Loading...
HomeMy WebLinkAboutAudit Agenda - 2020-09-14Pursuant to Council’s Procedural By-law, delegations are permitted to address the Committee for a maximum of 5 minutes. 1 - 1 1 - 2 1 - 3 for the 20 September , 20 20 20 ending August 28 The Corporation of the City of Kitchener Audit Planning Reportfor the year December 31, Prepared on Audit Committee meeting 14, 2020kpmg.ca/audit 1 - 4 1245 1115 13141819202122 THODOLOGY & READINESS MILESTONES COMMUNICATIONS Report ANSPARENCY UDIT APPROACH AND ME D ASSURANCE INSIGHTS Audit Planning EMBEDDING RESILIENCE 19: - UTIVE SUMMARY W AUDIT AND ACCOUNTING STANDARDS Table of contents EXECCOVIDGROUP AUDIT SCOPEAUDIT RISKSMATERIALITYAUDIT QUALITY AND TRKEY DELIVERABLES ANDNEPROPOSED FEESAPPENDICESAPPENDIX 1: REQUIREDAPPENDIX 2: KPMG’S AAPPENDIX 3: AUDIT AN 1 - 5 8884 - 747 - Courtney Cheal Senior ManagerTel:519ccheal@kpmg.ca 8221 - 747 Report - 519 Thomas Mennill Lead Audit Engagement PartnerTel:tmennill@kpmg.ca Audit Planning KPMG contacts The contacts at KPMG in connection with this report are: 1 - 6 | 1 Page $152,500 (excluding capital 00,000. 7,0 accounting and/or auditing changes for 3 rends audit t and Appendix 16 - 15 s and relevant audit trends. ty ge pa ees City f ed control 18 . We have determined group materiality to be $ page 13 sparency on all services and follow Audit Committee approved protocols. uality Propos Audit materialiQCurrent developments and Materiality has been determined based on budgeted revenueWe have a robust and consistent system of quality control. We provide complete tranSee Proposed fees for the annual group audit and special reports isSee page Please refer to relevant to the funding)See page 11 of will have an 4 page operations and the City’s on impact which are consolidated into the Corporation an Report having components 6 financial reporting. focused. In planning our audit we have taken into account key areas - Audit Planning 10 risk 5- 2-3 19 the City’s - 19 is undoubtedly - Post employment benefitsTangible capital assetsObligatory reserve fund revenue and deferred revenue City of Kitchener financial statements. We plan to perform audits on these COVID Group audit ScopeAudit and business risks Executive summary COVIDimpact onSee pagesOur audit consists of the entities.KPMG also performs audits of other entities that are listed on Our audit is of focus for financial reporting. These include:See pages ___________________________________________________________________This Audit Planning Report should not be used for any other purpose or by anyone other than the Audit Committee, City Council, and staff of the City. KPMG shall have no responsibility or liability for loss or damages or claims, if any, to or by any third party as this Audit Planning Report has not been prepared for, and is not intended for, and should not be used by, any third party or for any other purpose. 1 - 7 | 2 Page rol (e.g., wire transfers schemes) changes in internal controls over financial reporting site preventative controls - risks of changes in the individuals performing the cont . work arrangements changes in internal controls over financial reporting or to bias Reconsideration of financial reporting risks, including fraud risks, given possible new pressures on management or new opportunities to commit fraud givenestimatesNew or enhanced controls to respond to new financial reporting risks or elimination of onConsideration Consideration of the appropriateness of segregation of duties Revisions may be needed for internal audit visits planned Reconsideration of internal control impacts related to broader IT access given remote Reporting materialCyber security Potential implications on internal control over financial reportingOther potential considerations financial reporting its and ) operations City’s capital assets the related to disclosures on tangible site:site: (e.g., nerous contracts an impact (e.g., financial instruments) Report having Embedding Resilience & Readiness financial assets - 19 Financial Reporting19 Financial Reporting -- cycle (process) accounting (e.g. contracts with customers) - Audit Planning inancial reporting implications COVIDCOVID inancial reporting implications f f irment of non Analysis of triggering events and impairment testing (e.g cash flow forecasts and assumptions) 19 is undoubtedly - o ImpaImpairment of financial assetsFair value measurementsEmployee benefits and employer obligationsProvisions, contingencies and oRevenueSubsequent eventsNew accounting policies Significant judgements in applying accounting policies Major sources of estimation uncertainty that