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HomeMy WebLinkAboutFIN-2021-51 - External Audit Planning Report for Fiscal Year 2021 Committee of the Whole REPORT TO: DATE OF MEETING: September 20, 2021 SUBMITTED BY: Ryan Hagey, Director of Financial Planning & Reporting PREPARED BY: Greg Demacio, Manager of Financial Reporting & Analysis WARD(S) INVOLVED: All Wards DATE OF REPORT: September 10, 2021 REPORT NO.: FIN-2021-51 SUBJECT: External Audit Planning Report for Fiscal Year 2021 RECOMMENDATION: That the Audit Planning Report for the year ending December 31, 2021 prepared by KPMG, attached as Appendix 1 to report FIN-2021-51 be approved. REPORT HIGHLIGHTS: The purpose of this report is to external auditors (KPMG). The approach being proposed is consistent with previous years. This report supports the delivery of core services. BACKGROUND: Item 3 (e) in the Audit Committee Terms of Reference states that one of the responsibilities communication between the external auditor and the Audit Committee to ensure that both groups are kept up to date on changes in the organization, changes in the accounting/regulatory environment and their related risks. ith the Audit Committee twice annually. This is the first of those meetings for the 2021 yearend. A second meeting will be held once their audit is complete to present results and offer an opportunity for questions. REPORT: KPMG will present their Audit Planning Report. Please see attached document titled The Corporation of the City of Kitchener Audit Planning Report for the year ending December 31, 2021 STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. FINANCIAL IMPLICATIONS: None. COMMUNITY ENGAGEMENT: INFORM agenda in advance of the committee meeting. It will provide the public with information to assist them in understanding the scope of the external audit to take place in the spring of then ended will be the subject of this audit. The 2021 audited financial statements, once completed and approved, will be posted on the City website and notice will be provided to all residents through a widely distributed newspaper in accordance with Section 295 (1) of the Municipal Act, 2001. APPROVED BY: Jonathan Lautenbach, Chief Financial Officer ATTACHMENTS: The Corporation of the City of Kitchener Audit Planning Report for the year ending December 31, 2021 . t the and refer to User Guide found on the audi APR IMPORTANT MESSAGE FOR ENGAGEMENT TEAMSEngagement Teams MUST read correspondingportal to ensure they understand the communication requirements and tailoring instructions necessary to appropriately complete each page within this document. Delete this box prior to finalization of this document. – > > , 2021 for the Audit 2 21 > 20 > 20 ending September Signing reports and letters meeting September 20, 2021 REPORT PREPARED Planning Report Name of ………., 20Insert appropriate signature of the Firm. DATE <Company Audit for the period / year ended< <Refer to Practice Aid< kpmg.ca/audit kpmg.ca/audit The Corporation of the City of Kitchener Audit Planning Reportfor the year December 31, Prepared on Committee 3 1245 111214 SCOPE – Report to the audit committee WLY EFFECTIVE ACCOUNTING STANDARDS Table of contents EXECUTIVE SUMMARYAUDIT QUALITY: HOW DO WE DELIVER AUDIT QUALITY?MATERIALITYGROUP AUDIT AUDIT RISKSKEY MILESTONES AND DELIVERABLESNEAPPENDICES 8884 - 747 - 519 COURTNEY CHEAL Audit Senior Manager Tel:ccheal@kpmg.ca 8245 - 747 - 519 MATTHEW BETIK Lead Audit Engagement Partner Tel:mbetik@kpmg.ca ontacts Report to the audit committee KPMG c The contacts at KPMG in connection with this report are: 1 | other any Page . standards been prepared for, and is not intended for, accounting to has should not be used for any other purpose or standards newly effective s for directors and accounting focused. In planning our audit we have taken into account key areas - 12 and 13 report to the audit committee s 10 - 5 ly effective pages Post employment benefitTangible capital assetsObligatory reserve fund revenue and deferred revenue efer to page Audit risks New Our audit is riskof focus for financial reporting. These include:See R City of relevant to . We have s main revenue . total or damages or claims, if any, to or by any third party as this budgeted rations as well as the statutory audits . 