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HomeMy WebLinkAboutCS 51-07 Ciiq of RI;PORT TO EXECUTIVE COMMITTEE Report Number: CS 51-07 Date: November 12, 200~ 1 From: Gillis A. Paterson Director, Corporate Services & Treasurer Subject: 2007 Year End Audit Recommendation: 1. That the Audit Plan as submitted by Deloitte & Touche LLP, included as Attachment 1 to this report be received for information; and, 2. That the Chief Administrative Officer and the Director, Corporate Services & Treasurer be authorized to sign the Auditor's Engagement Letter 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 audit fee, for City & Library, of $64,250 represents an increase of approximately 4% over the prior year. Sufficient provision was included in the 2007 Current Budget. Sustainability Implications: implications. This report does not contain any sustainability Background: In the Committee's role as the body responsible for oversight of the Financial Reporting Process, the Committee is to review the audit plan for the upcoming 2007 year end audit must be presented. The audit plan provides the scope of the audit services to be provided, the auditor's formal reporting responsibilities and an outline of the audit approach. It is included as Attachment 1 to this report. At the Council meeting of October 10, 2006 Resolution 154/06 appointed Deloitte & Touche as the City's external auditors for a period of 5 years which would encompass the 2006 to 2010 audits inclusive. However Deloitte & Touche require an Engagement Letter be signed annually with each audit which summarizes their role as external Report CS 51-07 Date: November 12, 2007 Subject: 2007 Year End Audit ~2 Page 2 auditor, management's responsibilities and provides the estimate of the audit fees. The audit fee for the 2007 year end audit increased overall, including City & Library, by $2,600 or approximately 4% which is deemed acceptable. Attachments: 1. Audit Plan 2. Engagement Letter ! ,--,v:.~J.-^.v ',- ,C.t.{ ~~ ...( ristine Senior Manager, Accounting Services Approved I Endorsed By: ,~4?~~ Gillis A. Paterson - Director, Corporate Services & Treasurer Prepared By: GAP:vw Attachments Copy: Chief Administrative OfficE~r Recommended for the consideration of Pickering City Council 1/ ATTACHMENT#L TO REPORT#D~r/l'd .,) 1 3 Deloitte I~~;';2~!!tporati on 0 f ;thei:~1I of Pickering ". .<>,:::..:.:......,., ~. "", .. .... ".c.,.. .., Audit Plan Year Ending Decembe'r 31, 2007 ,Audi t. Tax" ConsuJtiog. Finandnl Advisory. -- 1 4 - Delollte Deloitte & Touche LLP 5140 Yonge Street Suite 1700 Toronto, ON M2N 6L7 Canada Tel: (416) 601 6150 Fax: (416) 601 6151 www.deloitte.ca October 24, 2007 Private and confidential The Members of the Executive Committee The Corporation of the City of Pickering 1 The Esplanade Pickering ON LlV 6K7 Dear Executive Committee Members: Weare pleased to submit for your review our 2007 audit plan for the audit of the consolidated financial statements of the Corporation of the City of Pickering (the "City") for the year ending December 31, 2007. The key objectives of this document, in accordance with Section 5751 of the CICA Handbook, "Communication With Those Having Oversight Responsibility for the Financial Reporting Process", are to communicate the following matters to you prior to the commencement of our audit: · Our services to be provided; · Our formal reporting responsibilities; and · An outline of our audit approach. We view the development of our audit plan as an important process that provides all parties involved in the audit (i.e. the Executive Committee, Management and Deloitte & Touche LLP,) with an opportunity to assess together audit needs, focus areas, audit approach and expectations for performance, and we look forward to meeting with you to answer any questions which you may have. This audit plan is intended solely for the: use of the Executive Committee, to assist it in discharging its responsibilities with respect to the financial statements and should not be used for any other purpose. Any use that a third party makes of this report is the responsibility of such third party. Yours truly, &~ 0/- -r~~ LL/ Chartered Accountants Licensed Public Accountants Member of Deloitte Touche Tohmatsu , II' 1 5 Table of contents Client service objectives 3 Financial reporting responsibilities 4 Formal auditor responsibilities 5 Audit plan considerations 7 Audit approach 8 Areas of audit focus 12 Auditor independence 14 Appendices I - Current Public Sector Accounting Developments II - Implementation Planning - Tangible Capital Assets (c) Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 2 ---~~ 1 6 Client service objectives In serving you, we develop client servicta objectives that strive to meet the expectations of both the Executive Committee and management. Our client service objectives for 2007 are: · Develop an audit plan to fulfill professional requirements and provide timely, value added services. · Deliver professional services to assist the Executive Committee in meeting the current requirements of Canadian Generally Accepted Accounting Principles ("GAAP") and financial reporting requirements. · Assist the Executive Committee in the early identification of changing professional requirements regarding Canadian GA,AP and other reporting requirements. · Review with the Executive Committefa and management the identified areas of risk or focus and develop the appropriate audit response. · Assign a service team specific to the City's needs. · Maintain and demonstrate our commitment to the municipal sector. · Proactively keep the Executive Committee and management informed as to current business, financial and other developments, which are relevant to the City. · Regularly communicate with management so that they are fully informed of the status of our audit work and issues detected through such work on a timely basis. · Provide regular communication to the Executive Committee and management on our findings. Integral to our audit plan is an understanding of the financial reporting responsibilities of the Executive Committee, management and Deloitte & Touche LLP ("Deloitte"). These have been documented on the following page. @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 3 1 7 Financial reporting responsibilities Executive Committee . Review the audit plan. . Meet with the external auditors to discuss the results of the audit and review the Report on the Results of the Audit. . Review, recommend and approve the annual financial statements and disclosures. . Follow up on audit recommendations. . Maintain oversight of the systems of internal control. . Understand, discuss and address fraud and error risks with management. . Oversight in managing and monitoring financial risks. . Review external financial communications. Management . Maintain appropriate controls and accurate financial records. . Report financial results on a fair, consistent and timely basis in accordance with GAAP. . Select appropriate accounting and disclosure policies. . Maintain compliance with reporting and regulatory requirements. . Identify principal risks and establish and maintain a cost-effective control environment. . Prepare financial statements. . Provide management representations. Deloitte . Perform a cost-effective audit in accordance with Canadian generally accepted auditing standards. . Assess accounting principles and financial statement disclosures. . Review key management control systems and processes and assess audit risk. . Report opportunities for improvements in control processes. . Express an opinion on the fairness of presentation of the financial statements. . Provide industry expertise to support the risk-based audit approach. _._...c.c:o.u_:-._.'.:.,......... ..... ','c:-'-'-'.' .. . -:^'_-"""",_::"",;.dF'o#-':/,~.",~.,.",;;:"""""'.:,.,"''''.:;.. .'