11011 Understanding our legislative annual audit mandate

Jun-2021

Legislation

Guidance

Auditor General Act

6. The Auditor General shall examine the several financial statements required by section 64 of the Financial Administration Act to be included in the Public Accounts, and any other statement that the President of the Treasury Board or the Minister of Finance may present for audit and shall express his opinion as to whether they present fairly information in accordance with stated accounting policies of the federal government and on a basis consistent with that of the preceding year together with any reservations he may have.

7.(2) Each report of the Auditor General under subsection (1) shall call attention to anything that he considers to be of significance and of a nature that should be brought to the attention of the House of Commons, including any cases in which he has observed that

(a) accounts have not been faithfully and properly maintained or public money has not been fully accounted for or paid, where so required by law, into the Consolidated Revenue Fund;

(b) essential records have not been maintained or the rules and procedures applied have been insufficient to safeguard and control public property, to secure an effective check on the assessment, collection and proper allocation of the revenue and to ensure that expenditures have been made only as authorized;

(c) money has been expended other than for purposes for which it was appropriated by Parliament;

(d) money has been expended without due regard to economy or efficiency;

(e) satisfactory procedures have not been established to measure and report the effectiveness of programs, where such procedures could appropriately and reasonably be implemented; or

(f) money has been expended without due regard to the environmental effects of those expenditures in the context of sustainable development.

Compliance with authority to spend, borrow, and raise revenues is a basic principle underlying the government’s accounting system. The accounts of Canada generally reflect parliamentary authorizations due to the use of authority codes within the chart of accounts coding block for each transaction. The Public Accounts of Canada, which are prepared from the accounts of Canada, report on the government’s use of authorities.

The Summary Financial Statements are included in the Public Accounts of Canada. As an overall summary, their fundamental purpose is “to provide information to Parliament, and thus to the public, to facilitate an understanding and evaluation of the full nature and extent of the financial affairs and resources for which the Government is responsible.” The notes to the Summary Financial Statements also include summaries of compliance with spending and borrowing limits.

There are no specific requirements under the FAA or the Auditor General Act to include any statement in the Auditor General’s opinion on compliance with authorities for the Summary Financial Statements of the Government of Canada. Nevertheless, given the role of the Office as legislative auditor we consider the audit of authorities an integral part of the Public Accounts audit.

Every year, we assess the government’s compliance with significant authority instruments and consider whether, during the course of our examination, we became aware of anything that, in our opinion, should be brought to the attention of Parliament.

Legislation

Guidance

Financial Administration Act

132. (1) Each parent Crown corporation shall cause an annual auditor’s report to be prepared, in respect of itself and its wholly-owned subsidiaries, if any, in accordance with the regulations, on

(a) the financial statements referred to in section 131 and any revised financial statement referred to in subsection 133(3);

…

(2) A report under subsection (1) shall be addressed to the appropriate Minister and shall

(a) include separate statements whether in the auditor’s opinion

(i) the financial statements are presented fairly in accordance with generally accepted accounting principles applied on a basis consistent with that of the preceding year,

…

(iii) the transactions of the corporation and of each subsidiary that have come to the auditor’s notice in the course of his examination for the report were in accordance with this Part, the regulations, the charter and by‑laws of the corporation or subsidiary and any directive given to the corporation; and

(b) call attention to any other matter falling within the scope of the auditor’s examination for the report that, in his opinion, should be brought to the attention of Parliament.

Federal Crown corporations and their wholly owned subsidiaries are important vehicles through which the government meets public policy objectives. Public ownership, together with their public policy orientation, affects their accountability, management, and control requirements.

Crown corporations are subject to the provisions of Part X of the FAA insofar as accounting, auditing, and reporting matters are concerned. These provisions require the corporation’s auditor to express separate opinions on the fairness of the corporation’s financial statements in accordance with generally accepted accounting principles; whether the accounting principles were applied on a basis consistent with that of the preceding year; and whether the transactions that have come to the auditor’s attention in the course of the audit align with specified authority instruments. These instruments are the requirements of Part X of the Financial Administration Act, associated regulations, the charter and bylaws of the corporation or subsidiary, and any directives given to the corporation.

Subsidiaries that report as Parent Crown corporations

Under section 86 (2) of the FAA, the Governor in Council may declare any provision of Part X of the FAA that applies only to parent Crown corporations to apply to a wholly-owned subsidiary.

Our legislative mandate set out in section 132(2) applies to these subsidiary Crown corporations organizations and, therefore, we express an opinion on compliance with authorities in the Auditor’s report.

Crown corporations created under Canadian Business Corporation Act (CBCA)

The CBCA has provisions regarding the appointment of auditors and the continuation in office of incumbent auditors pending new appointments of auditors (s. 162). However, Crown corporations (parent Crowns and wholly-owned subsidiaries) are generally subject to the provisions of Part X of the Financial Administration Act, no matter how they are created. Although the CBCA says that the shareholders appoint the auditor for CBCA Crown corporations, those provisions are not consistent with the requirements of Part X of the FAA. Where there is an inconsistency between the provisions of Part X and the provisions of any other Act of Parliament, the provisions of Part X prevail, unless the other Act of Parliament expressly provides that it will prevail over the FAA.