9,400,000 and materiality for the ommittee 00,000 be $ 0 , thresholds where necessary to meet local subsidiary 8 $ components over which we plan to perform: to the audit c to be s 6 established by considering various metrics that are cope s Report for how we deliver audit quality and how you can measure our audit 23.4. full scope audit KPMG shall have no responsibility or liability for loss page 6 report to the audit committee is intended solely for the information and use of management, the audit committee, the board of ateriality Audit qualityMGroup audit Executive summary See pagequality.Materiality has been the users of the financial statements, includingdetermined group materiality to Kitchener component Materiality will be set at lower financial statement audit requirements.See Our audit consists of This consists of the main City of Kitchener opefor the consolidated entities. See page This party.and should not be used by, any third party or for any other purpose 2 | Page r quality y report Transparenc Doing the right thing. Always. . and ine with the and give clear direction , in l sits at the core along with ’ applicable professional system of quality controls; are the cornerstones to our approach How do we deliver audit quality? objectivity, independence, ethics, ’ as being the outcome when: supporting drivers y. within a strong to the audit committee executed consistently quality engagements audit quality Report integrit quality value drivers essentially means doing the right thing and remains our highest priority. Our Global Quality Framework outlines how we delive audits are requirements and intent of standards all of our related activities are undertaken in an environment of the utmost level of and ‘Perform our commitment to continually monitor and remediate to fulfil on our quality drivers. Our underpinned by the to encourage the right behaviours in delivering audit quality. –– We define ‘ Audit Quality: Quality and how every partner and staff member contribute to its delivery 3 | Page . million ommittee: millionmillion c % evaluate the level at which 03 9.4 8.0 462 Group amount$$$2. udit to a audit misstatements and Uncorrected (e.g., performance materiality or, in the case We will report to the For the main City of Kitchener . 2.23%. $9,400,000 was develop an appropriate audit response to such risks, year. to , prior financial statements. It considers both quantitative and qualitative factors for the total revenues . Comments The corresponding amount for the prior year’s audit component materiality was set at $7,000,000 in prior year.Based on This benchmark is consistent with the prior year.The corresponding percentage for the prior year’s audit was to identify risks of material misstatements relevant to the audit committee most component materiality) Report established Materiality determination MaterialityBenchmark(the metric that is to the users)% of Benchmark. Materiality Materiality is we think misstatements will reasonably influence users of the To respond to aggregation risk, we design our procedures to detect misstatements at a lower level of materialityof a group audit, | 4 Page Scoping AuditAudit AuditAuditAuditAuditAudit Audit are as follows: over performs an audit (special audit, not considered a component) PMG rporation of the City of Kitchener (special audit, not consolidated within the City includes in their scope for the City of Kitchener audit and to the audit committee Report Kitchener Entities City of City of Kitchener Gasworks EnterpriseKitchener Public LibraryThe Centre in the Square Inc.Kitchener Downtown Improvement AreaBelmont Improvement AreaKitchener Power Corp. The Trust Funds of the Coof Kitchener financial statements) Audits performed by K Group audit – scope Entities for which KPMG | 5 Page fraudulent resulting from of material misstatement risk . e have not identified any Why is it significant?Wrevenue recognition off would be utilized to perpetrate fraud. profit enterprises - - rofessional requirements to the audit committee - p 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; udit risks Significant risk Our audit approach This is a presumed fraud risk.However, the audit team has rebutted this presumption due to the following reasons: — — — A | 6 Page because of its ability to . Why is it significant?Management is in a unique position to perpetrate fraud manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Although the level of risk of management override of controls will vary from entity to entity, the risk nevertheless is present in all entities is not rebuttable, our audit methodology incorporates the required procedures in professional standards to (continued) rofessional requirements of material misstatement due to fraud to the audit committee risk – p Report this presumed Significant riskOur audit approach As address 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 7 | Page Estimates and judgements used by managementComplexity of the accounting guidance Why are we focusing here?—— and f the accounts and disclosures. in our audit o Mondelis Actuarial to the audit committee f focus Report employment benefits We will also use the work of - Communicate with management’s actuarial specialistsAssess the reasonableness of assumptions used, Test the appropriateness of the underlying data, including employee populations Other areas o Post Our audit approach———— Audit risks (continued) 8 | Page 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 to the audit committee Report capitalization policies and their application with management 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 (continued) 9 | Page are allocated to are appropriate and Development Charge Reserve Fund is subject to s which the development charges Revenue recognized from the judgement as capital projects must be growth related in nature Why are we focusing here?