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A State of Change - February 2016

Published on: Feb 29, 2016

BoatIn this issue

New and revised auditor reporting standards

CSRS 4460, Reporting on Supplementary Matters Arising from an Audit or a Review Engagement

Getting it right – reporting on T4A slips



In this issue of the newsletter, we provide you with an update to Canadian Auditing Standards that will impact your organization in the near future. Our first article covers proposed changes to the Independent Auditor’s Report (the “Report”), which are intended to increase transparency in the findings of the Auditor, enhance the relevance of the Report to its intended user, and improve overall discussions of the audit between the Auditor and those in charge of governance. Our second article covers a new standard, CSRS 4460, Reporting on Supplementary Matters Arising from an Audit or a Review Engagement. This standard may impact your organization if you receive external funding for which there are financial reporting requirements. Lastly, as the filing deadline approaches, we are also featuring an article on T4A slips and common challenges faced by payroll teams in ensuring proper reporting.

New and revised auditor reporting standards

In early 2015, the International Auditing and Assurance Standards Board (“IAASB”) released new and amended International Standards on Auditing (“ISAs”), which will significantly change auditor reporting for both listed and non-listed entities and, for listed entities will include key information relating to the audit of the entity. The IAASB Standards are effective for audits of financial statements for periods ending on/after December 15, 2016. The Canadian Auditing and Assurance Standards Board (“AASB”) is considering how to most effectively implement these new international standards in Canada and expects to issue the final auditor reporting standards in the first half of 2016 which would be effective for calendar year 2017 audits with staggered implementation for many listed entities.

The proposals move us away from the current standardized one-page auditor’s report to one that is significantly longer and more entity-specific. The objective of the changes is to provide transparency about key matters of audit significance that are likely to be most important to users’ understanding of the financial statements and the conduct of the audit.

Based on the new and revised ISAs which impact Auditor Reporting, and more specifically, ISA 701, the following are some key concepts which, if adopted by the AASB, will represent a substantial change to auditor reporting in Canada.

Enhancements to the Independent Auditor’s Report

The auditor’s report is being restructured to enhance existing requirements and will include new topics:

  • Key Audit Matters (KAMs) – This new section is required for listed entities only, and provides commentary on matters communicated with those charged with governance that, in the auditor’s judgment, were of most significance to the audit. 
  • Going Concern – Specific descriptions of responsibilities of management and the auditor for going-concern.  The auditor is now required to challenge the adequacy of disclosures for “close calls”.
  • Other information included in an “annual report” – This new section identifies the other information, explains the responsibilities of management and the auditor (and their work effort) and a statement of results of that work.
  • Enhanced descriptions of the responsibilities of the auditor and management/those charged with governance.
  • An affirmative statement about the auditor’s independence and fulfilment of relevant ethical responsibilities.

Of the above list of new topics, the most significant proposed change is the inclusion of KAMs. While no specific items are mandated, the auditor would consider including items of significant risk, audit implications of unusual or significant events, or significant qualitative aspects of the entity’s accounting practices, including accounting policies, accounting estimates, and financial statement disclosures within this new section of the auditor’s report.

In addition to these enhancements, the auditor’s report will also be restructured such that the opinion paragraph appears first.


  • Transparency into the audit and discussions between the auditor, those charged with governance, and management
  • More robust discussions between auditors and those charged with governance
  • Enhanced communications between all stakeholders, including regulators
  • Relevant auditor’s reports and insights into the complexities of the entity
  • Comparability across industries and audit firms
  • Improved audit and financial reporting quality

As the AASB continues to deliberate on implementation of the new and revised ISAs in Canada, the following are some considerations for those charged with governance to start discussing with the auditor.

