3062 Engagement Leader Responsibilities for Audit Quality

Dec-2023

Overall audit quality

The responsibilities of the engagement partner, as defined by assurance standards, shall normally be discharged by the audit principal, who is referred to as the engagement leader in OAG methodology. While ensuring that assurance engagements are carried out in compliance with Office policies, professional standards, and the Office’s system of quality management, the engagement leader also recognizes that when acting as the signatory on annual audits, he or she signs on behalf of the Auditor General of Canada and is therefore accountable in his or her actions and decisions to the Office and the Auditor General.

For greater clarity, even in circumstances where the auditor’s report, special examination report, or performance audit report is to be signed by an assistant auditor general, or the Auditor General, the engagement leader shall retain the responsibilities, and therefore accountabilities, of the engagement partner, as set out in Canadian Auditing Standards and other assurance standards.

CAS 220 distinguishes between requirements or responsibility that the engagement leader must personally fulfill and requirements that the engagement leader can delegate to other members of the engagement team. The requirements of CAS 220 are expressed either as 'the engagement partner shall' ("shall" requirements) or as 'the engagement partner shall take responsibility' ("shall take responsibility" requirements). "Shall" requirements need to be fulfilled directly by the engagement leader, although the requirements recognize that the engagement leader may need to obtain relevant information from others (e.g., other members of the engagement team) to facilitate fulfillment. "Shall take responsibility" requirements may be assigned by the engagement leader to others so long as the engagement leader remains aware (through their direction, supervision and/or review) of how those requirements were fulfilled and the engagement leader agrees with the basis for any conclusion reached by the assignee(s). Therefore, for both "shall" and "shall take responsibility" requirements, the engagement leader remains responsible for managing and achieving quality on the engagement.

Examples of requirements that the engagement leader can delegate are:

• Ensuring that other members of the engagement team have been made aware of relevant ethical requirements and the Office’s related policies or procedures;

• Determining whether relevant ethical requirements, including those related to independence, have been fulfilled prior to dating the assurance report;

• Using the resources assigned or made available to the engagement team appropriately;

• Directing and supervising the members of the engagement team and reviewing their work;

• Undertaking consultation on difficult or contentious matters, matters on which the Office’s policies or procedures require consultation and other matters that, in the engagement leader’s professional judgment, require consultation;

• Addressing and resolving differences of opinion in accordance with the Office’s policies or procedures;

• Obtaining an understanding of the information from the Office’s quality monitoring process, determining the relevance and effect on the assurance engagement, taking appropriate action, and remaining alert for information that may be relevant to the Office’s quality monitoring process and communicating such information to those responsible for the process.

While engagement leaders sometimes delegate certain tasks to other appropriately skilled or suitably experienced members of the engagement team, they may not delegate the accountabilities of their role. Where the engagement leader has delegated performance of a particular task that he or she normally performs, the engagement leader remains accountable and continues to take overall responsibility for managing and achieving quality on the assurance engagement through direction and supervision of team members, and review of their work as set out in CAS 220. The engagement leader provides evidence of being sufficiently and appropriately involved by:

• informing assignees about the nature of their responsibilities and authority, the scope of the work being assigned and the objectives;

• providing any other necessary instructions and relevant information;

• providing direction and supervision;

• reviewing the assignees' work to determine that the procedure, task or action was performed as expected.

For clarity, it may be necessary to document the assignment of delegated tasks in the engagement file.

CAS 220–Quality Management for an Audit of Financial Statements is the quality management standard for financial audits. An engagement leader assigned to an audit of financial statements should become familiar with the requirements of this standard and the related policies and procedures developed to support the Office’s system of quality management and compliance with these requirements.

CSAE 3001–Direct Engagements is the assurance standard for performance audits and special examinations. An engagement leader assigned to a performance audit or special examination should become familiar with the requirements of this standard and the related policies and procedures developed to support the Office’s system of quality management and compliance with these requirements.

OAG Audit 1012 Audit quality, including roles and responsibilities for audit quality, provides further guidance on the assignment of roles and responsibilities for audit quality.

The engagement leader should exercise caution when considering delegations of tasks that he or she normally performs in higher risk engagements or engagements where an engagement quality reviewer has been assigned.