have significant risk Liquidity risks Potential Potential Refer to our Refer to our COVID-19: COVID 1 - 8 | 3 Page early audit work ntity’s system of internal control, and E potential financial reporting impacts, the changes in statements Entity’s eed to perform additional procedures or the design of the analytical procedures (e.g. more disaggregated analytical procedures on per day basis) n oo Understanding the Entity’s environment, and changes in the their impact on our: Potential interim review implications Engagement Letter Rider perform such - electronic evidence (and understanding the nature, timing and extent of tests of controls Report 19 is a major consideration in the development of our audit plan for your 2020 financial - Audit Planning identified and assessed risks of material misstatement audit strategy, and theand substantive proceduresIncreased use of other collaboration tools (Facetime, Skype etc.) and the need for written management acknowledge for their usePotential increased use ofEntity’s processes to provide such evidence to us) Tests of controls may need to be deferred (to allow the Entity to put new or revised controls in operation and to be able to recontrols) ooooo Understanding the expected impact on the relevant metrics for determining materiality (including the benchmark) and the implication of that in identifying the risks of material misstatement, responding to such risks and evaluating uncorrected misstatementsUnderstanding the potential financial reporting impacts, the changes in Entity’s environment, and changes in the entity’s system of internal control, and their impact on our:Remote auditingTiming of procedures may need to change Potential audit implications Planning and risk assessmentExecuting COVID-19: Embedding Resilience & Readiness (Continued) Similarly, COVID 1 - 9 4 | Scoping AuditAudit AuditAuditAuditAuditAudit are as follows: over performs an audit cope includes in their scope for the City of Kitchener audit and Corp. Audit Planning Report Entities Corporation of the City of KitchenerCity of Kitchener Gasworks EnterpriseKitchener Public LibraryThe Centre in the Square Inc.Kitchener Downtown Improvement AreaBelmont Improvement AreaKitchener Power Consolidated entities (components of the Group Audit for the City) Group audit s Entities for which KPMG KPMG 1 - 10 5 | revenue recognition has been rebutted Why is it significant?The risk of fraud from to perpetrate fraud. revenue off would be utilized profit enterprises - - fraudulent from of material misstatement due to fraud resulting Audit Planning Report KPMG does not believe that the use of inappropriate cut The presumed fraud risk is ordinarily associated with forThe majority of revenue is calculated based on MPAC data, approved utility rates and user fees, and is not subject to complexity or judgement at the reporting level; sk Professional requirements Rirecognition. Our audit approach This is a presumed fraud risk.However, the audit team has rebutted this presumption due to the following reasons: ——— Audit risks KPMG 1 - 11 6 | ds to specific additional risks of . Why is it significant?This is a presumed fraud risk. We have not identified any management override relating to this audit is not rebuttable, our audit methodology incorporates the required procedures in professional standar from management override of (continued) of material misstatement due to fraud risk of material misstatement due to fraud resulting Audit Planning Report this presumed isk Professional requirements Rcontrols.Our audit approach Asaddress this risk. These procedures include testing of journal entries and other adjustments, performing a retrospective review of estimates and evaluating the business rationale of significant unusual transactions. Audit risks KPMG 1 - 12 7 | Estimates and judgements used by managementComplexity of the accounting guidance Why are we focusing here?—— and (continued) employment benefits We will also use the work of Mondelis Actuarial in our audit of the accounts and disclosures. Audit Planning Report - Communicate with management’s actuarial specialistsAssess the reasonableness of assumptions used, Test the appropriateness of the underlying data, including employee populations Other areas of focus Post Our audit approach———— Audit risks KPMG 1 - 13 8 | Significance of the account balancesRisk of error in inappropriately recognizing costs as either capital or operating Why are we focusing here?