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By Don Jeffreys & John Kirkwood
Illustration: Jason Schieder
 DON'T THINK JUST BECAUSE THE REPORT IS SIGNED THAT THE PUBLIC ACCOUNTANT'S RESPONSIBILITIES ARE OVER
It's a misconception to think a professional engagement ends when the public accountant has signed off on an audit or review. The auditor's association with the financial statements normally extends to the form in which the statements are published. The auditor has a responsibility to be satisfied that the statements (and the report of the auditor when it is issued in written form) are accurately reproduced and that other financial and nonfinancial information accompanying it do not raise questions about the statements.
This responsibility is the same whether the statement issuer is a public or private company, a government body, a not-for-profit entity or other entity in the public sector, a partnership or any other form of organization elsewhere.
The Assurance Standards Board (ASB) has approved three new Handbook sections to provide guidance on the public accountant's responsibilities in these circumstances:
• Section 7110, auditor involvement with offering documents of public and private entities;
• Section 7115, auditor involvement with offering documents of public and private entities — current legislative and regulatory requirements;
• Section 7500, auditor association with annual reports, interim reports and other public documents.
These new recommendations — which revise, update and replace current Handbook sections 7100 and 7500 — apply to any auditor whose client issues any of a variety of documents, either in hard copy or electronic form. In introducing these changes, the ASB had a number of objectives. First, the recommendations have been redefined to recognize that when an auditor is associated with a public document, the professional responsibilities are the same regardless of the nature of the document. As a corollary of this objective, the recommendations have been broadened to include documents, such as interim reports to shareholders and management discussion and analysis (MD&A), not covered previously. Further, in keeping with the development of an integrated system of continuous reporting in securities regulation, the Handbook requirements have been restructured so that they apply consistently to periodic reporting and to securities offering documents. And in all of this, the ASB has sought to provide clear and relevant guidance to practitioners and, as far as possible, achieve consistency with practice in other countries.
Where annual reports are concerned, the auditor's responsibility has been recognized in the past in Section 7500 of the CICA Handbook – Assurance, "The auditor's involvement with annual reports." The revisions extend section 7500 to apply to any public document containing statements with which the auditor is associated. This includes interim reports, other continuous disclosure documents and all forms of securities offering documents. As well, the revised recommendations apply to annual information forms (AIFs) and MD&A, which do not normally contain but are closely related to the financial statements.
The requirements of the revised section apply when any document containing the financial statements is first published, whether in hard copy or in electronic form on SEDAR (on EDGAR in the US) or on the issuer's website. However, the auditor's responsibility does not extend to any subsequent reproduction of the document, which is merely a means of distributing the information.
The auditor's principal concern is to ensure that the financial statements and, if applicable, the report of the auditor are accurately reproduced. For this purpose, the auditor usually reads printer's proofs or the copy put into an electronic site and subsequently ensures that the material has been properly transcribed.
The auditor also reads the other financial and nonfinancial information in the document to obtain satisfaction that it is not inconsistent with, and does not cast doubt on, the financial statements or the report. As well, the auditor may identify something in the document he or she believes is a material misstatement of fact.
In certain situations, securities legislation defines "misrepresentation" and provides civil liabilities for the issuer, directors and officers of the issuer, others who signed the document and in some cases experts, if the document is found to contain a misrepresentation. In other cases, a document itself contains a definition of a "misrepresentation," and the auditor may believe as a consequence of reading the document that it contains a misrepresentation as defined.
The section contains a protocol the auditor is to follow if he or she encounters difficulties with the contents of the document. If the document contains an error in the financial statements or report, an inconsistency in the other information, an apparent material misstatement of fact or when applicable a misrepresentation, and the matter cannot be resolved, the auditor is required to: inform the audit committee and/or board of directors of the unresolved matter; notify the board of directors that he or she does not consent to the use of his or her name or report in the document; and consider whether to resign from the position.
There may be instances where the auditor believes that a document fails to comply with the requirements of securities legislation or regulation. In such cases the auditor would draw the matter to the attention of management and consider proposing to management that it discuss it further with legal counsel.
The revised Section 7500 also provides guidance on the translation of a published document, which was formerly dealt with in Section 7100, "The auditor's involvement with prospectuses and other offering documents." When a document with which the auditor is associated is to be published in more than one language, the auditor is required to be satisfied that:
a) each version of the financial statements and, when applicable, the report of the auditor, includes the same information and in all material respects carries the same meaning as each other version;
b) the other information in the document has been translated in such a way as not to be inconsistent with the financial statements and, when applicable, the report of the auditor.
The new recommendations are effective for documents issued on or after November 1, 2003.
Among the public documents encompassed by Section 7500 are any form of document that offers securities. In this case the auditor has extensive responsibilities in addition to those discussed above. The additional professional responsibilities are set out in a new section of the Handbook, Section 7110, which replaces Section 7100. Certain other responsibilities that arise in the case of documents, such as prospectuses, that are regulated under securities legislation are dealt with in new Section 7115.
The auditor's responsibilities are triggered when the auditor consents to the use of his or her audit report in the offering document. Documents to which the recommendations apply include preliminary prospectuses, prospectuses, private placement offering memoranda, issuer and take-over bid circulars, statements of material facts and certain shareholder information circulars.
The auditor's association with take-over bid circulars is normally limited to bids involving a share exchange or other offering of securities, as distinct from bids made only for cash. In the case of shareholder information circulars, the auditor's association is usually limited to those involving approval of a transaction, such as a reverse takeover, in which securities are to be offered to existing shareholders of the entity, to others, or to both.
Section 7110 introduces a number of changes from Section 7100. Among the more significant changes:
• The auditor (or another public accountant) is required to review all unaudited financial statements included in an offering document, whether or not required by securities legislation or regulation.
• The auditor's subsequent review procedures are expanded to include all the work normally performed in a financial statement audit.
• The auditor's consent to the use of the audit report is required to be included in an offering document, to demonstrate to readers that the auditor has been involved with the document.
• Recommendations regarding the auditor's procedures on information other than the financial statements and auditor's report, and regarding translation, are transferred to Section 7500.
• Additional guidance is provided on the auditor's procedures with respect to pro forma financial statements. Compilation reports are to be issued only when required by securities legislation.
Section 7115 deals with the various communications required to be issued by the auditor to securities regulatory authorities: consent letter; comfort letter on unaudited financial statements; advice letter issued when the audit report in a preliminary prospectus is unsigned.
Section 7115 requires that the auditor complete all of the requirements of Section 7110 before issuing a consent letter to securities regulatory authorities. The greater part of the section is unchanged from recommendations previously included in Section 7100.
However, the section provides additional guidance for situations in which the auditor is required, under securities legislation, to issue a compilation report on pro forma financial statements, and contains an illustration of a compilation report that an auditor might issue.
The recommendations in sections 7110 and 7115 are effective for consents issued on or after November 1, 2003.
Don Jeffreys, CA, is a principal in the CICA's Assurance Standards department. John Kirkwood, CA, is a consultant to the CICA's Assurance Standards department
Technical Editor: Bob Rutherford, vice-president, Standards | 