Engagement leaders are expected to take the overall responsibility for managing and achieving quality on the engagement and be sufficiently and appropriately involved throughout the engagement. The engagement leader:

• manages resources provided to him or her effectively and efficiently in conducting his or her assurance engagements;

• leads the performance of the assurance engagement and its documentation by being proactively and sufficiently involved throughout the engagement, including being satisfied that risks have been assessed and responded to appropriately;

• exhibits leadership in continuous quality improvement and challenges engagement team members to think, analyze, question, and be rigorous in their approach and communicate regularly;

• demonstrates a willingness to teach and coach others;

• determines that the direction and supervision of the engagement team and review of their work is planned and performed according to the plan, and also revises the plan to suit the engagement circumstances as they develop throughout the assurance engagement;

• identifies that an engagement quality reviewer has been assigned and ensures that person’s sufficient and timely involvement (i.e., sufficiently early in the audit process to allow for significant matters identified to be promptly resolved);

• where an engagement quality reviewer has been assigned:

  • budgets, with input from the engagement quality reviewer, for the estimated time that would be necessary for the engagement quality reviewer’s review;

  • cooperates and communicates with the engagement quality reviewer throughout the planning, execution and completion phases, of the engagement, to facilitate an effective timely engagement quality review;

  • discusses significant matters and significant judgements arising during the engagement, including those identified during the engagement quality reviewer’s review, where applicable, with the engagement quality reviewer;

• is responsible for the engagement team undertaking appropriate consultation on difficult or contentious matters and initiating those consultations where necessary (OAG Audit 3081);

• has ongoing involvement in the direction and supervision of the engagement team, including assessing the progress of the engagement and in making significant judgments;

• is satisfied that the review, supervision, and quality management procedures in place are adequate and effective;

• has overall responsibility for reviewing and assessing the quality of the work done, its proper and timely documentation, and the conclusions reached (OAG Audit 3071); and

• documents the extent and timing of his or her own involvement or is satisfied that an appropriate record of his or her involvement exists.

Relevant ethical requirements

OAG Audit 1031 provides guidance applicable to the engagement leader concerning ethical requirements.

Independence

The engagement leader takes appropriate action to eliminate or reduce threats to independence to an acceptable level by applying the framework for assessing threats to independence.

The framework requires the Office and its employees to

• identify threats to compliance with independence requirements;
• assess the significance of the threats identified;
• apply safeguards, when necessary, to eliminate or reduce the threat to an acceptable level; and
• document the threat and how safeguards eliminate or reduce it to an acceptable level.

OAG Audit 3031 provides guidance applicable to the engagement leader concerning independence.

See also OAG Audit 3063 Quality reviewer responsibilities, OAG Audit 3081 Consultations, and OAG Annual Audit 2210 Communications with those charged with governance.

Acceptance and continuance of client relationships and assurance engagements

The engagement leader, with appropriate consultation where necessary, recommends the decision to accept or continue/discontinue an assurance engagement according to OAG Audit 3011.

See also OAG Annual Audit 3040 for guidance concerning terms of the audit engagement and engagement letters.

Engagement resources

Engagement resources assigned or made available to an engagement include:

• The members of the engagement team who perform audit procedures on the engagement and, where applicable, the auditor's external experts and internal auditors who provide direct assistance on the audit.

• Technological resources that are used on the audit (e.g., technological solutions).

• Intellectual resources that are used to facilitate consistent application and understanding of professional standards, laws and regulations and the Office's policies or procedures (e.g., OAG Audit methodology)

Engagement leader to determine that engagement resources are sufficient and appropriate

The engagement leader needs to:

• Identify the appropriate resource needs of the engagement taking into account the nature and circumstances of the engagement.

• Be satisfied that sufficient and appropriate resources have been assigned or are expected to be assigned to the engagement in a timely manner.

• Assess whether the members of the engagement team, and any external experts and internal auditors who provide direct assistance, collectively have the knowledge, experience and sufficient time to perform the work allocated to them.

• Determine, with the team manager's assistance, whether there is a clear designation of roles, and responsibilities and that tasks have been assigned appropriately.

