11001 Introduction

Oct-2019

OAG Guidance

In Canada’s parliamentary system, legislatures are responsible for overseeing government activities and holding governments accountable for their handling of public money. Parliamentary control of the public purse is fundamental to responsible government. Granting government the authority to spend is one of Parliament’s principal functions and is a key part of holding the government to account. Parliament’s power to grant this authority is founded on two basic principles:

• The government may not raise money without Parliament’s approval.
• The government may not spend money except for purposes authorized by Parliament.

After it spends tax dollars, the government must also be able to show that it spent the correct amount, for the purposes approved by Parliament. This obligation of government to answer for its actions is called “accountability.”

Over the years, a process has been developed to hold the government to account. The government must report fully on its performance by submitting the following to the House of Commons:

• the annual spending plans of each department;

• reports on the past year’s activities; and

• annual financial statements showing all federal spending, borrowing, and taxing, known as the Public Accounts of Canada

These documents are intended to provide members of Parliament with the information needed to hold the government to account.

Furthermore, the federal government’s actions are bound by the laws passed by Parliament and by regulations passed pursuant to those laws as well as by other authorities. Ministers are responsible and accountable to Parliament for the use of the powers given to them by law or otherwise. Ministers responsible for Crown corporations report to Parliament in discharging their accountability for these corporations.

Legislative auditing, the final link in the accountability process, plays a central role in holding government to account. It provides objective and independent information, advice, and assurance that members of Parliament can draw on in their scrutiny of government spending and performance. Elected representatives need this independent reporting so they can effectively question or challenge the government on its actions.

OAG Guidance

The Office of the Auditor General of Canada (OAG) is the legislative audit office of the federal government and of the three territorial governments: Nunavut, Yukon and Northwest Territories. The audit powers and duties of the Auditor General are set out in the Auditor General Act, the Financial Administration Act, and other acts and orders-in-council. These powers and duties relate to legislative auditing and, in certain cases, to monitoring of federal departments and agencies, Crown corporations, territorial governments, and other entities.

The Auditor General has a broad statutory mandate to conduct audits and examinations and to report on the government’s management of its affairs. Accordingly, legislative audits address varied subjects, such as:

• the appropriateness of expenditures (in other words, whether they have been made in accordance with legislative authorities);

• the application of the government’s accounting policies;

• the fair presentation of the financial statements of various government entities;

• constraints to economical, efficient, and effective management of government resources;

• the quality of financial management and control within government;

• the appropriateness of procedures to manage the assessment, collection, and proper classification of government revenues;

• aspects of human resources in government;

• departmental sustainable development strategies and action plans;

• instances where expenditures that have been made without due regard to economy or efficiency.

Consideration of compliance with legislative authorities is, and always has been, an essential part of the role of the legislative auditor. Compliance with authorities issues can arise in all products in which the Office conducts audit work, as well as in audits of territorial accounts and organizations, as set out in the Auditor General Act and the federal and territorial FAAs. Statutory provisions may set out a specific authority upon which we are required to give an opinion on compliance, or the requirement may arise in the course of carrying out a more general audit mandate. None of our audit products deal solely with compliance with authorities. Compliance with authorities is a pervasive matter in legislative auditing and it cannot be severed from the other work that we do.

The products of the OAG are reports to the House of Commons and to various others, including ministers, legislative assemblies, boards of directors, and managers. These products include the independent auditors’ reports emanating from the annual audits we conduct.

Section 11000 deals only with our role in the context of annual financial audits.

OAG Guidance

The Office audits the federal government’s summary financial statements, which are published annually in the Public Accounts of Canada and those of Canada’s three Territories. It also conducts annual audits of the financial statements of Crown corporations and other federal organizations.

The responsibility for observing the provisions of applicable authorities governing an entity rests with the entity’s management, which is expected to develop management controls that provide reasonable assurance of compliance with authorities.

