Off-Balance Sheet Items - Final Audit Report - February 18 ... - EDC

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Table of ContentsIntroduction ........................................................................................................... 3Audit Objectives & Scope ..................................................................................... 3Internal Audit Opinion ........................................................................................... 3Audit Findings & Recommendations ................................................................... 4Conclusion ............................................................................................................ 6Off-Balance Sheet Items | February 18, 2013 2
IntroductionIn accordance with our FY2012 Audit Plan, EDC Internal Audit performed an audit of the processessurrounding the financial reporting of the following Off-Balance Sheet items: contingent liabilities,financing commitments and special purpose entities. Contingent liabilities were CAD 28,959 million,financing commitments were CAD 12,333 million and special purpose entities had asset values of CAD6,520 million and a maximum exposure to loss of CAD 4,199 million at the end of December 2011.Audit Objectives & ScopeThe overall objective of this audit was to evaluate both the design and operating effectiveness of thetransaction and monitoring controls surrounding the financial reporting processes for Off-Balance Sheetitems. The scope of this audit included the controls in place surrounding the identification anddetermination of amounts related to:Contingent liabilities with the exception of ARI single buyer insurance and selective cover whichwere excluded for materiality reasons;Financing commitments with the exception of commitments related to EDC’s Investmenttransactions which were included in the scope of the 2012 Investments Audit; andSpecial Purpose Entities (SPEs).The detailed fieldwork was performed from September through November 2012.Internal Audit OpinionIn our opinion, Opportunities Exist to Improve Controls 1 surrounding the disclosure of contingentliabilities amounts associated with insurance products and amounts relating to special purpose entities(SPEs) not controlled by EDC. We found that certain product features were either not known or theirimpact had not been reviewed from the perspective of accounting disclosure requirements. For example,exposure reserved for a fee by policyholders for future availability is not always treated as a contingentliability. We also found configuration issues with respect to reports used to determine contingent liabilityamounts. Finally, the criteria for determining which transactions with SPEs are included in notedisclosures have not been recently reviewed by senior management. A number of issues were addressedduring the audit and additional action plans are in the process of being implemented.1Our standard audit opinions are as follows:- Strong Controls: Key controls are effectively designed and operating as intended. Best in class internal controls exist. Objectives of theaudited process are most likely to be achieved.- Well Controlled: Key controls are effectively designed and operating as intended. Objectives of the audited process are likely to beachieved.- Opportunities Exist to Improve Controls: One or more key controls do not exist, are not designed properly or are not operating asintended. Objectives of the process may not be achieved. The financial and/or reputation impact to the audited process is more thaninconsequential. Timely action is required.- Not Controlled: Multiple key controls do not exist, are not designed properly or are not operating as intended. Objectives of the process areunlikely to be achieved. The financial and/or reputation impact to the audited process is material. Action must follow immediately.Off-Balance Sheet Items | February 18, 2013 3
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Off-Balance Sheet Items - Final Audit Report - February 18 ... - EDC

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