• Determine that the tasks to be performed, including the reporting lines for reviewing and reporting to the engagement leader, are clearly defined, communicated and documented.

• Take appropriate action when they become aware of changes in engagement circumstances that require a change in the resources allocated.

When determining the resource needs of the engagement, the engagement leader may need to obtain information prepared by other members of the engagement team. For example, the team manager may prepare an engagement budget detailing the resource requirement but the engagement leader reviews and approves the engagement budget.

As it relates to human resources, the following steps will normally be taken:

• The engagement leader identifies the human resources needed to perform the engagement (e.g., number of resources, levels, specific skills or industry knowledge, experience, period of time required) and communicates this information in advance of the engagement start date. The engagement leader follows the Office's procedures to identify and request resources (e.g., by approving the engagement budget detailing the resource requirements.)

• The engagement leader and team manager ensure to schedule the resources to be available to perform the engagement in a timely manner.

• The engagement leader assesses, through their supervision of the engagement team throughout the audit engagement, whether any of the resource needs change during the engagement and takes appropriate actions if needed.

When assessing the competence and capabilities of the engagement team, the engagement leader may, for example, consider the engagement team's previous experience with the entity and engagements of a similar nature, knowledge and expertise with the entity's industry, and expertise in any specialized areas of accounting or auditing relevant to the entity and engagement. The engagement leader, with assistance from the team manager, also considers whether specialists in accounting or auditing, auditor's experts or internal auditors who provide direct assistance need to be involved.

When using Office internal specialists, the engagement leader may have personal knowledge of, and experience with, the internal specialist’s work providing them with assurance concerning the internal specialist’s expertise and competence. In the absence of personal knowledge or experience, the engagement leader may presume the Office internal specialist has the appropriate competence for the engagement by virtue of their appointment as an internal specialist. However, the engagement leader must remain alert to any indications that the internal specialist may not possess the necessary competence for the engagement and where necessary, take steps to ensure the engagement team has the appropriate competence.

When assessing whether the engagement team has sufficient time to perform the engagement, the engagement leader may find it relevant to consider the engagement team's ability in the prior year to meet deadlines and the actual time spent compared to the engagement budget.

Timing of resource planning

Resource planning is performed early in the audit process, following the Office's procedures. The team planning meeting(s) are used by the engagement leader and team to discuss the overall audit strategy, including the engagement resources assigned or made available to the engagement (see OAG Audit 4014). This includes a discussion of:

• The composition of the engagement team, including the use of specialists and/or auditor's experts, the allocation of supervision/ coaching and review responsibilities, and the overall sufficiency of the assigned resources;

• The planned and appropriate use of technological resources; and

• The appropriate use of intellectual resources.

Although resource planning is initially performed early in the audit process, the engagement leader may also use information obtained during taking stock meetings to evaluate whether the assigned resources continue to be adequate or whether more or more experienced resources need to be allocated to any particular area of the audit (see OAG Audit 7022).

Insufficient and inappropriate resources

The determination of whether additional engagement resources are required is a matter of professional judgment. Where the resources assigned or made available are insufficient or inappropriate in the circumstances of the engagement, and additional or alternative resources have not been made available, the engagement leader takes appropriate action such as changing the planned direction, supervision and/or review of engagement team members, or revising engagement timeline.

Related Guidance

• Use of Auditor’s Experts – see OAG Audit 3090
• Specialists in accounting or auditing – see OAG Audit 3101

Teams and Relationships. Where possible, the engagement leader provides a development opportunity for team members by providing them with the scope to learn new skills. The new skills learned on one engagement will benefit not only the individual, but also future engagements the team member may work on.

Direction, supervision, and review of the assurance engagement

The engagement leader takes responsibility for the direction and supervision of the engagement team and the review of their work by being sufficiently involved throughout the engagement.

The engagement leader is sufficiently involved in the planning phase, including team meetings, to

• take responsibility for managing and achieving quality on the engagement by reinforcing the Office's quality messages through personal conduct and actions;

• assess the engagement team’s compliance with relevant ethical requirements, including those related to independence;

• share their understanding of the entity and its environment, risks, and controls;

• lead team discussions, including the discussion on fraud (as required); and

• share information, knowledge and insight about the entity and the audit engagement with the engagement team members, to facilitate them in making well-informed planning decisions.

