Reports on Financial Statements

• Author: Vern Krishna
• Pages: 284-307

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Chapter : Reports on Financial

Statements

A. OVERVIEW

Reports on nancial statements are an integral part of their verica-

tion and accountability and the subject of many lawsuits. Even if not

legally required, many businesses will prepare such statements for the

purpose of assuring their proprietors and creditors of the propriety

of the nancials. us, we refer to such reports as “assurance reports.”

Financial statements may be audited or unaudited. In either case,

the auditor may express an opinion — unrestricted or restricted — on

the statements. e degree to which readers of the statements can

assure themselves of the integrity of the nancial statements depends,

in part, upon the nature of the report. Audits enhance the condence

of users of the nancial statements. e auditors’ report is a key com-

munication item that, although brief, contains valuable information.

B. AUDITORS

An auditor is an independent person or entity called upon to review

the enterprise, its processes, and its internal controls, for the pur-

pose of expressing an opinion on the nancial statements. Corporate

and securities statutes require publicly held corporations to appoint

auditors and le audited nancial statements with the appropriate

regulatory authorities.

Chapter 14: Reports on Financial Statements

For example, section  of the Canada Business Corporations

Act requires the shareholders of every distributing corporation to

appoint an auditor at their rst annual meeting of shareholders and

at each successive annual meeting thereafter. Section  allows non-

distributing corporations not to appoint an auditor. Section  of

the CBCA allows a court to appoint and x the remuneration of an

auditor if the corporation does not have one and a shareholder applies

to have one appointed.

e auditor has considerable statutory rights and powers. For

example, they are entitled under CBCA section  to receive notice

of every meeting of shareholders and to attend, at the expense of the

corporation, at such meetings and be heard on matters relating to

their duties. Any shareholder can give notice to the corporation and

have the auditor attend at a shareholder meeting at the expense of the

corporation.

Similarly, section () of the Ontario Securities Act requires every

reporting issuer to le annually audited comparative nancial state-

ments within  days of the end of its nancial year. Section ()

mandates that: “Every nancial statement referred to in section ()

shall be accompanied by a report of the auditor of the reporting issuer

or mutual fund prepared in accordance with the regulations.”

C. ROLE OF AUDITOR VS LAWYER

ere is an important dierence between the role of the auditor and

the role of a lawyer. Auditors are independent persons and can be

required to report illegal acts to other regulators, such as securities

commissions. A lawyer owes their primary duty of loyalty to the

client and is expected to zealously represent the client. A lawyer’s

communications on legal advice to their client are strictly privileged

and protected from non-disclosure.

 RSC, , c C- [CBCA].