Audit Methodology Update—December 2022
Dec-2022
Target audience: All Direct Engagement Auditors.
Effective date: The revised methodology is effective upon release with the below exceptions related to CSQM 2.
- Updates related to CSQM 2 are effective for audits and reviews of financial statements for periods beginning on or after December 15, 2022; effective for other assurance engagements beginning on or after December 15, 2022.
Standards: This update reflects up to CPA Canada—Assurance—Update Number 37—May 2022.
The new and revised quality management standards include the following:
- Canadian Standard on Quality Management (CSQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements.
- Canadian Standard on Quality Management (CSQM) 2, Engagement Quality Reviews.
- Conforming amendments to Canadian Standards on Assurance Engagements (CSAE) 3001– Direct Engagements.
Description of subject: The update includes changes to audit manual policies and guidance, templates and INTRAnet pages. Changes to TeamMate procedures will be published early 2023. Significant changes to the audit methodology are summarized below.
Key changes are:
- New and enhanced policies to comply with CSQM 1 and CSQM 2 requirements.
- New and enhanced guidance for quality management, with significant revisions relating to
- Roles and responsibilities for audit quality, to align with CSQM 1.
- Engagement Leader Responsibilities for Audit Quality, to align with CSQM 1.
- Engagement Quality Reviewer responsibilities and minimum documentation requirements to comply with CSQM 2.
- Updated manual sections to reflect conforming amendments to CSAE 3001.
- Updated report templates to align with CSQM 1.
- New and enhanced Engagement Quality Reviewer Checklist and Sign‑off to align with CSQM 2.
- New Consultation Template to have one template for all type of engagements.
- Removed references to “At a Glance” in letters, manual sections, and What to Expect documents.
- Clarified guidance related to the date that the board of director receives the special examination report and the period covered by audit for special examination.
When are the standards effective?
These standards do not have the same effective date. As a result, they will impact your audits at different moment in time.
- CSAE 3001 –The issuance of CSQM 1 gave rise to conforming amendments in paragraphs 23-25, 35‑40 and 73. These paragraphs are effective for periods beginning on or after December 15, 2022, which means
- direct engagements that started before December 15, 2022 should use the extant CSAE 3001 requirements, and
- direct engagements that started on or after December 15, 2022 should use the amended requirements from CSAE 3001.
- CSQM 1 requires our office to design and implement a system of quality management by December 15, 2022. Given we already had a system of quality control in place, the updates related to CSQM 1 should not impact your audit work significantly. All required changes have been reflected in our methodology.
- CSQM 2 –Engagement Quality Reviews addresses the specific requirements for the appointment and eligibility of quality reviewers (EQR) and the performance and documentation of the review.
- For direct engagements, CSQM 2 is effective for engagements beginning on or after December 15, 2022, which means
- other assurance engagements that started before December 15, 2022 should use the quality review requirements pre‑CSQM 2, and
- other assurance engagements that started on or after December 15, 2022 should use the new quality review requirements from CSQM 2.
- For direct engagements, CSQM 2 is effective for engagements beginning on or after December 15, 2022, which means
Over the transition period, Audit Services is monitoring the start date of the direct engagements in order to communicate compliance requirements to engagement teams working on engagements that have been assigned an engagement quality reviewer.
Since CSQM 2 is applicable starting December 15, 2022 for Direct Engagements with an engagement start date on or after December 15, 2022, the audit manual sections have been updated and dated December 2022 to reflect this new standard. As a result, auditors need to be careful when consulting the manual since some sections might not be applicable to them yet.