The engagement leader directs the development of the audit strategy and plan, including, where appropriate, holding initial meetings with senior client executives during the planning phase. The engagement leader also chairs the mandatory team planning meeting with the engagement team.

The engagement leader is satisfied with the following:

All assurance engagements

• Significant risks have been appropriately identified and the rationale documented.

• Planned responses to assessed risks, including the nature, timing, and extent of audit procedures have been appropriately identified and documented.

• The engagement team, and any external experts or internal auditors who provide direct assistance, collectively has the appropriate competence and capabilities, including time, to perform the assurance engagement.

• The involvement of internal specialists and auditor’s experts is appropriately planned and the nature and extent of their planned involvement is documented.

• Sign offs to provide evidence of satisfaction with the planning process have been provided.

• Direction and supervision of the engagement team and review of their work has been planned.

Annual audits

• Overall and performance materiality levels, as well as materiality for particular items and the de minimis SUM posting level (where appropriate), have been discussed among the engagement team members, agreed upon, and documented.

• Significant FSLIs and relevant assertions have been appropriately identified and the extent to which inherent risk factors affect the susceptibility of relevant assertions to misstatements has been assessed and documented.

• FSLIs that were not determined to be significant, but that are material have been appropriately identified and documented.

• Planned responses to assessed risks, including the nature, timing, and extent of audit procedures at the financial statement and at the assertion level for each significant FSLI, have been appropriately identified and documented.

• Planned audit procedures for each material but not significant FSLI at the selected assertion level have been appropriately documented.

• Appropriate planning activities have been performed and documented, including the dissemination of audit instructions in the case of group audits.

The engagement leader takes responsibility for the implementation of the audit plan, and reviews any significant matters identified during the planning stage.

During the audit, the engagement leader:

All assurance engagements

• Participates sufficiently in monitoring the progress of the engagement to be satisfied with the engagement’s overall quality and that significant matters requiring judgment are being appropriately identified and resolved;

• Leads the discussions and decides on whether sufficient appropriate audit evidence has been obtained or whether there is a need to revise the nature, timing, and extent of work performed;

• Is satisfied that appropriate consultations have taken place and the resulting conclusions have been documented, the documentation agreed with the person consulted, and the conclusions have been implemented;

• Is satisfied that the objectives of the engagement procedures have been achieved and have been reviewed by an appropriate level of staff; and

• Reviews the completion activities and signs off to provide evidence of satisfaction with the work done to support the opinion or conclusion.

• Remains alert to actual or suspected threats to compliance with, or breaches of, relevant ethical requirements, including independence.

• Takes action when there are indicators that resources assigned to the engagement are insufficient or inappropriate given the nature and circumstances of the engagement.

Annual audits

• Participates sufficiently in the decisions on whether sufficient appropriate audit evidence has been obtained in relation to financial statement level risks and financial statement assertions for each significant FSLI, or whether there is a need to revise the nature, timing and extent of work performed.

Teams and Relationships. Spending time with the engagement team while performing the above tasks provides the opportunity for the team members to interact with and learn from the engagement leader. These interactions with the team allow the engagement leader to coach the team on expected behaviours and provide examples and recognition of individual and team performance.

The engagement leader reviews the audit process, not only the recorded results of work done, to be satisfied that

• the right matters have been considered; and

• the audit work has been appropriately designed and executed to address the risks identified, and to provide sufficient appropriate audit evidence.

In addition to the engagement leader’s review of significant matters, as contemplated in CAS 220.A31 and CSAE 3001.40, the engagement leader

• reviews other working papers, which in his or her professional judgment are important in the particular circumstances of the engagement; and

• is satisfied that an appropriate level of review of all work and documentation has been performed by the engagement team.

Consultation

The engagement leader is responsible for making the judgments necessary to successfully carry out the assurance engagement. He or she determines the prudent action to take on accounting, auditing, and reporting matters that arise during the course of the engagement; checks that matters are resolved according to the OAG’s position on the matter; communicates the position to the entity; and determines the appropriate report to issue. The engagement leader is also responsible for checking that the appropriate expertise is brought to bear on all matters related to the engagement. Engagement leaders consult with others, as appropriate, before making a commitment to the entity on matters that may be controversial; on important judgments about the acceptability of the entity’s accounting policies, practices, and disclosures; or on the scope of the work or the form of the report.

