Methodology Update—Fall 2015

Nov-2015

Effective date: Immediately upon release.

This update highlights changes to direct engagements methodology (i.e. performance audits and special examinations). It includes changes to the Direct Engagement Manual, TeamMate audit procedures, and templates.

This methodology update was driven by the following key elements:

• Compliance with the new Canadian Standard on Assurance Engagements (CSAE 3001) for Direct Engagements;
• Final alignment with Senior Management Roles and Responsibilities for audit operations;
• Completion of the merge of the methodology for performance audits and special examinations; and
• Changes made in the involvement of the Auditor General in the audit process.

As a result, the Direct Engagement manual was reviewed and re-organized; the majority of audit procedures in TeamMate were updated; new templates have been created, while others have been updated or deleted; and the Special Examination and Performance Audit pages on the INTRAnet have been merged.

This Fall 2015 update includes:

1. Updates to TeamMate audit procedures and templates
   • Performance audits
   • Special examinations
2. Updates to the Direct Engagement Manual
   • Updates to DE sections
   • Updates to SoQC/Office-wide sections
3. Information Sessions about the Methodology Update

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1. Updates to TeamMate audit procedures and templates

TeamMate audit procedures for both performance audits and special examinations were updated to reflect the changes made to the Direct Engagement Methodology and are reflected in the new TeamStore for performance audit and the one for special examination, that are available as of 19 November 2015.

Performance audits

The T-minus Schedule for performance audits was aligned with this new methodology update and the key structural changes made to the performance audit procedures are summarized below.

ARC #	Audit procedure before the update	Changes made as result of the update
A.1.PRG	None	NEW audit procedure: “PAPMC Dashboard.” NEW template: Dashboard for the Performance Audit Practice Management Committee (PAPMC).
A.5.PRG	Entity and Subject Matter Risk Assessment	DELETED and replaced by NEW audit procedure: “Subject Matter Assessment of Risk and Preliminary Scoping Decisions” under C.2.PRG.
A.5.PRG	Environmental Risk Assessment	DELETED and integrated into NEW audit procedure: “Functional Risk Identification” under C.2.PRG.
A.6.PRG	None	NEW audit procedure: “Early Planning Phase Advisory Committee Meeting.” NEW template: Memorandum for Advisory Committee Meeting during Early Planning Phase (Bilingual). NEW guidance document: Auditor General’s Involvement and Advisory Committee Meetings.
C.1.PRG	None	NEW audit procedure: “Additional considerations to understand the subject matter.”
C.2.PRG	None	NEW audit procedure: “Functional Risk Identification.” NEW template: Functional Risk Identification template (FRIT). NEW guidance document: Guide on risk-based planning and scoping for direct engagements
C.2.PRG	None	NEW audit procedure: “Subject Matter Assessment of Risk and Preliminary Scoping Decisions.” NEW template: Subject Matter Assessment of Risk template (SMART).
C.2.PRG	None	NEW audit procedure: “Understanding Controls and Updating Scoping Decisions.” NEW templates: Controls assessment template (CAT) and Controls Worksheet.
C.5.PRG	Audit AAG—Examination Approval	Deleted. No more AAG sign-off in TeamMate.
C.5.PRG	Product leader—Examination Approval	DELETED. No more product leader/second AAG sign-off in TeamMate.
E.1.PRG	None	NEW audit procedure: “Subsequent Events Before the Date of the Report.”
E.4.PRG	None	NEW audit procedure: “Subsequent Events After the Date of the Report.”
E.5.PRG	Audit AAG—Approval for Publication	DELETED. No more AAG sign-off in TeamMate.
E.5.PRG	Product leader—Approval for Publication	DELETED. No more product leader/second AAG sign-off in TeamMate.

Performance audit teams are encouraged to refer to the Table of Changes to Performance Audit—November 2015 for a detailed description of the nature and extent of changes made.

How these changes affect you:

Performance audit teams with audit work currently under way

Continue using your current TeamMate file. Update your fileto incorporate changes that are effective immediately, using the above mentioned Table of Changes.

• Import relevant audit procedures, as needed using “Get Programs,” and replace sub-folders and/or audit procedures where work has not yet started.
• Do not make changes to audit procedures that are completed.
• Save the Table of Changes in your TeamMate file under the “Documentation of Significant Judgments” subfolder and link to it as necessary.