— recorded in the deferred revenue account recognized as revenue by ensuring the project to the audit committee Report Perform substantive testing over amounts being the related expenditure has incurred; andPerform substantive testing over the collections of development charges 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) 10 | Page year’s revenues on a disaggregated basis to the current year budget ments to ensure proper revenue recognition criteria is followed. To ensure transfers are authorized and all Confirmation of details with investment managersPerform a substantive analytical procedure using MPAC data and budgeted tax rates Analytical procedures to be performed comparing current and the prior year, adjusting for known changes in assumptionsSubstantive procedures to be performed to test the existence and accuracy of expenses Testing the completeness, existence, and accuracy of yearend accruals, most notably those that contain areas of estimate of judgmentReview agreeeligibility criteria and any stipulations were met. Perform test of details on significant transfers Our audit approach and findings——————— to the audit committee Report Other areas of focus Investments and related incomeTaxation RevenueUser Fees and Service Charge RevenueExpensesGovernment Transfers Audit risks (continued) 11 | Page November 2021March to April 2022 and Final Interim fieldworkfieldwork reporting 2022 Planning reporting June udit committee a September 2021 Statutory / Other with and senior management Ongoing communication deliverables Debrief Strategy and 2021 July 2022 to the audit committee August Report Key milestones 12 | es of will have sector Page incipl on City te partnership. The he public private Earlier adoption is frastructure should rend). Earlier or existing infrastructure; finance the revenue, government transfers and tax f 19, and therefore the effective date is for 19, and therefore the effective date is for - - mpact of COVID ress two major sources o ol of the infrastructure. This asset should be initially measured at cost after April 1, 2022 (the City’s December 31, 2023 yearend). Earlier after April 1, 2023 (the City’s December 31, 2024 yea rr sources of GAAP, or for assistance in applying a primary source of GAAP to retirement obligations associated with tangible capital assets. are as follows: which will be a significant project. primary liability would be measured at the same value of the asset, reduced for any consideration previously and future years r Accounting Standards (IPSAS) as the first accounting framework to consult in situations where PSAB has not ircumstances and it is necessary to consult pronouncements issued by other bodies authorized to issue accounting standards. June 25, 2020 the PSAB deferred the effective date by one year due to the impact of COVID Summary and implications This standard describes how to account for and report asset to identify if they have any asset retirement obligationsOn June 25, 2020 the PSAB deferred the effective date by one year due to the iannual financial statements relating to fiscal years beginning on oadoption is permitted. This section contains requirements for recognizing, measuring, and classifying infrastructure procured through a public privaThis section applies when the private sector partner is obligated to design, build, acquire or better newtransaction past the point where the infrastructure is ready for use; and operate and/or maintain the infrastructure. The inbe recognized as an asset when the public sector entity acquires contrand amortized over the useful life of the asset in a rational and systematic manner. A liability should be recognized when tpartnership recognizes an asset. The transferred. The financial liability should be at amortized cost using the effective interest method. This standard will be in effect for fiscal years beginning on or after April 1, 2023 (the City’s December 31, 2024 yearend). permitted. Currently the Public Sector Accounting Handbook has two sections that addrevenue. This new standard addresses the recognition, measurement and presentation of revenues that are common in the publicother than government transfers and tax revenue. On annual financial statements relating to fiscal years beginning on oadoption is permitted.In April 2021, the Public Sector Accounting Board (PSAB) issued amendments to the GAAP hierarchy set out in PS 1150 to positiInternational Public Sectoissued a specific standard, situations not covered by specific cPSAB will continue to issue Canadian Public Sector Accounting Standards (PSAS), but future standards would be based on the prIPSAS. This amendment will be in effect for fiscal years beginning on or after April 1, 2021 (the