.;' 1 8 Formal auditor responsibilities We have been engaged to perform the following statutory audits for the year ending December 31, 2007: . Consolidated financial statements of the Corporation of the City of Pickering (the "City") ; . Financial Statements of the City of Pickering Public Library Board; and . Financial Statements of the City of Pickering Trust Funds. As external auditors of the City we are alccountable to the Executive Committee. Our formal communications will include: . The audit plan, including the level of responsibility assumed in performing an audit under Canadian generally accepted auditing standards; . The results of our audit, including any difficulties encountered in performing the audit; . Our auditors' report on the financial statements; . Our management letter; and . Confirmation of our independence and disclosure of any relationships that bear on our independence. 1 9 Formal auditor responsibilities (continued) If, during the course of our audit, we observe any of the following we commit to report them to you. This will be done in our Report on the Results of our Audit, or earlier, if considered necessary. Our findings will be based on the audit work considered necessary by us to render our opinion on the financial statements. We are not required to perform any additional procedures to provide assurance on these matters. 1. Significant weaknesses in internal control relating to the preparation of the financial statements 2. Illegal acts 3. Non-compliance with regulatory requirements 4. Significant transactions inconsistent with the ordinary course of business, including fraud or possible fraud 5. Unusual related party transactions 6. New significant accounting principles or policies 7. Management's judgments and accounting estimates 8. Misstatements, including unadjusted audit differences and/or errors discovered in the audit which have been corrected ~ ""'_I_a..~_ 0_ ......................... II n ........... ....":1:................ ............:1..:"..,.. 9. Disagreements with management 10. Management consultation with other accountants about any significant auditing or accounting matters 11. Major issues discussed with management that influence audit appointment 12. Difficulties encountered during the audit 13. Limitations placed on the scope of our audit 14. Unusual transactions that significantly increase the risk of loss 15. Actions that, if they became public, might cause embarrassment ri~u n.~ Dil"'L-o,.inn _ .,nn7 A.uU.. PI;:(jn ,; 20 Audit plan considerations Monitor significant changes in the municipal sector Consider significant changes (if any) in operations of the City Consideration of any significant transactions of the City Review of current regulatory, accounting and auditing developments Risk environment assessment Discussions with Management & Executive Committee Reassessment of critical accounting policies & management estimates ] -- Assess prior year's audit scope and findings 2007 audit scope · Confirmation of overall risk/materiality. . Confirm areas of audit focus and extent of testing · Develop a risk-based -audit approach. (?\ nolnit-to It Tnl.rho I I D ::ann ::Ilffili::atan .ontitioC! rit\l nf Dir.....orinn _ ?nn7 Alu-tit DI::an 7 Audit approach 21 Planning . Review results from prior year's audit. . Understand governance processes and expectations. . Assess areas of risk and exposure in financial statement reporting. . Assess design and implementation of entity wide controls and significant business cycle controls. . Update understanding of the business. . Establish materiality guidelines. '~l.E."~~~~:r~"...~'~-'>'-~","-" Testing of systems &. controls . Test the operating effectiveness of key control activities upon which we intend to rely. . Consider reliability and integrity of technology that supports key processes and controls. . Consider the control and governance processes underlying all significant transactions. Five key elements . Consideration of governance processes. . Premised on understanding your business . Focused on key risks. . Partner led, with high involvement and specialized skills. . Committed to delivering value. t~,':"~'l:2,'C':3ti-'i.:.\~~~..z~:,t:fmZ'!iJ2:,~--;S1:~.' Review of disclosures . Consider impact of new accounting and regulatory pronouncements. . Assess compliance with Canadian GAAP for local governments. Substantive testing . Test significant transactions and account balances. . Consider appropriateness and relevance of accounting policies. . Evaluate results based on materiality guidelines. If) n~lnitt~ Ar Tnllrhp II P o=tnrl ::1ffili;\tprt pntitips. City of Pickerina - 2007 Audit Plan 8 22 Audit approach (continued) Materiality Materiality is an essential element of Canadian Generally Accepted Auditing Standards (" GAAS") . Materiality is defined as: ...the magnitudE~ of an omission or misstatement (including an omission) of accounting information either individually or in aggregate that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been influenced or a decision changed, as a result of the misstatement. ..."""""......~;-- .,~ We consider materiality in assessing where to focus our testing, as a basis for determining the extent of our testing (i.e., sample sizes) and in the evaluation of financial statement presentation and disclosures. Our audit approach is designed to identify "material" misstatements in the financial statements. Certain items, such as related party disclosures and commitments, may be considered significant based on qualitative reasons. Otherwise, the amounts are considered to be material if they exceed a quantitative guideline. Materiality is calculated based on professional judgment, which involves an assessment of quantitative and qualitative considerations. Our quantitative calculation of materiality is based on current assurance guidelines. Consistent with the prior year, we have selected budgeted expenditures as the quantitative base for materiality. In our professional judgment, this measure most appropriately meets the needs of the users of the financial statements. We will use 1.5% of budgeted expenditures for our planning materiality. All differences noted during the audit will be accumulated and discussed with management to determine if adjustments are required to the financial statements. Details of both the significant adjustments and unadjusted amounts will be reported to the Executive Committee. tel ()plnith' P" Touchp I I P ;mrl ;lffili;lh.r1 ..ntiti",c: ritv of Pick..rinn - 7nn7 Allrlit PI;ln Q 23 Audit approach (continued) Auditor's Responsibility to Consider Fraud Risk The Executive Committee should recognize that every organization has inherent fraud risks due to internal and external conditions such as size, dispersed locations, general economic conditions, nature of various operations, etc. There are three common fraud risk factors, the existence of which can increase the likelihood that fraud could occur. These are: . pressures and incentives; . attitudes/rationalization; and . opportunity. Executive Committee's Response to Fraud Risk . Recognizing that it is not always possible to create internal controls to address attitudes and rationalizations, the Executive Committee must be prepared to respond to fraud . With Executive Committee oversight, management can facilitate a strong internal control environment to minimize fraud opportunities . The Executive Committee's oversight and understanding of fraud risks helps to ensure that management fulfills its responsibility and can also deter management from committing fraud . Keys to success in minimizing fraud: - Strong internal controls - Proper "tone at the top" - Appropriate and timely adverse consequences for perpetrators of fraud - Consideration of an effective Whistleblower Policy and related Procedures - Understanding the risk factors: pressure/incentives, attitude and rationalization and opportunity tP\ nalnif-h3 III Tnllrha I I D ;anrl :;;affili;;lhan gnt-i1--iAIOO: ritv of Pi..