The engagement leader determines that:

• The engagement team has consulted appropriately on difficult or contentious matters (including when there is a requirement, under our policies, to consult) and on matters that, in the engagement leader's professional judgment, requires consultation.

• The nature and scope of, and conclusions resulting from, such consultations are agreed with those consulted.

• Conclusions agreed have been implemented.

Where an engagement quality reviewer has been assigned, the engagement leader consults appropriately with the engagement quality reviewer regarding difficult or contentious matters and on matters that, in the engagement leader’s professional judgment, requires consultation. Obtaining the engagement quality reviewer's view on initial judgments made by the engagement leader before consulting with others outside the engagement team can enhance the underlying quality of the judgment and avoids identification of differences of opinion at a late stage of the audit. Note, however, where the nature and extent of the consultations with the engagement quality reviewer becomes significant, care is taken, by the engagement team and the engagement quality reviewer, to maintain the engagement quality reviewer's objectivity. OAG Audit 3063 provides specific guidance on the extent of consultations with the engagement quality reviewer.

Engagement leaders initiate consultations with the appropriate persons when necessary.

OAG Audit 3081 provides guidance on consultations.

Engagement quality review

The engagement leader remains alert for changes in circumstances to identify situations in which an engagement quality review is necessary, even though, at the start of the engagement, such a review was not required.

Where a quality reviewer has not been appointed and the engagement leader concludes one ought to be, the engagement leader consults with the Assistant Auditor General of Audit Services.

The engagement leader should ensure that the quality reviewer is given adequate notice of when his or her involvement is necessary throughout the engagement.

The engagement leader and the engagement team cooperate with the engagement quality reviewer to facilitate an effective and timely review, including:

• Sharing information about the entity and the engagement with the engagement quality reviewer to assist the engagement quality reviewer with understanding the significant judgments that may be expected for the engagement.

• Discussing significant matters and significant judgments made by the engagement team.

• Consulting with the engagement quality reviewer regarding difficult and contentious matters.

• Addressing concerns raised by the engagement quality reviewer appropriately and timely.

Frequent communication between the engagement team and the engagement quality reviewer throughout the audit planning, execution and completion phases facilitates an effective and timely engagement quality review.

The engagement quality reviewer is not a member of the engagement team. The performance of the engagement quality review does not reduce the responsibilities of the engagement leader for managing and achieving quality on the engagement, or for the direction and supervision of the engagement team and the review of their work.

The engagement leader works with the engagement quality reviewer to resolve concerns raised by the engagement quality reviewer and does not sign the audit report before receiving notification from the engagement quality reviewer that the engagement quality review has been completed.

Notwithstanding the involvement of an engagement quality reviewer, the overall responsibility for the assurance engagement and its quality remains with the engagement leader, including compliance with professional standards and applicable legal and regulatory requirements, and the appropriateness of the report issued.

Differences of opinion

Where differences of opinion arise within the engagement team, or between the engagement leader and the engagement quality reviewer (where assigned), or individuals performing activities within the Office’s system of quality management, such as those who provide consultation, the Office’s policies and procedures for dealing with and resolving differences of opinion are followed.

The engagement leader informs members of the engagement team that they may bring matters involving differences of opinion to the attention of the engagement leader or others within the Office without fear of reprisals, and encourages a culture where engagement team members are comfortable discussing differences of opinion within the team and with the engagement leader.

It is important to identify differences of opinion at an early stage. The engagement leader needs to determine that - differences in opinion are resolved, and conclusions reached are documented and implemented on or before the date of the audit report.

Disagreements among members of the engagement team or with others consulted on the engagement about final conclusions reached on significant accounting or auditing matters are documented as a significant matter. OAG Audit 3082 provides guidance on resolving differences of opinion.

Considering the results of the quality monitoring process

OAG Audit 1012 provides guidance on the assignment of roles and responsibilities for audit quality and the OAG’s quality monitoring process.