It is the Office’s view that we should be including “compliance with authorities” work in all annual audit work, regardless of whether or not our auditor’s report includes a separate opinion on compliance with authorities. We should focus our efforts on key authorities during the course of our annual audit examination and report instances of significant non-compliance in our Auditor’s Report. Although the weight given to compliance with authorities will vary with the auditor’s judgments regarding risk and significance—as will the specific approaches adopted—all work carried out by the Office should include appropriate consideration of compliance with authorities.

Consequently, addressing compliance with authorities is an integral part of the planning, execution, and reporting phases of every annual audit. Each year, we perform detailed procedures designed to assess compliance with significant authorities, using various approaches. All instances where we find significant non-compliance are also considered by the Auditor General for reporting to the House of Commons.

See OAG Audit 11010 for further guidance.

OAG Guidance

Compliance with authorities audit has a broader scope than that set out in CAS 250.

The auditor’s responsibility under CAS 250 Consideration of laws and regulations in an audit of financial statements is a part of the auditor’s larger responsibility for obtaining reasonable assurance that the financial statements, taken as a whole, are free from material misstatement. As such, requirements in CAS 250 are designed to assist the auditor in identifying material misstatement of the financial statements due to non-compliance with laws and regulations.

While CAS 250 deals only with laws and regulations which may have a material effect on the financial statements, auditing compliance with legislative authorities is not limited to financial transactions in the narrow sense, but rather covers any activity for which the entity is responsible. For example, when auditing legislative authorities of a Crown corporation, we may examine whether the corporation has prepared a corporate plan and budgets, whether these documents have been approved by the proper authorities and have been filed by the deadline set out in Part X of the Financial Administration Act.

Another difference between auditing legislative authorities and CAS 250 requirements relates to the independent auditor’s report. Our legislative mandate for most of the entities we audit, including Crown corporations, requires us to express an opinion on whether the transactions that have come to our notice in the course of the annual financial audit were in accordance with key authorities. Typically, the scope is listed in the legislative source of our mandate. As per CAS 700.43, this reporting responsibility is addressed in a separate section in the independent auditor’s report with a heading titled “Report on Other Legal and Regulatory Requirements” or otherwise as appropriate to the content of the section. AuG-49 outlines how the compliance opinion may be reported in a separate section of the auditor’s report.

Under CAS 250, the auditor’s report refers to non-compliance with laws and regulations only when the non-compliance has a material effect on financial statements and has not been adequately reflected in the financial statements. In this case, the auditor expresses a qualified opinion on the financial statements.

For further guidance on CAS 250 requirements, see OAG Audit 7510. For further guidance on Audit Reporting, see OAG Audit 8010.

OAG Guidance

The Financial Administration Act, the Auditor General Act and professional auditing standards collectively permit the Auditor General to bring to the attention of Parliament any “other matter” he believes parliamentarians should be made aware of.

When something goes “wrong” in a federal entity, or there are instances of weak internal control processes or suspected unethical business conduct, Parliamentarians are likely to look to the Auditor General to explain why it happened and to provide advice on what actions might be appropriate. Reporting “other matters” helps meet these expectations.

See OAG Audit 11020 for further guidance on “Other matters”.

OAG Guidance

As part of annual financial audits, based on risk assessment of the entity, the Office may perform audit work on senior executive and board compensation, and travel, hospitality, conference and event expenditures.

The objective of this review is to determine if senior executives’ and board members’ compensation arrangements, and travel, hospitality, conference and event expenditures comply with relevant authorities. In addition, during our review, we assess the impact of matters that come to our attention and that could be an indicator of lapses in values or ethics, weak governance, or inadequate oversight and control.

For further guidance see OAG Audit 11030.

OAG Guidance

This section addresses the following topics:

Section 11000 and other sections of the Manual

Section 11000 addresses matters like risk assessment, testing, evaluation of the evidence gathered and the auditor’s report at a high level and strictly from the point of view of compliance with authorities. Basic principles on these matters are addressed in corresponding sections of the OAG Manual. For further guidance on a specific subject, the auditor may refer to these sections.

Other guidance

Auditors may also consult the Compliance Audit Standard of the International Standards of Supreme Audit Institutions (ISSAI).