-k..rinn - ?007 Allnit PIAn 10 24 Audit approach (cctntinued) Specific inquiries to be addressed b" the Executive Committee . Any knowledge of any actual, suspected or alleged fraud affecting the City? . What role, if any, does the Executive Committee exercise in the oversight of: 1. Management processes for identifying and responding to the risk of fraud in the City? 2. The internal controls that management has established to mitigate these risks? . What are your views about the risks of fraud in the City? IC\ n",lnitt", R. Tn"...h", II P ;:,nr! ;:,ffili;:,t",r! "'ntiti",c:~ C:itv of Pic:kprina - 2007 Audit Plan 11 Areas of audit focus We have identified the following areas of focus: Description of Areas of Focus . Determine if cut-off of revenues and expenditures is appropriate. . Accuracy and completeness of certain liabilities such as Workplace Safety and Insurance ("WSIB") and Post employment benefits. . Approval of transfers to and from reserve and reserve funds @ Deloitte & Touche LLP and affiliated entities. Audit Response . Focused substantive testing on accounts payable, accrued liabilities, deferred revenue and accounts receivable. . Test disbursements and cash receipts subsequent to year end. . Test supporting assumptions for accrued liabilities, deferred revenue and accounts receivable. . Review actuarial report including related assumptions. . Ensure appropriate accounting treatment has been applied. . Review related financial statement note disclosure. . Communicate with actuary on our reliance on their report for audit purposes. . Focused testing on the continuity and material transactions to determine if transfers are in accordance with council approvals and/or legislative requirements. City of Pickering - 2007 Audit Plan 25 12 26 Areas of audit focus (continued) Description of Issue/Risk . Compliance with PS3070 "Investment in Government Business Enterprise"'. · Requires management judgement (i.e. allowance for assessment: appealsl, contingent liabilities, etc.). . Revenue Recognition @ Deloitte & Touche LLP and affiliated entities. Audit Response . Review accounting for Investment in Veridian Corporation and related disclosures. . Review financial statements of Veridian Corporation. . Communication with Veridian Corporation's auditor on our reliance on their auditor's report for purposes of the City's audit. . Focused review of calculations and support. . Discussion with management. . Analytic review of related accounts. . Focused testing to ensure restricted contributions (i.e. development charges, gas tax, conditional grants) have been recognized as revenue in the appropriate period. City of Pickering - 2007 Audit Plan 13 27 Auditor independence The rules of professional conduct require that we communicate with you on an annual basis all relationships between the City (including its related entities) and Deloitte that, in our professional judgment, may reasonably be thought to bear on our independence. In determining whether a relationship exists that may be thought to bear on our independence, we must consider the following matters: . Whether a financial interest, either directly or indirectly, exists; . Whether a position, either directly or indirectly held by us, gives us the right or responsibility to exert significant influence over the financial or accounting policies of the City; . Economic dependence on the City; . Services provided to the City in addition to the audit engagement; and . Any personal or business relationships of immediate family, close relatives, partners or retired partners, either directly or indirectly with the City. We confirm that we continue to be independent under the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario. We formally confirmed our independence as auditors of the City in a letter dated July 6, 2007 and we will formally report again at the conclusion of the 2007 audit. tEl n..lnith, R. Tnllrh.. I I P >lnrt >lffili>lt..rt ..ntiti.." C":itv nf Pirk..rinn - 7007 Allrtit PI"n 14 28 Appendix I - Current Public Sec:tor Accounting Developments Accounting Developments The Public Sector Accounting Board's ('PSAB') goal is better financial and performance information for government decision-making and accountability. PSAB meets this goal by setting accounting standards tailored to meet the unique information needs of the public sector. The new developments that are most relevant to the City have been summarized below. PS 2700 Segment Disclosures . In January 2006, PSAB approved Section PS 2700, Segment Disclosures, which is applicable to all governments. · The Section establishes standards on how to define and disclose those segments in the government's summary financial statements. · The Section is based on the premise that the activities of a government are so broad and encompass so wide a range of diffl:!rent activities that it is valuable to disclose selected disaggregated financial information about particular segments of a government. · PS 2700 includes a variety of examples to demonstrate to users what the prescribed disclosures would entail. · Effective for fiscal years beginning on or after April 1, 2007. Earlier adoption is encouraged. fC) nplnittp R. Tnllrhp II P "nrl "ffili"tprl pntit;p" C'itv nf Pirltprinn - 'J007 Allrlit PI"n 10:; 29 Appendix I - Current Public Sector Accounting Developments (continued) PS 3150 - Tangible Capital Assets . In June 2006, PSAB approved Section PS 3150. . The Section establishes standards on how to account for the measurement, amortization, write-down and disposal of tangible capital assets, as well as describing the requirements for presentation and disclosure in the City's financial statements. . PS 3150 also provides some transitional guidance in conjunction with PSG7, Tangible Capital Assets of Local Governments. . Effective for fiscal years beginning on or after January 1, 2009. Earlier adoption is encouraged. . Appendix II provides an overview of the impact that implementing this new standard will have on the City. @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 16 ,..-,~...,.-....._^,-~._,. "'_.,..._."'._m.m___........___IOE-",..,;...,'""..-d,I"".._~. ,".,'",.,wii~ -~~:~C';.j;~);','t,';::';,":';'" 'n;~'l,,-,,:,;'r;i,:'" 30 Appendix I - Current Public Sector Accounting Developments (coI1tinued) New Reporting Model - PS1000, PSll00, PS1200 . In November, 2006 PSAB approved revisions to sections PS 1000, Financial Statement Concepts; PS 1100, Financial Statement Objectives, and PS 1200 Financial Statement Presentation which made these sections applicable for local governments. . The existing sections previously applied only to senior levels of government, the revised sections are intended to apply to all levels of governments under PSAB. . The main features of these sections are as follows: i. PS 1000 - Financial Statement Concepts (Revised) sets out definitions of assets, liabilities, revenues and expenses defines revenue and expenses in terms of changes in assets and liabilities requires full accrual accounting to be used provides general recognition and measurement principles ii. PS 1100 - Financial Statement Objedives (Revised) This section identifies and describes the objectives of government financial reporting and the nature and scope of financi,al information required to be presented in the financial statements. The main features of the section relate to objectives for: the scope of activities to be included in the report reporting financial position - reporting changes in financial position reporting cash flows, and legislative control and financial accountability @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 17 31 Appendix I - Current Public Sector Accounting Developments (continued) New Reporting Model - PS1000, PSll00, PS1200 (continued) Iii. PS 1200 - Financial Statement Presentation . The recommended financial statements are: - a statement of financial position that reports both net debt and an expense- based accumulated surplus jdeficit as the two indicators of financial position; - a statement of operations that reports the annual surplus / deficit as the difference between revenues and expenses; - a statement of change in net debt that highlights capital spending for the period in reconciling to closing net debt from the annual surplus / deficit; and - a statement of cash flows that replaces the existing statement of changes in financial position. The statement provides for a new capital category that reflects the service nature of government capital assets. The direct or indirect method is allowed for presenting the operating activities' cash flows, although a preference for the direct method is stated. · Current year budget figures are to be provided on the "statement of operations" and the statement of "changes in net debt" for the same scope of activities and on a basis consistent with that used for actual results. · The revised sections will to apply to local governments for fiscal years beginning on or after January 1, 2009. · PS 1700, Objectives of Financial Statements - Local Governments; and PS 1800 General Standards of Financial Statement Presentation - Local Governments, are to be withdrawn from the PSAB handbook. @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 18 _..