City’s December 31, 2022 yearend). to the audit committee (new) (new) new) mendment) Report ( s a Public Private Standard PS 3280, Asset Retirement Obligations PS 3160 Partnership PS 3400, Revenue PS 1150 Generally Accepted Accounting Principles ( Newly effective accounting standards New accounting standards that are effective for the current year 13 | ly. lated Page rlier losses until cial assets and ed in an active simultaneous resentation. The main P nvestments and PS 3040 I tatement S emporary 19, and therefore the effective date is for 19, and therefore the effective date is for 19, and therefore the effective date is for -- - T COVID s are classified into two measurement categories, fair value, or due to the impact of COVID after April 1, 2022 (the City’s December 31, 2023 yearend). Eaafter April 1, 2022 (the City’s December 31, 2023 yearend). Earlier after April 1, 2022 (the City’s December 31, 2023 yearend). Earlier tion between temporary and portfolio investments and investments rrr nvestments, which replaces PS 3030 I l assets and liabilities are generally measured at cost or amortized cost. Remeasurement , which are not cash equivalents, are now accounted for within the scope of PS 3041. derecognized. Financial assets and liabilities are only offset and reported on a net basis if a legally enforceable 020 the PSAB deferred the effective date by one year due to the impact of COVID nvestments. The new standard does not make a distinc I In June 2011, PSAB issued a new standard, PS 1201 which revises and replaces PS 1200 Financial change to the standard is the introduction of a new statement, the statement of remeasurement gains and losses. On June 25, 2annual financial statements relating to fiscal years beginning on oadoption is permitted. The PSAB has issued a new standard, PS 3041 Portfolio Portfolio previously within the scope of PS 3030On June 25, 2020 the PSAB deferred the effective date by one yearannual financial statements relating to fiscal years beginning on oadoption is permitted.This new standard establishes requirements for recognition, measurement, derecognition, presentation, and disclosure of finanfinancial liabilities, including derivatives. In this standards, financial instrumentcost or amortized cost. Almost all derivatives are measured at fair value. Portfolio investments in equity instruments quotmarket are measured at fair value. Other financiagains and losses on financial instruments measured at fair value are reported in the new statement of remeasurement gains andthe financial instrument isright to set off the recognized amounts exists, and the entity intends to settle on a net basis or realize/settle the amountsMeasurement provision are applied prospectively and adjustments to previous carrying amounts are recognized in opening accumuremeasurement gains or losses. On June 25, 2020 the PSAB deferred the effective date by one year due to the impact ofannual financial statements relating to fiscal years beginning on oadoption is permitted. to the audit committee ew) ew) n n Report resentation P Financial ew) tatement n PS 1201 Financial S(PS 3041 Portfolio Investments (PS 3450 Instruments ( 14 | Page to the audit committee equired communications Report R : Audit and Assurance Insights 2 Appendices Content Appendix 1: Appendix a 15 | of to the Page agree rise to the level do not be communicated to the audit will dentified that i . iciencies def iciencies def ntrol co e communicated to management. b therill w O dentified significant i provided by management sis, as eficiency ba d 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 On a timelycommittee in writing.significant Control deficiencies the which will highlight the audit the the completion of . to the audit committee Report Report A draft report will be provided at form and content of the report Representations of management We will obtain from management certain representations at the completion of audit. Appendix 1: Other required communications 16 | Page capture the value that can be found in a 19 - . Summary Curated research and insights for audit committees and boardsThe key issues driving the audit committee agenda in the time of COVIDOur climate change resource centre provides FAQs to help you identify the potential financial statement impacts for your business.In this report, we consider how leading corporates and investors can take action to healthy, sustainable ocean economy - : Audit and Assurance Insights 2 to the audit committee Report insight Featured KPMG Audit & Assurance InsightsAccelerateKPMG Climate Change Financial Reporting Resource CentreYou can’t go green without blue The blue economy is critical to all companies’ ESG ambitions Appendix Our latest thinking on the issues that matter most to audit committees, board of directors and management. ation. mber firms affiliated with KPMG International Limited, a private English reserved. 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