Implementation considerations for those charged with governance

  • KAMs: Commentary in the audit report will have a significant impact on the timing of:
    - meetings between the auditor and audit committee to discuss risks, which will form the basis of KAMs;
    - meetings with the auditor to identify, discuss and challenge KAMs as early as possible; and
    - review of the auditor’s report as the process will likely be more rigorous.
  • Going Concern: Increased auditor focus may heighten your scrutiny of management’s process for assessing the entity’s ability to continue as a going concern and the relevance and completeness of related disclosures in the financial statements, particularly for “close calls”.
  • Other information: Discuss with the auditor which documents will be within the scope of “other information”, evaluate timeframes for drafting and finalizing these documents, and assess documents for consistency with financial statements to ensure factually correct and reasonable.


  • Review our project page on the new auditor reporting to learn more on the new ISAs and conforming amendments to other ISAs and the Canadian project.

We encourage you to engage your audit service provider with any questions or enquiries related to the new and revised auditor reporting standards.

CSRS 4460, Reporting on Supplementary Matters Arising from an Audit or a Review Engagement

Is your organization impacted?

In June 2014, CPA Canada released CSRS 4460, Reporting on Supplementary Matters Arising from an Audit or a Review Engagement. This new standard applies to engagements where an independent accountant is asked to report on supplementary matters to a third party, such as a regulator or funder, which may be beyond the scope of the audit or review of the financial statements (often referred to as “derivative reporting”). Prior to CSRS 4460, guidance on the reporting requirements to address the requests of third parties to report on matters supplementary to the audit or review existed only in very specific circumstances and only for financial institutions, namely:

  • AuG-13 – Special Reports on Regulated Financial Institutions, and
  • AuG-17 – Transactions or Conditions Reportable under the "Well-Being Reporting Requirement" in Federal Financial Institutions Legislation

CSRS 4460 aims to address the gap in previous standards and provide clearer guidance on an Independent Accountant’s responsibilities when such supplementary reporting requests are received. Further, CSRS 4460 addresses the reporting needs of entities other than regulated financial institutions. Compared to reports previously issued under AuG-13 and AuG-17, reports issued under CSRS 4460 will provide more clarity on the nature of the engagement and the roles and responsibilities in the engagement. The standard also imposes a greater degree of responsibility on the Independent Accountant to perform some additional procedures on the supplementary matter, whereas the previous standards were based on the premise that no additional procedures would be performed beyond those encompassed by the audit or review of the financial statements. Nevertheless, it is important to note that a report issued under CSRS 4460 does not provide any assurance on the supplementary matter.

CSRS 4460 will be effective for reports dated on or after April 1, 2016, with early adoption possible.

Examples of supplementary matters

CSRS 4460 applies where Independent Accountants who are engaged to complete an audit or review for an organization, are also requested by a third party, or are required by law, regulation, or agreement, to:

  • complete or report on supplementary matters arising from the audit or review
  • complete or report on questionnaires
  • report instances of non-compliance with laws, regulations or agreements
  • report facts or figures other than matters on which they are performing an audit or a review engagement
  • report observations made or items of interest to the third party
  • provide recommendations

Some specific examples of engagements where CSRS 4460 may apply to a not-for-profit organization include:

  • Request from a funding agency to provide information relating to program costs
  • Request from a lender to report on breaches of loan covenants
  • Request from the Canada Mortgage and Housing Corporation to complete questionnaires/forms relating to data on First Nations housing, showing the number of units, household size, gross family income, and related operating costs of rental units
  • Request from a governing body to provide recommendations on issues which the governing body may wish to follow up with management
  • Request from a funding agency to report observations or items of interest relating to the funded program

Scope of CSRS 4460

CSRS 4460 is relevant to engagements with all of the following attributes:

  1. The Independent Accountant performs, or has been requested to perform, an audit or review engagement. The supplementary reporting responsibility is related to, but separate from, the audit or review.
  2. The Independent Accountant has been requested by a third party, or is required by law, regulation, or agreement, to provide a written report on a supplementary matter arising from the audit or review.
  3. An audit or review of the supplementary matter has not been requested. Where there has been a specific request to audit or review the supplementary matter, existing Canadian Auditing Standards and Canadian Standards on Review Engagements would apply.
  4. The Independent Accountant’s responsibility to provide the written report is not covered by an existing assurance or related services engagement standard in the CPA Canada Handbook – Assurance.