~.'..----~'''..._. 32 Appendix I - Current Public Sec:tor Accounting Developments (continued) PSG-7 Accounting Guideline Tangible Capital Assets of Local Governments . Provides transitional guidance to locallgovernments on presenting information related to tangible capital assets in the notes or schedules to the summary financial statements. . PSG-7 applies until section PS3150's applicability to local governments is adopted. . Effective for fiscal years beginning on or after January 1, 2007. Statement of Recommended Practice (SORP) Public Performance Reporting Performance Reporting Project . The final Statement of Recommended Practice (SORP) "Public Performance Reporting" was approved by PSAB in June, 2006. . Designed to develop a set of basic principles that will guide the future development of performance reporting including a framework for identifying specific performance indicators, and provide for consistency in performance reporting. . Local governments should be reviewin~1 this "SORP" for guidance on improved performance reporting in future. @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 19 33 Appendix I - Current Public Sector Accounting Developments (continued) PSAB Projects in Process Financial Instruments Project . Issue: Increase in availability and use by governments of sophisticated, non-traditional financial instruments gives rise to complex recognition and measurement issues. . In January 2005, the AcSB approved three Handbook sections: Financial Instruments - Recognition and Measurement, Section 3855, Comprehensive Income, Section 1530 and Hedges, Section 3865. The new standards are for fiscal years beginning on or after October 1, 2006. . PSAB is silent, therefore new standards in the private sector handbook will be applicable to government business enterprises and government business-type enterprises for the purposes of preparing their own financial statements. . Expected to pose accounting and reporting difficulties for governments. . In January 2006 PSAB approved Public Sector Guideline PSG-6, "Including the Results of Organizations and Partnerships Applying Fair Value Measurement". It also approved a Statement of Principles for the recognition and measurement of derivatives for comment. . In June 2006, PSAB initiated a survey to ask governments at all levels about the nature and extent of, as well as current reporting practices for, their financial Instruments, and methods of hedging related risks. . In March 2007 PSAB approved a Statement of Principles providing a comprehensive set of principles addressing recognition and measurement of financial instruments (including derivatives) and hedge accounting. . Objective of project will be to develop standards that will make government's use of financial instruments as transparent and understandable as possible. lcl Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 20 ~_"_~, "~~':'-~':"-<;;:,;::~,,,,.~,,':,:;;::;;;;::;;:,;;;,,:::,~,;;~,...r-:: ~iiii ~,tr.;~__...~_, 34 Appendix I - Current Public Sec:tor Accounting Developments (col,tinued) I PSAB Projects in Process (continued) Government Transfers . In March 2007 PSAB approved a Re-Exposure Draft dealing with "Government Transfers". . The major issues in this project include: - Resolve the debate over the appropriate accounting for multi-year funding provided by governments. - Clarify the nature and extent of authorization needed to be in place to recognize the government transfer. - Clarify the degree to which stipulations imposed by the transferring government should impact the timing of recognition of the transfer by both the transferor and recipient governments. - Addresses the appropriate accounting for capital transfers received under an expense-based accounting regime. Assessment of Tangible Capital Assets . In March 2007 PSAB approved a Statement of Principles called Assessment of Tangible Capital Assets. . A major factor in determining a government's financial ability to maintain existing levels of services is access to financial and other information about the stock, use and condition of its infrastructure. This information is essential for understanding the financial demands infrastructure places on governments, including the costs associated with using it and those associated with the ongoing need for maintenance, renewal and replacement. . This project will result in the development of a Statement of Recommended Practice (SORP) providing guidance on reporting financial and other information about tangible capital assets. . It is anticipated that a final SORP will be approved in June 2008. @ Deloitte & Touche LLP and affiliated entities. City of Pickerinq - 2007 Audit Plan 21 35 Appendix I - Current Public Sector Accounting Developments (continued) PSAB Projects in Process (continued) Introduction to Public Sector Accounting Standards . In June 2007 PSAB approved an Exposure Draft relating to the Introduction to Public Sector Accounting Standards. . The objective of the project is to revise the "Introduction to Public Sector Accounting Standards" to clarify which GAAP government organizations should apply when preparing their own financial statements. . PSAB needs to assess the effect of the AcSB strategies on government organizations that currently are directed to use GAAP in the CICA Handbook - Accounting. . PSAB intends to consider the impact of the AcSB strategies on government organizations in two phases. The first phase proposes that government business enterprises and government business-type organizations follow GAAP for publicly accountable enterprises. . The second phase will examine the implications for government not-for-profit organizations and other government organizations that may currently apply the CICA Handbook - Accounting. Indicators of Government Financial Condition . In September 2006 PSAB approved a Project Proposal for Indicators of Government Financial Condition. . The objective of this project is to issue a new Statement of Recommended Practice (SORP) that would recommend indicators of financial condition for each level of government. . The demand for additional information to demonstrate the government's accountability and performance has been increasing and this project will consider which indicators of financial condition would be relevant at the local government level. . PSAB has endorsed a multi-stage effort to make performance reporting a relevant and sustainable practice. @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 22 36 Appendix II - Implementation Pllanning - Tangible Capital A:ssets @ Deloitte & Touche LLP and affiliated entities. City of Pickering - 2007 Audit Plan 23 Implementation Planning - Tangible Capital Assets Readiness Assessment Assess Readiness & Establish.. project . Organize resources · Interview stakeholders · Define policy, process and information needs and assess competencies required · Evaluate current state