—— maintenance or other similar accounts to ensure completeness of capital additions and (continued) capitalization policies and their application with management Audit Planning Report Discuss Test a sample of capital additions to ensure existence and accuracy Other areas of focus Tangible Capital Assets Our audit approach——Test items recorded as repairs Audit risks KPMG 1 - 14 9 | Revenue recognized from the Development Charge Reserve Fund is subject to judgement as capital projects must be growth related in nature the deferred revenue account Why are we focusing here?— Perform substantive testing over amounts being recognized as revenue by ensuring the projects which the development charges are allocated to are appropriate and the related expenditure has incurred; andPerform substantive testing over the collections of development charges recorded in Audit Planning Report Test controls around the recording of revenues/cash receipts; Other areas of focus Obligatory Reserve Fund Revenue and Deferred Revenue Our audit approach——— Audit risks (continued)KPMG 1 - 15 10 | authorized and all are followed. To ensure transfers is tion criteria to test the existence and accuracy of expenses performed comparing current year’s revenues on a disaggregated basis to the current year budget Confirmation of details with investment managers Perform a substantive analytical procedure using MPAC data and budgeted tax rates Analytical procedures to beand the prior year, adjusting for known changes in assumptionsSubstantive procedures to be performedTesting the completeness, existence, and accuracy of yearend accruals, most notably those that contain areas of estimate of judgmentReview agreements to ensure proper revenue recogniPerform test of details on significant transfers eligibility criteria and any stipulations were met. Our audit approach and findings——————— Audit Planning Report Other areas of focus Investments and related incomeTaxation RevenueUser Fees and Service Charge RevenueExpensesGovernment Transfers Audit risks (continued)KPMG 1 - 16 11 | % 7,000,000421,558,164 Group amount$$1.67 misstatements To respond to aggregation risk, . tors Corrected audit Uncorrected audit misstatements We will report to the Audit Committee: and evaluate the level at which we think , 1.73% was . develop an appropriate audit response to such risks , revenues for the year budgeted Comments Determined to plan and perform the audit and to evaluate the effects of identified misstatements on the audit and of any uncorrected misstatements on the financial statements. Prior year materiality was $7.0 millionBased on This benchmark is consistent with the prior year.The corresponding percentage for the prior year’s audit Audit Planning Report Materiality determination MaterialityBenchmark% of Benchmark Materiality Materiality is used to identify risks of material misstatementsmisstatements will reasonably influence users of the financial statements. It considers both quantitative and qualitative facwe design our procedures to detect misstatements at a lower level of materiality.KPMG 1 - 17 Audit Quality Matters 1 - 18 13 | Page . for more information including and , objectivity, independence, ethics, opinion. . Audit Quality and Transparency report integrity Executed consistently, in line with the requirements and intent of applicable professional standards within a strong system of quality controlsAll of our related activities are undertaken in an environment of the utmost level of and What do we mean by audit quality?Audit Quality (AQ) is at the core of everything we do at KPMG. We believe that it is not just about reaching the right opinion, but how we reach thatWe define ‘audit quality’ as being the outcome when audits are: Our AQ Framework summarises how we deliver AQ. Visit our Audit Quality Resources pageaccess to our se and Industry technical definition standards excellence Performing with our AQ professional aligned with audits in line Methodology experti transparency clients tools and leadership technology Associating Smart audit Transparency with the right Governance and Report Audit Quality Framework and candid Code of including specialists Honest and Appropriately independence qualified team, conduct, ethics Audit Planning communication iagram summarizes the key elements of our quality control system. Audit quality and KPMG maintains a system of quality control designed to reflect our drive and determination to deliver independent, unbiased advice and opinions, and also meet the requirements of Canadian professional standards. Quality control is fundamental to our business and is the responsibility of every partner and employee. The following d 1 - 19 14 | Page 1 202 2020 November March to April and Final Interim