To determine whether CSRS 4460 applies to your organization, please contact your Independent Accountant. In some instances, discussions with the third party making the request may be necessary to clarify the nature of the engagement, and determine the suitability of a CSRS 4460 report in meeting their information needs, or whether a modification of their request may be possible.

Getting it right – reporting on T4A slips

Year-end processing, defining withholding responsibilities, and reporting income accurately on T-slips are some of the ongoing challenges faced by payroll teams. One such challenge is accurate reporting on T4A slip – “Statement of Pension, Retirement, Annuity, and Other Income”. This slip captures what can otherwise be considered ‘residuary income’ and covers a wide variety of income streams.

T4As are used to report amounts paid for services, including payments to self-employed contractors, partnerships and corporations. The CRA waives the requirement to file a T4A when the payor is an individual who has contracted with the payee in a personal capacity. This would include a situation where services are rendered to an individual by a doctor, dentist, lawyer, accountant, hair stylist, etc. or where the services are for work related to the repair and maintenance of the individual's principal residence.

The T4A slip is required to be completed where the total of all payments made in the calendar year is more than $500 or where income tax was withheld at source. All amounts are required to be reported in Canadian dollars even if the amounts were paid in other currency. As of January 1, 2016, if a payor issues more than 50 T4A slips for a calendar year, then it is mandatory for the payor to e-file the tax returns.

Amongst the many income streams that a T4A slip covers, some of the common issues that non-profits organisations may face with regards to reporting related to T4A slips are:

Payments to contractors

Whereas employees receive T4 forms at the end of the year summarizing pay and deductions, all payments made to independent (i.e. self-employed) contractors for services provided should be reported on a T4A form. However, there has been a move away from ‘traditional’ employment arrangements toward individuals acting as independent contractors. The CRA has specific rules for what constitutes a contract employee, compared to a regular employee of a business. 

The contract agreement between the contractor and the company usually provides a good indication as to the nature of the business relationship, but is not conclusive.  The tests that may be used in trying to determine if an individual offering services is an employee, are based on a substantial history of case law.  The most relevant four tests are:

  • Whether the contractor was subject to complete control of the payor with respect to the use of time and the way in which services were performed;
  • Whether the contractor provided his own tools,
  • Whether the contractor has an opportunity to profit (in an accounting sense) from his services, and a risk of loss from his enterprise;
  • The extent to which the work done by the contractor is integrated into the employer’s business.

The facts and circumstances of each situation need to be reviewed.  Each contract should be reviewed to determine if the arrangement is a “contract of service” or a “contract for services”.  A contract of service generally describes where the person for whom services are performed has the right to control the amount, nature, manner and management of work to be done and generally indicates an employee-employer relationship.  A contract for services, however, indicates a person engaged to achieve a defined objective and who is given freedom to attain a desired result and generally indicates an independent contractor relationship.

Where an individual has been determined to be an independent contractor, there is generally no withholding requirement; however any payments made to an independent contractor are required to be reported on a T4A slip. This requirement is often missed and could lead to potential exposure for payroll audit by CRA.

Since the payor is not responsible for making payroll deductions from the payments made to an independent contractor, any income tax or Canadian Pension Plan deductions are the responsibility of the independent contractor. Where the recipient is a non-resident of Canada, the payor needs to be issue T4A-NR slip and file a T4A-NR Information return with CRA.