Performance audit teams that have not yet created their TeamMate file (Spring 2017 or later)

Use the new TeamStore for Performance Audits that incorporates the required changes.

Special Examinations

For special examinations, the TeamMate audit procedures have been modified to align with the changes made to performance audit procedures.

The key changes made to the special examination methodology are as followed:

• A NEW risk-based planning and scoping approach has been developed, including new audit procedures, templates and a new guidance document titled Guide on risk-based planning and scoping for direct engagements. As a result, the previous appendices used during the planning phase (Appendix I to IV) are deleted from the special examination methodology.
• The Audit Logic Matrix (already used in performance audits) is now mandatory for special examinations.
• A NEW document named Recommended Criteria and Audit Approach for Special Examinations is now available. It replaces the Recommended General Criteria & Sub-Criteria document and provides updated criteria with their sources, as well as audit questions and proposed audit steps for the most common systems and practices audited in Crown corporations.
• Some clarifications were made regarding the involvement of the Auditor General and a new guidance document titled Auditor General’s Involvement and Advisory Committee Meetings – for special examinations was prepared.
• Various transmission letters were introduced or updated to reflect the new approach for special examinations, for example:
  • NEW Special Examination Plan Letter to the Head of the Crown Corporation used to provide an electronic access to the draft Special Examination Plan.
  • NEW Special Examination Plan Letter to the Audit Committee of the Board of Directors to obtain written agreement on the terms of the engagement and suitability of criteria from the Audit Committee.
  • NEW Entity PX Draft Audit Report Letter to obtain written representation from the head of the Crown corporation to confirm that he/she has given to the audit team all information of which he/she is aware that has been requested or that could significantly affect the findings or the conclusion of the special examination report. The letter also serves to request and obtain the draft responses to the recommendations.
  • NEW Entity Transmission Draft Audit Report Letter to obtain a confirmation from the Audit Committee that the draft special examination report presents audit findings that are factually based and to obtain a confirmation that responses to recommendations are final.
  • UPDATED letter of Transmission of Final Special Examination Report to Board Members to inform that the report will be tabled in Parliament shortly after it has been made public by the Crown corporation.

How these changes affect you:

Special examination teams with audit work currently under way

The Direct Engagement Practice Team will contact special examination teams individually to help them integrate the methodology changes to existing TeamMate files.

Special examination teams that have not yet created their TeamMate file

Use the new TeamStore for Special Examinations that incorporates the required changes.

2. Updates to the Direct Engagement Manual

All sections of the manual (including the system of quality control and office-wide methodology) have been revised to reflect the adoption of the Canadian Standard on Assurance Engagements (CSAE 3001) for direct engagements. Where required, sections have also been updated to align with the Office’s new roles and responsibilities, and to complete the merge between performance audit and special examination methodology.

Updates to DE sections

The following table illustrates the changes made to the structure of the Direct Engagement manual.

Section of the manual before the update	Changes made as result of the update
1180 Accessing-requesting audit documentation	RE-NUMBERED as 2060 Accessing-requesting audit documentation.
2020 Significance in performance audits	RENAMED as 2020 Significance.
3090 Use of specialists	RENAMED and RE-NUMBERED as 2070 Use of experts.
None	NEW 3012 Preconditions for a direct engagement.
4010 Understanding the entity and subject matter in the context of a performance audit	Significantly revised and RENAMED as 4010 Understanding the subject matter in planning an audit.
4011 Understanding the entity in the context of a special examination	DELETED and integrated into 4010 Understanding the subject matter in planning an audit.
None	NEW 4020 Risk Assessment.
None	NEW 4025 Internal Controls.
4042 Audit scope	Revised and RENAMED as 4042 Audit scope and approach.
4044 Developing the performance audit strategy: audit logic matrix	RENAMED as 4044 Developing the audit strategy: audit logic matrix.
4046 Planning phase Auditor General briefing 7025 Pre-internal draft discussion with the Auditor General 8018 Transmission draft discussion with the Auditor General	DELETED and replaced by NEW section 2040 Discussions with the Auditor General.
4060 Advisory committee meeting during the planning phase 7040 Advisory committee meeting to discuss the internal draft	DELETED and replaced by NEW section 2050 Advisory committee meetings.
6031 The role of the internal audit function 6032 Evaluate the internal audit function 6033 Impact of the internal auditor’s work on the nature, timing, or extent of audit procedures 6034 Evaluation of the work of the internal auditors 6035 Reporting considerations when using the work of internal audit	DELETED and replaced by NEW 4030 Reliance on internal audit.
7030 Drafting the performance audit chapter / special examination report	RENAMED as 7030 Drafting the audit report.
7031 Forming a special examination opinion including the concept of a significant deficiency	DELETED and integrated into NEW section 7040 Audit Conclusion.
None	NEW 7040 Audit Conclusion.
8017 Chapter/Report content approval and date of the report	RENAMED as 8017 Report content approval and date of the report.
9040 Subsequent events	RE-NUMBERED as 8030 Subsequent events.
9090 Monitoring of entities’ progress in implementing performance audit recommendations	DELETED.
None	NEW 10010 Limited Assurance.