fieldworkfieldwork reporting Planning reporting June 2021 August 2020 Statutory / Other with Audit committee and senior management Ongoing communication milestones Debrief Strategy Report July 2021 August 2020 Audit Planning Key deliverables and 1 - 20 15 | lated e r the Page 3250, . Earlier yearend) 3 revenue, government transfers f ’s December 31, 202 ’s December 31, 2022 yearend). City City (the asset retirement obligations associated with tangible capital assets. employment Benefits, Compensated Absences and Termination Benefits. Since the - livery of services. will have to identify if they have any asset retirement obligations City employer defined benefit plans and vested sick leave benefits. Other improvements to existing guidance will also be e Public Sector Accounting Handbook has two sections that address two major sources o - Key observations Identified as the top priority in PSAB’s 2014 Project Priority Survey, the Board has approved a project to review Section PS Retirement Benefits, and Section PS 3255, Postissuance of these Sections decades ago, new types of pension plans have been introduced and there have been changes in the reaccounting concepts.This project will involve looking at issues such as deferral of experience gains and losses, discount rates, how to account for shared risk plans, multiconsidered.A new, comprehensive Handbook Section on employment benefits will replace the two existing Sections. This standard describes how to account for and report This standard is effective for fiscal periods beginning on or after April 1, 2021 (the Implications: The In recent years, governments across Canada are increasingly using various forms of public private partnership arrangements foprovision of assets and deThis project is expected to develop in two stages. The first stage will involve contemplating specific issues, including project scope, recognition and measurement of a public private partnership and disclosure requirements. Other issues will also be considered. The second stage will involve determining how to account for public private partnerships.The objective is to develop a public sector accounting standard specific to public private partnerships. Currently thand tax revenue. This new standard addresses the recognition, measurement and presentation of revenues that are common in thpublic sector other than government transfers and tax revenue. This standard will be in effect for fiscal years beginning on or after April 1, 2022 adoption is permitted. standards that are effective for the current year are as follows: Report and accounting standards and accounting Audit Planning Standard PS 3250, Employee BenefitsPS 3280, Asset Retirement ObligationsPublic Private PartnershipsPS 3400, Revenue New audit New auditing 1 - 21 16 | Page CPA Canada Client Briefing more emphasis on the need for exercising professional skepticism more granular risk assessment to address each of the components in an estimate (method, data, assumptions)more granular audit response designed to specifically address each of the components in an estimate (method, data, assumptions)more focus on how we respond to levels of estimation uncertaintymore emphasis on auditing disclosures related to accounting estimatesmore detailed written representations required from management —————— Expected impact on the audit: Report Audit Planning and Related ends on or after Auditing Accounting - , CAS 540Estimates DisclosuresEffective for audits of Entities with yearDecember 15, 2020 1 - 22 Independence Matters 1 - 23 . Our fee Prior period(actual)149,600 described above. Current period(budget) 152,500 and consistent with fees detailed in the contract entered into in 2019 standards audit or application thereof over financial reporting change in our fees: fee rds or requirements arising as a result of changes in could cause a changes to the relevant financial reporting framework standa factors audit ny accounting advice following Significant Significant new or changed accounting policiesSignificant changes to internal controlSignificant unusual and/or complex transactionsNewChanges in the timing of our workOther significant issues (e.g. cyber security breaches) A Audit of the financial statements Matters that could impact our The proposed fees outlined above are based on the assumptions described in the engagement letterThe Proposed fees In determining the fees for our services, we have considered the nature, extent and timing of our planned audit procedures asanalysis has been reviewed with and agreed upon by management.Our fees are estimated as follows: 1 - 24 equired