There are only 4 manual sections in the Direct Engagement Manual affected by this situation which are provided in the table below. Please consult the table below to see which sections, policies or guidance related to CSQM 2 are not yet applicable to your engagement. If you need to refer to the extant manual sections related to engagement quality review, please consult the Audit Methodology Archives available at this link: Audit Methodology Archives | OAG INTRAnet
| Updated manual sections for CSQM 2 | Matters within the manual section that may not be applicable yet depending on your scenario |
|---|---|
| 1071 –Job Rotation | All changes to 1071 are applicable to all engagements effective December 15, 2022 except for engagement quality reviewer job rotation policies and guidance. |
| 1081 –Selection of engagement quality reviews and appointment of engagement quality reviewers. | All changes to 1081 are applicable to all engagements effective December 15, 2022 except matters related to the Appointment and Eligibility of the Engagement Quality Reviewer. |
| 1163 –Engagement Quality Reviewer: Minimum documentation requirements | All matters covered by this manual section. |
| 3063 –Engagement Quality Reviewer Responsibilities | All matters covered by this manual section. |
Updates to the Manual
A number of revisions have been made to the System of Quality Management Manual sections, the Office-wide sections and the Direct Engagement Manual sections. Revisions to the System of Quality Management Manual sections are included in both the Annual Audit Manual and the Direct Engagement Manual. The following is a summary of revisions other than editorial or minor revisions.
| Section | Section Title | Nature of Changes |
|---|---|---|
| System of Quality Management and Office-wide Sections | ||
| 1012 | Audit quality, including roles and responsibilities for audit quality | New and updated OAG policies and guidance to align with CSQM 1 and CSAE 3001. |
| 1031 | Ethical requirements relating to and assurance engagement | Updated OAG policies and guidance to align with CSQM 1, CAS 220 and CSAE 3001. |
| 1041 | Applying Professional Skepticism | Enhanced guidance on documenting professional skepticism. |
| 1052 | Audit procedures for obtaining audit evidence | Enhanced guidance. |
| 1071 | Job rotation | Updated OAG policies and guidance to align with CSQM 1 and CSQM 2. |
| 1081 | Selection of engagement quality reviews and appointment of engagement quality reviewers |
Updated OAG policies and guidance to align with CSQM 1 and CSQM 2. Replaced the AAG, Audit Services by the PX of methodology, Audit Services as the individual responsible for approving the selection and appointment of engagement quality reviewers. |
| 1141 | Identifying Significant Matters | Enhanced guidance on significant matters. |
| 1162 | Engagement leader review: minimum documentation requirements | New and updated OAG policies and guidance to align with CSQM 1 and CSAE 3001. |
| 1163 | Quality reviewer: minimum documentation requirements | New and updated OAG policies and guidance to align with CSQM 2. |
| 1171 | Assembly of the final audit file | Updated guidance on final assembly period extensions. |
| 1191 | Retention policies and procedures | Enhanced guidance. |
| 1192 | Confidentiality, safe custody, integrity, accessibility, and retrievability of engagements documentation | Enhanced guidance. |
| 2080 | Contracted out audits | Enhanced guidance. |
| 3011 | Acceptance and continuance | Updated one OAG policy to align with CSQM 1, enhancing the engagement leader’s responsibilities for the acceptance and continuance of performance audits, special exams and continuing financial audits. |
| 3031 | Independence | Updated one OAG policy and guidance to align with CSQM 1, CAS 220 and CSAE 3001. |
| 3061 | Engagement team: assigning and managing tasks | New and updated OAG policies and guidance to align with CSQM 1, CAS 220 and CSAE 3001. |
| 3062 | Engagement leader responsibilities for audit quality |
Updated OAG policies to align with CSQM 1, CAS 220 and CSAE 3001. Enhanced guidance related to CAS 315 and CSQM 1. |
| 3063 | Quality reviewer responsibilities | New and updated OAG policies and guidance to align with CSQM 2. |
| 3065 | Team members | Added the concept of “having sufficient time” as required by CSQM 1, CAS 220 and CSAE 3001. |
| 3071 | Review of audit work and documentation | Moved two OAG policies from 1162 to 3071. |
| 3081 | Consultations |
Updated one OAG policy to align with CSQM 1. Enhanced guidance. |
