INDEPENDENT AUDITOR’S REPORT
To the Shareholders of ABC Company [or Other Appropriate Addressee]
Report on the Audit of the Financial Statements
Opinion
We have audited the consolidated financial statements of ABC Company and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 20X1, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including material accounting policy information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 20X1, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated 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.
Key Audit Matters Including Matters Related to Fraud
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
[Description of each key audit matter in accordance with CAS 701 and ED-CAS 240, para. 63]
The Group – Fraudulent Manipulation of Contract Performance
On 15 January 20X1, the Group announced that following an internal management operational review, it had identified a deliberate and sophisticated financial reporting fraud at a subsidiary in Country A. The Group also announced that it had commenced an internal investigation and has commenced the process of appointing an external party to undertake an investigation.
Further details of the investigation are set out on page X. Management’s response to the findings of the investigation, including the associated control deficiencies that were identified, is set out on page W.
The total impact, including changes in deferred tax recognition, amount to a reduction in net assets of $99 million compared with previously reported at 31 December 20X1 and $ 66 million lower at 1 January 20X1. The prior year errors were reflected in the relevant comparative periods and the impact is set out in note V. The specific items are described in note U.
Our audit focused on evaluating the adequacy and robustness of management’s investigation, the impact on the financial statements, and addressing the risk of similar issues in other reporting units.
Our Response
We incorporated forensic specialists in Country B and Country A into our audit team to assess the structure, scope, approach and independence of the investigation commenced by the Group, and to satisfy ourselves that it considered the risk that the issues identified may be more pervasive across the Group, and that the conclusions reached were appropriate. Where appropriate, we shadowed, independently reperformed or extended the scope of forensic procedures to address our CAS 240 requirements for audit purposes.
We also used our forensic specialists to support us in considering the associated audit risks arising from each of the matters identified by the investigation and determining the impact on our audit risk assessment and developing an appropriate audit response.
We considered the scope of the audit and, in particular, assessed which reporting units required additional audit procedures to be performed, including but not limited to Country A.
We also instructed our component teams to perform additional procedures to respond to the risk of fraud, including incremental procedures over unbilled revenue and additional journal entry testing.
We considered the impact of the investigation on management’s internal control environment both in Country A and in other locations exposed to the same risks.
Taking the above into account, consistent with our original audit plan, we instructed our component audit team in Country A to perform a full scope audit on the subsidiaries complete financial information and evaluated the component team’s work. In addition, we performed a significant level of oversight, with senior members of the group engagement team including the involvement of our forensic specialists throughout the process.
As part of these oversight activities, we were involved in the component audit team’s risk assessment to identify significant risks of material misstatement, evaluated the appropriateness of the audit procedures to be performed by the component team to respond to the identified significant risks, reviewed certain working papers of the component audit team to evaluate the work performed and held regular meetings with our component audit team and with local, regional and Group management to consider the component team’s audit work and findings. Our component team in Country A also specifically tested the prior year revisions and the specific items restated.
Key Observations Communicated to the Audit and Risk Committee
In our communications to the audit committee about the fraud we also communicated the associated identified significant deficiencies in internal controls.
If the auditor determines there are no key audit matters related to fraud to communicate, the following statement is included:
[Except for the matter described in the Basis for Qualified (Adverse) Opinion section or Material Uncertainty Related to Going Concern section,] We have determined that there are no [other] key audit matters, including matters related to fraud to communicate in our report.]
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group's financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated 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 generally accepted auditing standards 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 consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the group financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.
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 the auditor identifies during our audit;
- Identified fraud or suspected fraud, and
- Other matters related to fraud that are, in the auditor’s judgment, relevant to the responsibilities of those charged with governance.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters, which includes matters related to fraud. We describe the key audit matters, including matters related to fraud in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is [name].
[Signature in the name of the audit firm, the personal name of the auditor, or both, as appropriate for the particular jurisdiction]
[Auditor Address]
[Date]