communications R KPMG’s audit approach and methodology : Audit and Assurance Insights 2: 3 Appendices Content Appendix 1: Appendix Appendix 1 - 25 20 | to the the audit. Page agree . . as provided by management control deficiencies, identified during the audit, that do not rise to the level of a Engagement terms Unless you inform us otherwise, we understand that you acknowledge and terms of the engagement set out in the engagement letter and any subsequent amendments Representations of management We will obtain from management certain representations at the completion of Internal control deficiencies Other significant deficiency will be communicated to management the Audit to audit. the our findings report the completion of we will provide Report Audit Planning A draft report will be provided at Required inquiries Report Reports to the Audit Committee At the completion of the audit, Committee.Professional standards require that during the planning of our audit we obtain your views on the identification and assessment of risks of material misstatement, whether due to fraud or error, your oversight over such risk assessment, identification of suspected, alleged or actual fraudulent behaviour, and any significant unusual transactions during the period. Appendix 1: Required communications 1 - 26 21 | . Page . . risk attributes - Deep industry insights Bringing intelligence and clarity to complex issues, regulations and standards Analysis of complete populations Powerful analysis to quickly screen, sort and filter 100% of your journal entries based on high Reporting Interactive reporting of unusual patterns and trends with the ability to drill down to individual transactions . . : KPMG’s audit approach and methodology Report 2 assessment Audit Planning KPMG Audit home page gives . time access to information, insights - driven risk - helping focus on higher risk transactions Appendix Collaboration in the audit A dedicatedyou realand alerts from your engagement team Issue identification Continuous updates on audit progress, risks and findings before issues become events Data Automated identification of transactions with unexpected or unusual account combinations –and outliers 1 - 27 22 | Page up now - ReferenceLearn moreLearn more Learn more Learn more Learn more Sign keeping management and – 19 on financial reporting and audit - 19, and more importantly, position your -resource center impact of COVID 19 financial reporting - COVID - Summary Curated thought leadership, research and insights from subject matter experts across KPMG in CanadaResources to help you understand your exposure to COVIDbusiness to be resilient in the face of this and the next global threat.Financial reporting and audit considerations: The processes.KPMG Global IFRS Institute Perspective on the key issues driving the Audit Committee agendaA quarterly Canadian newsletter which provides a snapshot of KPMG's latest thought leadership, audit and assurance insights and information on upcoming and past audit events board members abreast on current issues and emerging challenges within audit. Report 3: Audit and Assurance Insights (COVID 19) Audit Planning Featured insight Audit & Assurance InsightsThe business implications of coronavirusAccelerate 2019/20Momentum Appendix Our latest thinking on the issues that matter most to Audit Committees, Boards and Management. 1 - 28 ed with legally distinct and separate ies. (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliat kpmg.ca/audit KPMG LLP, an Audit, Tax and Advisory firm member firm of KPMG International Cooperative (“KPMG International”).KPMG member firms around the world have 174,000 professionals, in 155 countrThe independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a entity, and describes itself as such.© 2020 KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 - 29 No recommendation required. The following information is being provided as an update and assurance on internal audit matters, in accordance with the Audit Committee Terms of Reference. 2 - 1 Completed: July 8, 2020 o o Earned overtime Paid overtime Lieu time Modified time program 2 - 2 Sick leave Workplace Safety and Insurance Board (WSIB) leave Long-term disability (LTD) leave 2 - 3 o o o o 2 - 4 2 - 5 This refers to banked earned overtime and does not include the formal modified time program. 2 - 6 o o o Administration 2 - 7 Management Education and Accountability Management Overtime 2 - 8 2 - 9 On-Call Rotation 2 - 10 2 - 11 2 - 12 2 - 13 2 - 14 2 - 15 2 - 16 2 - 17 2 - 18 2 - 19 2 - 20 2 - 21 2 - 22 2 - 23 2 - 24 2 - 25 2 - 26 2 - 27 2 - 28 2 - 29 2 - 30