and document gaps · Draft readiness report and review with stakeholders Develop Detailed Work Plan City's Plan · Detailed timeline of activities and investments required to fill gaps · Identify the resources with appropriate competencies needed to enable PS3150 implementation · Support development of project charter · Validate with Stakeholders @ Deloitte & Touche LLP and affiliated entities. Policies/ Procedures & Disclosures Implementation ofne"" way of doing business · Support the City's team implementing new policies, procedures/ processes · Management review and evaluation of changes to meet PS 3150 · Review other Financial Stmt disclosure needs · Support engaging external auditor to obtain their agreement Asset Information & Systems Develop enabling sYstem elements · Support City's plan to modify IT architecture and processes to meet information requirements · Provide advice on tools or systems to integrate existing data · Support Data clean up/ creation requirements Train Staff Train staff in PS3150 requirements · Identify communication and training needs . Define Audience · Evaluate various training options within the City's existing training environment . Develop material and learning plan · Execute Training program City of Pickering - 2007 Audit Plan Sustainment Permanent Change · Validate new policies and processes · Review effectiveness of information system solutions · Support external audit evaluation of new process and systems · Continuous improvement 24 (N '-J 38 Deloitte @ Deloitte & Touche LLP and affiliated entities. Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 6,800 people in 51 offices. Deloitte operates in Quebec as Samson Belair/Deloitte & Touche s.e.n.c.r.l. The firm is dedicated to helping its clients and its people excel. Deloitte is the Canadian member firm of Deloitte Touche Tohmatsu. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu 1101' any of its member firms has any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names "Deloitte," "Deloitte & Touche," "Deloitte Touche Tohmatsu," or other related names. Services are provided by the member firms or their subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein.' . Member of Deloitte Touche Tohmatsu ATTACHMENT#~ TO REPORT # <:.'5.5"/"07 Deloitte 39 Deloitte & Touche LLP 5140 Yonge Street Suite 1700 Toronto ON M2N 6L7 Canada October 24, 2007 Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca Mr. Thomas Quinn Chief Administrative Officer The Corporation of the City of Pickering 1 The Esplanade Pickering ON Ll V 6K7 Mr. Gillis Paterson Director, Corporate Services and Treasurer The Corporation of the City of Pickering 1 The Esplanade Pickering ON Ll V 6K7 Dear Mr. Quinn and Mr. Paterson: Deloitte & Touche LLP ("Deloitte" or "we" or "us") is pleased to serve as your auditors for the year ending December 31, 2007. Ms. Paula Jesty will be responsible for the services that we perform for The Corporation of the City of Pickering, including the City of Pickering Public Library Board and the City of Pickering Trust Funds (collectively the "City"). She will, as considered necessary, call upon other individuals with specialized knowledge, either in this office or elsewhere in our firm to assist in the performance of our services. In addition to the financial statement audits we are engaged to provide under this engagement letter, we would also be pleased to assist the City on issues as they arise throughout the year. Hence, we hope that you will call Ms. Paula Jesty whenever you believe Deloitte can be of assistance. We will perform this engagement subject to the terms and conditions set forth herein and in the accompanying appendices. Audit of financial statements Our engagement is to perform an audit of the City's financial statements for the year ending December 31, 2007 in accordance with Canadian generally accepted auditing standards ("Canadian GAAS") for the following entities: . Consolidated financial statement of the Corporation of the City of Pickering; . Financial statements of the City of Pickering Public Library Board; and . Financial statements of the City of Pickering Trust Funds. The objective of a financial statement audit conducted in accordance with Canadian GAAS is to express an opinion on the fairness of the presentation of the City's financial statements for the year ended December 31, 2007 in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), in all material respects. Appendix A contains a description of a financial statement audit under Canadian GAAS. The Corporation of the City of Pickering October 24, 2007 Page 2 40 Our ability to express an opinion and the wording of our opinion will, of course, be dependent on the facts and circumstances at the date of our report. If, for any reason, we are unable to complete the audit or are unable to form or have not formed an opin:.on, we may decline to express an opinion or decline to issue a report as a result of this engagement. If we are unable to complete our audit or if our auditors' report requires modification, the reasons therefore will be discussed with the Executive Committee and the City's management. Management's responsibilities Appendix B describes management's responsibilities for (1) the financial statements and the effectiveness of internal control over financial reporting, (2) representation letters, (3) the process for obtaining pre- approval of services, as applicable, (4) independence matters as a result of restrictions on providing certain services, (5) independence matters relating to hiring, and (6) fraud and error. Auditor communications with those having oversight responsibility for the financial reporting process In accordance with Canadian GAAS, we are required to communicate with those having oversight responsibility for the financial reporting process about various matters in connection with our audit. Appendix C describes such communications. Inclusion of Deloitte reports or references to Deloitte in other documents and on electronic sites If the City intends to publish or otherwise reproduce in any document our report on the City's financial statements, or otherwise make reference to Deloitte in a document that contains other information in addition to the audited financial statements, thereby associating Deloitte with such document, the City agrees that its management will provide Deloitte with a draft of the document to read and obtain our written consent for the inclusion or incorporation by reference of our report, or the reference to Deloitte, in such document before the document is printed and distributed. The inclusion or incorporation by reference of our report in any such document would constitute the re-issuance of our report. Management agrees to provide adequate notice of the preparation of any such public documents. The City cJso agrees that it will notify us and obtain our approval prior to including our report on an electronic site. Further, it is agreed that in any electronic distribution, for example on the City's Web site, management is solely responsible for the accurate and complete reproduction of our report and the subject matter on which we reported. Our engagement to perform the services described above does not constitute our agreement to be associated with any such documents published or reproduced by or on behalf of the City. Any request by the City to re-issue our report, to consent to its inclusion or incorporation by reference in an offering or other document, or to agree to its inclusion on an electronic site, will be considered based on the facts and circumstances existing at the time of such requesl The Corporation of the City of Pickering October 24, 2007 Page 3 41 Fees We estimate that our total fees for this audit will be as noted below, plus reasonable expenses and applicable taxes (such as Goods and Services Tax): The Corporation of the City of Pickering (including Trust Funds) Pickering Public Library Board $59,750 $4,500 Appendix D includes circumstances