Retracting and reissuing assurance reports

The standards that relate to the retracting and reissuing of assurance engagement reports are those that discuss work on subsequent events. The specific requirements are divided into three scenarios, depending on timing:

1. Events occurring between the date of the financial statements and the date of the report;
2. Facts which become known to the engagement team after the date of the report but before the date the financial statements are issued; and
3. Facts which become known to the engagement team after the financial statements have been issued.

For the purpose of this document, the focus will be on scenarios #2 and #3, where possible retraction and reissuance of the financials and report could occur.

The Canadian Standard on Review Engagements (CSRE) 2400 discusses scenario #2 and #3 in paragraphs 61 through 67, while the Canadian Auditing Standards (CAS) covers these scenarios in CAS 560 paragraphs 10 through 17. While there are many similarities between the requirements under both scenarios, even when comparing review and audit engagements, there are important differences to be aware of. Relevant differences are identified in the discussion below.

Facts which become known to the engagement team after the date of the report but before the date the financial statements are issued (Scenario #2)

A – Always applies

If you become aware of a fact that may cause you to amend the report, you shall discuss this matter with management and those charged with governance (TCWG) and determine if the financial statements need amendment.

B – Amendment is applied

If the financial statements are amended, you should inquire how management intends to address the matter in the financial statements, and either:

• Extend the procedures on subsequent events to the new report date and provide a new report on the amended financial statements; or
• Extend the procedures on subsequent events, solely restricted to the amendment described in the note to the financial statement, and amend the report to include an additional date restricted to that amendment (often referred to as “dual dating”)[1]. An example of how to include an additional date restricted to the amendment would be “March 31, 20X1, except as to Note Y, which is as of April 15, 20X1”. Additionally, explain in an Emphasis of Matter or Other Matter paragraph that the procedures on subsequent events are restricted solely to the amendment and more extensively discuss the reason for the amendment.

C – No amendment is applied

If the financial statements are not amended, and you believe that they should be, you shall:

• Modify the opinion and then provide the report to management and TCWG (only possible if report has not yet been provided to the entity); or
• Notify management and TCWG not to issue the financial statements to third parties before the financial statements and the report have been amended. If the financial statements are issued without the amendments, you shall take appropriate action to seek to prevent reliance on the report. See discussion below on what such appropriate action would be.

Facts which become known to the engagement team after the financial statements have been issued (Scenario #3)

A – Always applies

Procedures for when you become aware of the facts are the same as under scenario #2 discussed above.

B – Amendment is applied

Procedures where financial statement are amended are the same as under scenario #2 discussed above. In addition, you shall take appropriate action to seek to prevent reliance on the report. See discussion below on what such appropriate action would be.

C – No amendment is applied

Where management and TCWG intend not to amend the financial statements, you shall take appropriate action to seek to prevent reliance on the report. See discussion below on what such appropriate action would be.

Appropriate Action to Seek to Prevent Reliance

In the various circumstances discussed above[2], you shall take appropriate action to seek to prevent reliance on the report included in the previously issued financial statements (without amendments).

Where financial statements are issued before they are amended, it is best practice to advise management to inform users that the financial statements and the report were amended, and provide those amended financial statements and the report to the users. In addition, for audits you shall and for reviews it is best practice to, review the steps taken by management to ensure that anyone in receipt of the previously issued financial statements is informed of the situation.

If management does not take the necessary steps to ensure that anyone in receipt of the previously issued financial statements is informed of the situation, you shall notify management and TCWG that you will seek to prevent future reliance on the auditor's report.

Your course of action to prevent reliance on the report on the financial statements depends upon your legal rights and obligations. You may consider it appropriate to seek legal advice.

Predecessor Communication

Where the prior period was reviewed or audited by a predecessor, and you become aware of a fact that may cause the prior period report to be amended, similar procedures to those discussed above under “appropriate action to seek to prevent reliance” should be followed, with the addition of discussions with the predecessor.

The predecessor, in some circumstances, may be engaged to reissue the report on the amended prior period financial statements or, in rare circumstances, you will be engaged to perform a review engagement on the amended prior period financial statements. The predecessor may be unable or unwilling to reissue the report on the amended prior period financial statements. An Other Matter paragraph of the report is required and may indicate that the predecessor reported on the financial statements of the prior period before amendment.[3]

Footnotes

1. CSRE 2400.62 and CAS 560.11-.12. CAS 560.12 discusses that depending on law, regulation, or financial reporting framework management might be prohibited from restricting the amendment to the effects of the subsequent event. Per Reporting implications of CSRE 2400, in Canada, Parts II to IV of the CPA Canada Handbook, do not prohibit such a restriction. For Part I (IFRS) the practice globally is not consistent.
2. Scenario #2 item C and scenario #3 item B and C
3. Reporting implications of CSRE 2400 page 69 and Reporting implications of Canadian Auditing Standards page 106