According to s. 134(2) of the FAA, the Auditor General of Canada is appointed by the Governor in Council as the auditor, or a joint auditor, of each Crown corporation, unless the Auditor General waives the requirement of being so appointed. This requirement prevails over the sections of the CBCA that deal with the appointment of auditors.

Therefore, Crown corporations incorporated under the CBCA are in the same position as other Crowns under s. 132. The Auditor General is to be appointed by the Governor in Council annually, unless the Auditor General waives the requirement to be appointed. On occasion, the annual appointment is not made. This is addressed in s. 134(7) of the FAA which provides for the continuation in office of the incumbent auditor if a new auditor is not appointed at the expiration of the incumbent’s term.

As mentioned in OAG Audit 3011 - Source and legislative authorities for audit mandates, the Auditor General decided to continue to act as auditor of a Crown corporation once he has been appointed. Should he subsequently decide to waive the appointment as auditor for a particular corporation, he would inform, in writing, the Clerk of the Privy Council and Secretary to the Cabinet. By this policy decision approved in November 2005, the annual appointment process is facilitated. For further guidance, see OAG Audit 3011.

Our audit mandate is found in section 132(2) of the FAA which includes providing our opinion as to whether the corporation’s transactions are in compliance with the corporation’s authorities.

See OAG Audit 11020 on “Other matters.”

Legislation

Guidance

Northwest Territory

Northwest Territories Act

40. (1) The Auditor General of Canada must audit the accounts – including those related to the Consolidated Revenue Fund of the Northwest Territories – and financial transactions of the Government of the Northwest Territories in each fiscal year in accordance with Canadian generally accepted auditing standards and must express his or her opinion as to whether

(a) the consolidated financial statements present fairly – in all material respects and in accordance with Canadian public sector accounting standards – the financial situation of the Government of the Northwest Territories as at the end of the fiscal year; and

(b) the transactions of the Government of the Northwest Territories that have come to the notice of the Auditor General in the course of the audit are within the powers of that Government under this or any other Act of Parliament.

40. (2) The Auditor General of Canada must report to the Legislative Assembly any matter falling within the scope of the audit that, in his or her opinion, ought to be reported to the Assembly.

Financial Administration Act (NWT)

31. (1) The accounts of a public agency must be audited annually.

31. (2) The auditor for a public agency specified in Schedule A must be approved by the responsible Minister.

31. (3) The auditor for a public agency specified in Schedule B or C is

(a) the Auditor General; or

(b) an auditor for the public agency approved by the Board on the recommendation of the responsible Minister and the Auditor General.

31. (4) On examination of the accounts and financial transactions of a public agency, the auditor shall provide an audit report to the responsible Minister.

The enabling legislation of all three territories, Northwest Territories Act, Nunavut Act and Yukon Act, requires the Auditor General of Canada to report on whether the transactions that have come to his notice in the course of the audit have been within the powers given to the territories under the enabling act and any other Act applicable to the territories.

Nunavut

Nunavut Act

43. The Auditor General of Canada shall act as the auditor of Nunavut.

46. (1) The auditor of Nunavut shall audit the accounts and financial transactions of Nunavut in each fiscal year in accordance with generally accepted auditing standards and report to the Assembly on the result of that audit, including whether, in the opinion of the auditor,

(a) the consolidated financial statements for Nunavut presents fairly, in all material respects and in accordance with accounting principles recommended by the Chartered Professional Accountants of Canada or its successor, the financial position of Nunavut as at the end of the fiscal year and the results of its operations in, and changes in its financial position for, the fiscal year; and

(b) the transactions of Nunavut that have come to the notice of the auditor in the course of the audit of the consolidated financial statements have been within the powers of Nunavut under this Act and any other Act applicable to Nunavut.

(2) The auditor of Nunavut shall call attention to any other matter falling within the scope of the audit made under subsection (1) that, in the opinion of the auditor, should be brought to the attention of the Assembly.

Yukon Territory

Yukon Act

34. (1) The Auditor General of Canada shall audit the accounts, including those related to the Yukon Consolidated Revenue Fund, and financial transactions of the Yukon Government in each fiscal year in accordance with auditing standards recommended by the Chartered Professional Accountants of Canada or its successor and shall express his or her opinion as to whether

(a) the consolidated financial statements present fairly, in all material respects and in accordance with accounting principles recommended for the public sector by that organization or its successor, the financial position of the Yukon Government as at the end of the fiscal year and the results of its operations in, and changes in its financial position for, the fiscal year; and

(b) the transactions of the Yukon Government that have come to the notice of the Auditor General in the course of the audit are within the powers of the Yukon Government under this or any other Act.

(2) The Auditor General shall report to the Legislative Assembly any matter falling within the scope of the audit that, in his or her opinion, should be reported to the Assembly.