affecting timing and fee estimates. Other matters This engagement letter, including the appendices attached hereto and made a part hereof, constitutes the entire agreement between the parties with respect to this engagement and supersedes all other prior and contemporaneous agreements or understandings between the parties, whether written or oral, relating to this engagement. This engagement contract will continue in force for subsequent audits unless amended by the mutual consent of oursel ves and the City. If the above terms are acceptable and the services described are in accordance with your understanding, please sign the copy of this engagement letter in the space provided and return it to us. Yours truly, &~ 'f -r~~ LLI Chartered Accountants Licensed Public Accountants Enclosure The Corporation of the City of Pickering October 24, 2007 Page 4 42 The services and terms set forth in this contract are acknowledged and approved by the Council of The Corporation of the City of })ickering: Signature Title Date The services and terms set forth in this contract are accepted and agreed to by The Corporation of the City of Pickering management: Signature Title Date Appendix A Description of a financial statement audit in accordance with Canadian GAAS The Corporation of the City of Pickering December 31, 2007 43 Components of a financial statement audit A financial statement audit includes the following: . Obtaining an understanding of the entity and its environment, including internal control, sufficient to identify and assess the risks of material misstatements of the financial statements, and sufficient to design and perform further audit procedures. This understanding is not sufficient for, and should not be relied upon for, any other purpose; . Examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; . Inquiring directly of those responsible for oversight of the financial reporting process regarding their views about the risk of fraud and whether they have knowledge of any fraud or suspected fraud affecting the City; . Assessing the accounting principles used and significant estimates made by management; and, . Evaluating the overall financial statement presentation. Reasonable assurance We will plan and perform the audits to obtain reasonable assurance about whether the financial statements present fairly, in all material respects, the financial position, results of operations and changes in financial position in accordance with Canadian GAAP. Accordingly, we will design our audit to provide reasonable, but not absolute, assurance of detecting material misstatements whether caused by error or fraud. It is important to recognize that there are inherent limitations in the auditing process. Material misstatements, if they exist, may not be detected because of factors such as the use of judgment, the concept of selective testing of the data underlying the financial statements, and the persuasive rather than conclusive nature of much of the evidence. Because of the nature of fraud, including attempts at concealment through collusion and forgery, an audit designed and executed in accordance with Canadian GAAS may not detect a material fraud. Furthermore, while effective internal control reduces the likelihood that misstatements will occur and remain undetected, it does not eliminate that possibility. For these reasons we cannot guarantee that fraud, error or other illegal acts, if present, will be detected. Internal control over financial reporting We obtain an understanding of internal control relevant to the audit however not all controls are relevant to every audit. We evaluate the design of controls relevant to the audit and detennine whether they have been implemented. We are not, however, required to determine whether relevant controls are operating effectively. Although it is not required by generally accepted auditing standards we may decide that, for a particular engagement, it makes sense to rely on the effective operation of some controls in determining the substantive procedures we will perform. In this case we would go beyond evaluating the design of relevant controls, and determining whether they have been implemented, to also test whether the controls on which we intend to rely are operating effectively. Accordingly while generally accepted auditing standards require us to report to the Executive Committee any significant weaknesses that have come to our attention, we may not be aware of all material weaknesses in internal control that do, in fact, exist. While we are not obligated to report other control matters coming to our attention we will endeavour to report to management, and if requested the Executive Committee, other control deficiencies that we believe may be of interest to management. 44 Appendix B Management's responsibilities The Corporation of the City of Pickering December 31,2007 Financial statements and the effectiveness of internal control over financial reporting The preparation and overall accuracy of the financial statements and their conformity with Canadian GAAP is the responsibility of the City" s management. In this regard, management has the responsibility for, among other things: 1. Establishing and maintaining effective internal control over financial reporting and informing Deloitte of weaknesses identified in the design or operation of internal control over financial reporting; 2. Identifying and ensuring that the City complies with the laws and regulations applicable to its activities and informing us of any known material violations of such laws or regulations; 3. Adjusting the financial statements to correct material misstatements; 4. Safeguarding assets; and, 5. Making available to us complete information relating to the engagement including, but not limited to, all financial records and related data including information on the recognition, measurement and disclosure of specific items, and copies of all minutes of meetings of council, and committees of council. Representation letters We will make specific inquiries of the City's management about the representations embodied in the financial statements and internal control over financial reporting. As part of our audit procedures, we will request that management provide us with a representation letter acknowledging management's responsibility for the preparation of the financial statements and affirming management's belief that the effects of any uncorrected financial statement misstatements aggregated by us during the current audit engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. We will request that management confirm certain significant representations made to us during our audit on matters that are: 1. Directly related to items that are material, either individually or in the aggregate, to the financial statements; 2. Not directly related to items that are material to the financial statements but are significant, either individually or in the aggregate, to the engagement; and, 3. Relevant to management's judgments or estimates that are material, either individually or in the aggregate, to the financial statements. The responses to inquiries and related written representations of management required by Canadian GAAS are part of the evidential matter that we will rely on as auditors in forming our opinion on the City's financial statements. Appendii\ B 45 Independence matters For purposes of the following two paragraphs, "Deloitte" shall mean Deloitte & Touche LLP, Deloitte Touche Tohmatsu, its member firms and the affiliates of Deloitte & Touche LLP, Deloitte Touche Tohmatsu and its member firms. 