| 3082 | Resolution of differences of opinion | Enhanced the guidance for where differences of opinion may arise. |
| Glossary | Glossary |
Replaced references of CSQC1 by CSQM 1. Updated definitions for conforming amendments to CSAE 3001. Changed to align with engagement quality reviewer definition in CSQM 2. |
| Direct Engagement Sections | ||
| How to Use the Direct Engagement Manual | Updated the terminology to align with CSQM 1 and CSQM 2. | |
| 101 | Overview of Performance Audits quality |
Modified assurance standards for conforming amendments to CSAE 3001. Removed references to the “At a Glance”. Revised content related to sufficiency and appropriateness of audit evidence. |
| 1011 | CPA Canada standards in the context of a direct engagement | Modified assurance standards for conforming amendments to CSAE 3001. |
| 2040 | Discussions with the Auditor General | Modified assurance standards for conforming amendments to CSAE 3001. |
| 2050 | Advisory Committee Meetings |
Modified assurance standards for conforming amendments to CSAE 3001. Clarified guidance to indicate that an external advisory committee members is not a team member as defined by CSQM 1. |
| 2070 | Use of Experts | Modified assurance standards for conforming amendments to CSAE 300.1 |
| 4042 | Audit Scope and Approach |
Modified assurance standards for conforming amendments to CSAE 3001. Clarified the guidance regarding the period covered by the audit for a special examination. |
| 4080 | Examination approval |
Modified assurance standards for conforming amendments to CSAE 3001. Added requirement for the engagement leader to ensure that the engagement resources who are to perform the engagement, collectively have the appropriate competence and capabilities, including having sufficient time to perform the engagement. |
| 7030 | Drafting the Audit Report |
Modified assurance standards for conforming amendments to CSAE 3001. Removed reference to the names of audit team members in the “About the Audit section. |
| 8017 | Report content approval and date of the report |
Modified assurance standards for conforming amendments to CSAE 3001. Updated OAG policy and guidance with the requirement for the engagement leader not to date the report until notification of completion of the engagement quality review has been received from the Engagement Quality Reviewer. This new quality review requirement is applicable only for engagements with a start date on or after December 15, 2022, Clarified the guidance related to the date of the report for performance audits and special examinations. Revised content related to sufficiency and appropriateness of audit evidence. |
| 8019 | Submitting the Principal’s (PX) Draft and Transmission Draft |
Modified assurance standards for conforming amendments to CSAE 3001. Updated the guidance with the requirement not to date the report until the written representation from the entity management has been received by the audit team. Updated terminology to align with CSQM 2. Revised content related to sufficiency and appropriateness of audit evidence and to the transmission draft. |
| 8090 | Preparation for Tabling of Direct Engagement Reports |
Removed reference to the audit team’s responsibility to prepare the “At a Glance”. Updated guidance related to communication products and the preview process. |
| 8095 | Submitting the Special Examination Report to the Board of Directors and Making it Public |
Revised guidance related to the interpretation of the date on which the board receives the special examination report. |
| 11010 | Studies |
Updated references to the terminology to align with CSQM 1. Revised content related to sufficiency and appropriateness of audit evidence. |
| 12010 | Direct Engagements with Report on Compliance with Specified Requirements (reports on compliance) |
Modified assurance standards for conforming amendments to CSAE 3531. Updated the terminology to align with CSQM 1. |
Updates to TeamMate Audit Procedures
Revisions will be made to the TeamMate TeamStores to align with this methodology update. More information to come in early 2023. Stay tuned.
Updates to templates and guidance
Revisions have been made to some templates and guidance. With the exception of those documents identified as being specific to performance audits or special examinations, all templates and guidance documents listed below apply to both practices. The following is a summary of all revisions other than editorial or minor revisions.