An award or prize paid has to be reported on a T4A if the amount is in excess of $500. Further, every payor of a research grant, scholarship, bursary or prize (other than a prescribed prize) must file a T4A slip to report such amounts. There could be situations where the non-profit organization is not funding the grant or scholarship, rather paying it on behalf of a third party. Some of CRA’s pronouncements issued on such special situations are:

  • CRA has clarified that where funds are received in respect of a student's tuition from third parties, an educational institution may issue the T4A slip as agent on behalf of the party funding the award. However, if there is no agency relationship, the funding party is required to issue the T4A slip or other appropriate information return. Accordingly, if the non-profit organization is funding someone’s tuitions, it should be clarified in advance who is responsible for issuing the T4A slips.
  • Generally, when the payor of an amount informs the university that the payment is intended as a scholarship, regardless of whether or not the payor names the recipient, the university can rely on that in good faith and issue a T4A to the recipient student. A T4A is not conclusive proof of how the amount is to be treated for tax purposes. The payor and payee are still jointly responsible for accurately reporting all income received as an employee or owner. It is not normally the responsibility of the university to verify the representations the payor or payee makes to it in respect of these payments.
  • Further, the CRA has also clarified that T4A slips are required to be issued even for scholarships granted to primary or secondary school students even if the income received by them would ultimately be exempt. There is currently no legislative provision or administrative position that waives the T4A reporting requirement when a scholarship or bursary is not required to be included in the recipient's income (that is, when a full scholarship exemption is available).

Pension or superannuation and similar payments

Typically, the amounts paid after retirement to an employee are reported on a T4A slip. The taxable part of a single lump-sum payment out of a pension fund or a deferred profit sharing plan is also reported on a T4A slip, including any single payment resulting from a:

  • withdrawal from the plan, retirement from employment, or death of an employee or former employee;
  • termination of, amendment to, or modification of the plan; or
  • reimbursement of any over-contributions to the plan.

With regards to Retiring Allowances, a T4A slip is used to report retiring allowances paid in 2009 and previous years only, if for example, there is an amendment required to a previously filed T4A slip, or the T4A slip is being filed late.  For year 2010 and later years, retiring allowances are reported on a T4 slip. Annuity payments made to a non-resident should be reported on NR4 slip.

Amending a T4A slip

If the payor discovers an error after issuing the T4A, the payor should amend or cancel the T4A slip regardless of whether or not there has been a request by the payee to do so.  A payee who believes that there is an error on a T4A slip can ask the payor to amend or cancel the slip, whichever is appropriate. If the payor agrees that there was an error, the payor should amend or cancel the T4A. The T4A is a statement of what the payor believes the nature and amount of the payment to be. Therefore, if the payor is of the view that the T4A is correct, the payor should not amend or cancel the T4A.

Penalties and interest

The Payor has to issue the T4A slip and file T4A information return with the CRA on or before the last day of February after the calendar year the information return applies to. The return is considered to be filed on time if the CRA receives it or it is postmarked on or before the due date. The CRA may assess a penalty if the information return is filed late. The penalty is a minimum of $100 up to a maximum of $7,500 depending on number of slips that are filed late.

Further, the CRA can assess a penalty of 10% of the amount of income tax that the payor failed to deduct. If the payor failed to deduct the required amount of income tax more than once in a calendar year, the CRA may apply a 20% penalty to the second or later failures if they were made knowingly or under circumstances of gross negligence. The CRA can also assess a penalty on the amount a payor failed to remit when:

  • the payor deducted amounts, but did not remit them;
  • the CRA received the amounts the payor deducted after the due date.

In addition, if the payor is charged this penalty more than once in a calendar year, the CRA may charge a 20% penalty on the second or later failures if they were made knowingly or under circumstances of gross negligence.

To sum up, being a ‘catch all’ slip, the probability of missing to issue a T4A slip increases. Therefore, it is important that all payments made are reviewed and proper payroll procedures are in place to identify situations that require reporting on a T4A slip. This would ensure that in case of payroll audit by CRA, no unwarranted penalties are levied and organizations continue to be onside with their reporting requirements.

Key contacts

Sam Persaud
Partner, Public Sector
Doreen Hume
Partner, Audit
Dennis Alexander
Partner, Tax
Trisha Patel
Senior Manager, Public Sector
Lilian Cheung
Senior Manager, Public Sector
Shivani Joshi
Manager, Tax

Cover - February 2016 Image

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