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 Canadian independence rules. Deloitte will communicate to its partners and employees that the City is an attest client. Management of the City will ensure that the City, together with its subsidiaries and other entities, that comprise the City for purposes of the consolidated financial statements, has policies and procedures in place for the purpose of ensuring that neither the City nor any such subsidiary or other entity will act to engage Deloitte or accept from Deloitte any service that either has not been subjected to their pre-approval process or that under Canadian independence rules or other applicable rules would impair Deloitte's independence. All potential services are to be discussed with Ms. Paula Jesty. Independence matters relating to hiring Deloitte must assess threats to independence created when a former Deloitte partner or member of the engagement team is employed by Management. In order to assist Deloitte in maintaining independence, management should notify Ms. Paula Jesty where substantive employment conversations have been had with a former or current Deloitte partner or engagement team member. Fraud and error Management is responsible for: 1. Designing and implementing programs and controls to prevent and detect fraud; 2. Informing us about all known or suspected fraud affecting the City involving (a) management, (b) employees who have significant roles in internal control, and (c) others where the fraud could have a material effect on the financial statements; 3. Informing us of its knowledge of any allegations of fraud or suspected fraud affecting the City received in communications from employees, former employees, or others; 4. Informing us of any information it might have regarding any concerns or allegations of potential errors in the selection of accounting policies or the recording of transactions affecting the City that have been communicated to it by employees, former employees, or others, whether written or oral; 5. Informing us of its assessment of the risk that the financial statements may be materially misstated as a result of fraud; and, 6. Communicating its belief that the effects of any uncorrected financial statement misstatements aggregated during the audit are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 46 Appendix C Auditor communications The Corporation of the City of Pickering December 31, 2007 Independence communications In accordance with Canadian GAAS, we will disclose to the Executive Committee, in writing, all relationships between Deloitte and the City and i1:s related entities, that in our professional judgment may reasonably be thought to bear on our independence and confirm to the Executive Committee in such letter whether, in our professional judgment, we are independent of the City and its related entities within the meaning of the Rules of Professional Conduct of our profession. For purposes of this paragraph, "Deloitte" shall mean Deloitte & Touche LLP, Deloitte Touche Tohmatsu, its member firms and the affiliates of Deloitte & Touche LLP, Deloitte Touche Tohmatsu and its member finns. Fraud, error and illegal acts If items of the following nature come to our attention, and in our judgment need to be repOltecl to those charged with governance, we will report them directly to the Executive Committee: 1. Any fraud that involves management; 2. Any fraud (whether caused by management or other employees) of which we become aware that has resulted or could result in a non-trivial misstatement of the financial statements; 3. Any fraud involving employees who have significant roles in internal control; 4. Uncorrected misstatements aggregated by us during the audit that were determined by management to be immaterial, both individually and in the aggregate, to the financial statements taken as a whole; 5. Questions regarding the honesty and integrity of management; 6. Matters that may cause future financial statements to be materially misstated; 7. Significant misstatements resulting from error that were corrected by management; 8. Significant weaknesses in internal control; and, 9. Related party transactions that are not in the normal course of operations and which involve significant judgments made by management concerning measurement or disclosure. We will inform the appropriate level of management of the City and determine that the Executive Committee is adequately informed with respect to illegal acts that have been detected or have otherwise come to our attention in the course of our audit, unless the illegal acts are clearly inconsequential. We will inform the appropriate level of management where we have identified a misstatement resulting from an error, other than a trivial error. The matters communicated will be those that we identify during the course of our audit. Our ,mdit would not identify all matters that may be of interest to management in discharging its responsibilities. Communication with the appropriate level of authority in the City's management ancl with those charged with governance will be determined by the type and significance of the matter to be communicated. Appendix D Circumstances affecting timing and fee estimate The Corporation of the City of Pickering December 31, 2007 47 The fees quoted for the audit are based on certain assumptions. Circumstances may arise during the engagement that may significantly affect the targeted completion dates and our fee estimate. As a result, additional fees may be necessary. Such circumstances include, but are not limited to, the following: Audit facilitation 1. Changes to the timing of the engagement at the City's request. Changes to the timing of the engagement usually require reassignment of personnel used by Deloitte in the performance of services hereunder. However, because it is often difficult to reassign individuals to other engagements, Deloitte may incur significant unanticipated costs. 2. All audit schedules are not (a) provided by the City on the date requested, (b) completed in a format acceptable to Deloitte, (c) mathematically correct, or (d) in agreement with the appropriate City records (e.g., general ledger accounts). Deloitte will provide the City with a separate listing of required schedules, information requests, and the dates such items are needed. 3. Significant delays in responding to our requests for information such as reconciling variances or providing requested supporting documentation (e.g., invoices, contracts, and other documents). 4. Deterioration in the quality of the City's accounting records during the current year engagement in comparison with the prior-year engagement. 5. A completed trial balance, referenced to the supporting analyses, schedules and financial statements, is not provided timely by the City. 6. Draft financial statements with appropriate supporting documentation are not prepared accurately and timely by the City's personnel. 7. Electronic files in an appropriate format and containing the information requested are not provided by the City on the date requested for our use in performing file interrogation. Deloitte will provide the City with a separate listing of the required files and the dates the files are needed. Significant Issues or Changes 8. Significant weaknesses are identified in the City's internal control that result in the expansion of our audit procedures. 9. A significant level of proposed audit adjustments is identified during our audit. 10. A significant number of drafts of the financial statements are submitted for our review or we identify a significant level of deficiencies in the draft financial statements. 11. Significant new issues or changes arise as follows: a. New accounting issues. b. Changes in accounting policies or practices from those used in prior years. c. Events or transactions not contemplated in our budgets. d. Changes in the City's financial reporting process or IT systems. e. Changes in the City's accounting personnel, their responsibilities, or their availability. f. Changes in auditing standards. g. Change in the City's use of specialists or the specialists or their work product does not meet the qualifications required by Canadian GAAS for our reliance upon their work. 12. Changes in audit scope caused by events that are beyond our control. 