Direct Engagement Templates
| Phase | Template Name | Change |
|---|---|---|
| Engagement Management | Engagement Risk Assessment (ERAT) | Revised to align to CSQM 1 and to OAG Audit 1081. |
| Engagement Management | Engagement and Solicitor-Client Privilege Letter (Special Examination) |
Removed the signature of the PX responsible for the entity (if different). Added statement to advise the Corporation to brief the Minister that the special examination has been initiated by the OAG. |
| Engagement Management | Kick‑off Meeting Checklist |
Revised wording of required discussions. Revised engagement leader responsibilities for audit quality to align with CSQM 1. |
| Engagement Management | Letter of Notification and Solicitor Client Privilege (for performance audits) | Removed the signature of the PX responsible for the entity (if different). |
| Significant Judgments and Quality Review | Checklist for sign-offs in the audit working paper software (for performance audits) | Removed references to substantiation requirements. |
| Significant Judgments and Quality Review | Checklist for sign-offs in the audit working paper software (for special examination) | Removed references to substantiation requirements. |
| Significant Judgments and Quality Review | NEW—Consultation template | New consultation template that now apply for all type of engagements. |
| Significant Judgments and Quality Review | REMOVED—Disposition of Advice Received Through Consultation | Replaced by the new consultation template. |
| Significant Judgments and Quality Review | NEW—Engagement Quality Reviewer Checklist and Sign‑off (CSQM 2) | Changes made to combine the EQR checklist for AA and DE into one document. Changes made to align to CSQM 2 requirements. This new template should be used when performing an engagement quality review for a direct engagement that started on or after December 15, 2022. |
| Significant Judgments and Quality Review | TO BE REMOVED at a later date—Quality Reviewer Checklist | Direct engagements that started before December 15, 2022 should continue to use this checklist.Replaced by the new Engagement Quality Reviewer Checklist and Sign‑off (CSQM 2) for direct engagements that started on or after December 15, 2022. |
| Planning | Audit Plan Summary | Updated the OAG template to modernize the presentation. |
| Planning | Special Examination Audit Approach |
Revised sources of criteria. Revised wording in the French version. Updated references to additional guidance. |
| Planning | Special Examination Plan |
Clarified the text to the period covered by the audit. Revised sources of criteria. |
| Examination | Independent Review Report |
Updated to align with CSQM 1. Removed list of audit team members. Reviewed the template to improve the format. |
| Examination | Performance Audit Report |
Updated to align with CSQM 1. Removed list of audit team members. Reviewed the template to improve the format. |
| Examination | Special Examination Report |
Updated to align with CSQM 1. Removed list of audit team members. |
| Examination | Study Report | Removed blue highlights that reference Study “At a Glance”, and to remove names of team members. |
| Reporting | Checklist—Assurance on the Application of Reporting Standards and Policies |
Updated to align with CSQM 1. Revised to clarify the date of the report requirements. |
| Reporting | Entity PX Draft Audit Report Letter– Performance Audit | Updated to remove blue highlights that reference “At a Glance”. |
| Reporting | Entity Transmission Draft Audit Report Letter (for performance audits) | Updated to remove blue highlights that reference “At a Glance”. |
| Reporting | Transmission of Final Special Examination Report to Board Members Letter | Revised to clearly identify the date the special examination report is presented to the Board of Directors. |
Direct Engagement Guidance
| Phase | Guidance Name | Change |
|---|---|---|
| Engagement Management | What to Expect– An Auditee’s Guide to the Performance Audit Process |
Removed references to “At a Glance”. |
| Engagement Management | What to Expect– An Auditee’s Guide to the Performance Audit Process in the Territories |
Removed references to “At a Glance”. |
Updates to INTRAnet
Replaced all of the 11 Intranet pages related to the System of Quality Control (SofQC) by one page that describes the new System of Quality Management (SOQM).In summary, the main Intranet page that described the previous SofQC, including the separate Intranet pages that described each of the elements within the SofQC where all replaced by one Intranet page that provides an overview of the SOQM. A document called Our System of Quality Management with a detailed description of the SOQM and its components will be added to this Intranet page at a later date.
Direct Engagement INTRAnet pages reflect the changes included in this Methodology Update.