d‘ that are appropriate in the circumstances, /not fa he p -nose of expressing an opinion on the effectiveness of the City's internal control • Evaluate the appropriateness of accounti„rj olicies used' and the reasonableness of accounting estimates and related disclosures maddae, by management. • Conclude on the appropriateness of m agemeVs use of the going concern basis of accounting and, based on the audit ev'iegce obtained, 'ether a material uncertainty exists related to events or conditions that may cast significant do b, on the City's ability to continue as a going concern. If we conclude that a material uncertainty e4isfs, we are required to draw attention in our auditor's.report to the related disclosures in the financial s(atements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are basedyn the audit evidence obtained up to the date of our auditor's report. However, future events or,conditions may cause the City to cease to continue as a going concern. cjit in order to design audit procedures • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. (To be signed Deloitte LLP) Chartered Professional Accountants Licensed Public Accountants Toronto, Ontario Date of the auditor's report