48 Appendix E Standard terms and conditions The Corporation of the City of Pickering December 31, 2007 The following general business terms (the "Terms") apply to the engagement except as otherwise provided in the specific engagement letter agreement (the "engagement letter") between Deloitte & Touche LLP ("Deloitte") and City of Pickering (the "Client") to which these Terms are attached. 1. Timely performance - Deloitte will not be liable for failures or delays in performance that arise from causes beyond Deloitte's control, including the untimely performance by the Client of its obligations as set out in the engagement letter. 2. Right to terminate services - If the Client terminates the engagement or requests that Deloitte resign from the engagement prior to its completion, the Client will pay for time and expenses incurred by Deloitte up to the termination or resignation date together with reasonable time and expenses incurred to bring the services to a close in a prompt and orderly manner. Deloitte will not be responsible for any loss, cost or expense resulting from such termination or resignation. Should the Client not fulfill its obligations set out herein or in the engagement letter, and in the absence of rectification by the Client within thirty (30) days of notification in writing by Deloitte, upon written notification Deloitte may terminate its services immediately and will not be responsible for any loss, cost or expense resulting from such early termination. 3. Fees and taxes - Any fee estimates take into account the agreed-upon level of preparation and assistance from Client personnel. Deloitte undertakes to advise management of the Client on a timely basis should this preparation and assistance not be provided or should any other circumstances arise which cause actual time to exceed that estimate. The Client is responsible for the payment of any applicable federal, provincial or other goods and services or sales taxes, or any other taxes or duties, in connection with the services provided by Deloitte. 4. Expenses - In addition to professional fees, the Client will reimburse Deloitte for its reasonable out of pocket expenses including travel, meals and hotels incurred in connection with this engagement. 5. Billing - Invoices will be rendered periodically as agreed in advance. All invoices shall be due and payable when rendered. Interest shall be calculated at a simple daily rate of 0.0493% (equivalent to 18% per annum). Interest shall be charged and payable at this rate on any part of an invoice which remains unpaid from thirty (30) days after the invoice date to the date on which the outstanding invoice is paid. To the extent that as part of the services to be performed by Deloitte as described in the engagement letter, Deloitte personnel are required to perform the services in the United States of America ("US Business"), the Client and Deloitte agree to assign performance of the US Business to Deloitte Canada LLP, an affiliate of Deloitte All services performed by Deloitte Canada LLP shall be performed under the direction of Deloitte which shall remain responsible to the Client for such services. Deloitte Canada LLP shall invoice the Client with respect to the US Business and Deloitte will invoice for services performed in Canada ("Canadian Business"). Payment far US Business and/or Canadian Business can be settled with one payment to Delaitte. 6. Governing law - The engagement will be governed by the laws of the Province where Deloitte's principal office performing the engagement is located and all disputes related to the engagement shall be subject to the exclusive jurisdiction of the courts of such Province. Appendix E 49 7. Working papers - All working papers, files and other internal materials created or produced by Deloitte related to the engagement are the property of Deloitte. In the event that Deloitte is requested by the Client or required by subpoena or other legal process to produce its files related to this engagement in proceedings to which Deloitte is not a party, the Client will reimburse Deloitte for its professional time and expenses, including legal fees, incurred in dealing with such matters. Deloitte will not return or provide records or information obtained in the course of the engagement to the Client if it is illegal to do so or if Deloitte is requested to withhold the records or information by law enforcement or other public or regulatory authorities (regardless of whether the engagement has been terminated). 8. Privacy - Deloitte and the Client acknowledge and agree that, during the course of this engagement, Deloitte may collect personal information about identifiable individuals ("Personal Information"), either from the Client or from third parties. The Client and Deloitte agree that Deloitte will collect, use and disclose Personal Information on behalf of the Client solely for purposes related to completing this engagement, providing services to the Client, and in a manner consistent with section 10 below. Deloitte shall not collect, use and disclose such Personal Information for Deloitte's own behalf or for its own purposes. 9. Third parties - Deloitte's engagement is not planned or conducted in contemplation of or for the purpose of reliance by any third party (other than the Client and any party to whom Deloitte's audit report is addressed) or with respect to any specific transaction. Therefore, items of possible interest to a third party will not be addressed and matters may exist that would be assessed differently by a third party, possibly in connection with a specific transaction. 10. Confidentiality - To the extent that, in connection with this engagement, Deloitte comes into possession of any proprietary or confidential information of the Client, (including Personal Information as defined in section 8 above), Deloitte will not disclose such information to any third party without the Client's consent, except: (a) as may be required or permitted by legal authority, the rules of professional conduct/code of ethics. (b) to the extent that such information shall have otherwise become publicly available. Except as instructed otherwise in writing, each party may assume that the other approves of properly addressed fax, e-mail (including e-mail exchanged via internet media) and voice mail communication of both sensitive and non-sensitive documents and other communications concerning this engagement, as well as other means of communication used or accepted by the other. 11. Proportionate liability - The Client and Deloitte acknowledge where the audit is conducted pursuant to a statute governing the Client that contains proportionate liability provisions that apply to an auditor, such as the Canada Business Corporations Act, the terms of the statute shall apply to this engagement. In the event that the Client and Deloitte are not subject to such statutory provisions regarding proportionate liability, the Client agrees that in any action, claim, loss or damage arising out of the engagement, Deloitte's liability will be several and not joint and several and the Client may only claim payment from Deloitte of Deloitte' s proportionate share of the total liability based on the degree of fault of Deloitte as finally determined by a court of competent jurisdiction. 12. Client misrepresentation - Deloitte shall not be liable to the Client, and the Client releases Deloitte, for all liabilities, claims, damages, costs, charges and expenses incurred or suffered by the Client related to or in any way associated with the engagement that arise from or are based on any deliberate misstatement or omission in any material information or representation provided by or approved by any member of management of the Client, officer of the Client or member of the council of the Client. 13. Survival of terms - The agreements and undertakings of the Client contained in the engagement letter, together with the appendices to the engagement letter including these Terms, will survive the completion or termination of this engagement.