Updates to SoQC/Office-wide sections

Changes to policies, guidance and terminology that are applicable to all audit practice (not only performance audits and special examinations) were made in the System of Quality Control/Office-wide sections of the manual.

The following key changes were made.

Section of the manual	Changes made as result of the update
1012 Audit quality, including roles and responsibilities for audit quality	REVIEW of Office’s guidance to align with new roles of the AAGs/CESD and the resulting impact to the Product Leader, Engagement Leader, Quality Reviewer and Professional Practice Teams.
NEW 1043 Assurance skills and techniques	NEW section to provide guidance on “Assurance skills and techniques” for Direct Engagements—a new concept defined in CSAE 3001.
1071 Job rotation	REVIEW of guidance and policies to remove “engagement assistant auditor general” from the senior personnel rotation framework and to specifically explain the Auditor General’s exemption from rotation requirements. Office policy and related guidance on exceptions have been revised to align with the changing executive structure of the Office.
1081 Selection of Engagement quality control reviews and appointment of quality reviewers	MODIFICATION of the selection process and criteria to appoint quality reviewers.
1171 Assembly of the final audit file	REVIEW of guidance to clarify how an audit file “finalization” date is to be interpreted and applied in special examinations and performance audits.
3011 Acceptance and continuance	REVIEW of policies and guidance to reflect new roles and responsibilities.
3031 Independence	REVIEW to reflect the adoption of CSAE 3001 and changing roles. Guidance related to internal and external specialists previously only located in the Independence FAQ has been incorporated. The Independence confirmation form has been updated to clarify the period coved by the independence from (section H).
3062 Engagement leader responsibilities for audit quality	REVIEW of policies and guidance to allow for auditors below the PX level to be assigned the role of an engagement leader, but that is subject to AG approval.
3066 Assistant auditor general	REVIEW to reflect the new role of the assistant auditor general.
3081 Consultation	REVIEW of policy and guidance to reflect the new role of the AAG as an Office executive rather than an engagement team member.
3082 Resolution of differences of opinion	REVIEW of the resolution process, including a new set of guiding principles and separate processes for Direct Engagements and Annual Audits.
9081 Post audit surveys	REVIEW of guidance to reflect the changes in roles and responsibilities for the post-audit survey process. Post Audit survey responses are now sent to the Principal, Strategic Planning with the exception of the Performance Audit “user” survey which is received by the Parliamentary Liaison and forwarded to the Principal, Strategic Planning. Where a survey raises significant issues, the AAGs of the applicable practice will discuss the results with the engagement leader and agree on any necessary action.

3. Information sessions about the Methodology Update

Information sessions will be organized to provide information to practitioners of Direct Engagements about changes to the methodology and tools that are effective as a result of this methodology update.

These sessions are a first step in understanding the changes resulting from the new Canadian Standard on Assurance Engagements (CSAE 3001) for Direct Engagements.

Participation is required by all auditors (levels APD/APS up to AAG) involved in performance audits or special examinations. Do not forget to register for one of the following sessions:

Date	Language	Time
30 November 2015	English	8:30 a.m.–11:00 a.m.
1 December 2015	English	1:30 p.m.–4:00 p.m.
3 December 2015	French	8:30 a.m.–11:00 a.m.
4 December 2015	English	9:00 a.m.–11:30 a.m.
7 December 2015	English	8:30 a.m.–11:00 a.m.
9 December 2015	French	8:30 a.m.–11:00 a.m.

If you have questions or need assistance, please contact the Direct Engagement Practice Team, using the DEPT mailbox.