Audit Methodology Update—Fall 2016
Nov-2016

Audience: Auditors working on

  • special examinations, or
  • performance audits tabling in Spring 2017 or after.

Effective date: Immediately upon release

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

This methodology update was driven by the following key elements:

  • the new Canadian Standard on Assurance Engagements (CSAE 3001) for Direct Engagements;
  • alignment between performance audits and special examinations; and
  • a review of the OAG Direct Engagement policies.

As a result, the Direct Engagement manual was reviewed and updated; some audit procedures in TeamMate were updated; new templates have been created, while others have been revised; and the Internal Specialists Intranet page was updated.

This Fall 2016 update includes:

Teams that have not yet started using the previous versions of these tools must use the updated versions.

If you have any questions on methodology for performance audits or special examinations, please contact the Direct Engagement Practice Team (DEPT) through the DEPT mailbox.

1. Updates to Direct Engagement Manual

Thirty sections of the DE manual (five of which related to the System of Quality Control) have been affected. These changes were made to either ensure compliance with the Canadian Standard on Assurance Engagements (CSAE 3001) for direct engagements or to further align the performance audit and special examination methodology.

Updates to DE sections

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

Section of the manual before the update Changes made as a result of the update

101 Overview of Performance Audits

Revised to align with the changes made throughout the manual.

102 Overview of Special Examinations

Revised to align with the changes made throughout the manual.

1091 Complaints and allegations

Added one sentence “In no instance will an investigation be conducted by someone who is in any way connected with the public sector entity, the engagement or the staff involved in the complaint or allegation” to procedure 3) of dealing with complaints and allegations.

Note: This change was communicated as part of the Financial Methodology Update of September 2016.

1192 Confidentiality, safe custody, integrity, accessibility, and retrievability of engagement documentation

Added guidance on confidentiality as it relates to sharing of information within the Office.

Note: This change was communicated as part of the Financial Methodology Update of September 2016.

NONE

NEW manual section: 1193 Communications with a successor auditor

2010 Project Management

Revised guidance to clarify compliance with OAG policies and CPA Canada standards in the context of a direct engagement.

Updated terminology.

2030 Communication with audit entity: initial and ongoing

Revised policy and guidance to clarify requirements regarding:

  • written acknowledgement of responsibility for the subject under audit;
  • agreement on the terms of the engagement, including a written acknowledgement that the criteria are suitable for the audit; and
  • written confirmation that audited team has been provided with all information that was requested during the course of the audit.

2040 Discussions with the Auditor General

Revised guidance to clarify the process for the AG briefing in the planning phase.

2050 Advisory Committee meetings

Revised policy and guidance to clarify requirements for approval and documentation of decisions not to conduct planning phase advisory committee meetings.

Updated terminology.

2070 Use of Experts

Revised guidance to cover the requirement from standards that the engagement leader’s responsibility for the conclusion should not be reduced if an expert is mentioned in the audit report.

3062 Engagement leader responsibilities for audit quality

Removed references to elevated inherent risk.

Note: This change was communicated as part of the Financial Methodology Update of September 2016.

NONE

NEW manual section: 3067 Joint engagements

4025 Internal Controls

Revised guidance to clarify that the conclusion for special examination includes the opinion statement as a key element.

4041 Audit objectives

Revised guidance to clarify approval responsibilities for subsequent changes to the objective and update the audit objective wording for special examinations.

Updated terminology.

4042 Audit Scope and approach

DELETED a redundant policy statement regarding obtaining up-to-date knowledge of subject matter at scoping stage (policy covered in the other policy statements in this section, as well as in section 4010 Understanding of the subject matter).

Revised guidance for special examinations to emphasise audit teams’ responsibility to provide a conclusion related to the audit objective for the period covered by the audit.

Added reference to audit guidance documents (i.e. existing Guidance to Integrate Value Added into the Performance Audit Process and new guidance document Making Performance Audits More Results Oriented).

Updated terminology.

4043 Audit Criteria

Revised policy and guidance to clarify requirements when audit teams do not obtain entity management’s acknowledgement of the suitability of the audit criteria.

Updated terminology.

4044 Developing the audit strategy: audit logic matrix

DELETED duplicative policy statement regarding the engagement leader’s approval of scope and approach (policy exists elsewhere in the manual, in section 4042 Audit Scope and approach).

Revised guidance to add references to manual sections OAG Audit 4020 Risk assessment and 4025 Internal controls.

4045 Evidence-gathering methods

NEW policy and revised guidance to cover the requirement from standards regarding the need to include in the audit report an informative summary (information on the nature and extent of testing completed) of the work performed as the basis for the practitioner’s conclusion.

4090 Audit plan summary for performance audits

Revised policy and guidance to include requirement for and clarify the process to follow when audit teams do not obtain entity management’s acknowledgement of the suitability of the audit criteria.

Revised guidance to clarify the steps to take in the event of unresolved differences.

4100 Special examination plan

Revised policy and guidance to include requirement for and clarify the process to follow when audit teams do not obtain entity management’s acknowledgement during the planning phase or there are other unresolved differences.

7030 Drafting the audit report

Revised policy statement regarding the use of the official OAG reporting templates for direct engagements.

NEW policy requirement to have any changes proposed by the audit team approved by the Direct Engagement Practice Team (DEPT).

NEW policy requirement to clearly identify, in the audit report, the audited entity and describe entity management’s responsibilities with respect to the subject matter of the audit, along with the OAG’s responsibilities.

Reiterated policy statement (duplicated in OAG 4045) regarding the inclusion in the audit report of an informative summary of the work performed as the basis for the practitioner’s conclusion.

Revised guidance related to the structure, standards and components of the audit report.

7040 Audit conclusion

Deleted redundant policy statement regarding the use of the OAG format for special examination opinion (covered by the new policy statement in OAG 7040 and revisions to the policy in OAG 7030).

NEW policy statement regarding the need for a conclusion against the audit objective, to reflect the merge between performance audits and special examinations.

Revised guidance to clarify the types of special examination conclusions.

7060 Substantiation

Moved (from OAG 8017) policy statement regarding obtaining sufficient appropriate audit evidence.

Revised guidance to provide clarification on the substantiation of the About the Audit section.

8017 Report content approval and date of the report

Removed policy statement regarding obtaining sufficient appropriate audit evidence (moved to OAG 7060).

Revised guidance to include reference to the requirement to obtain from entities written confirmation on all information requested.

Updated terminology.

8019 Submitting the principal’s (PX) draft and transmission draft

NEW policy requirement to obtain the entity’s written confirmation that it has provided the audit team with all information that it was aware of that was requested during the course of the audit or that could significantly affect the audit report.

Revised guidance to clarify the process to follow when the written confirmation cannot be obtained and to emphasise the importance of subsequent events.

8030 Subsequent events

Updated terminology.

8095 Submitting the special examination report to the board of directors and making it public

Removed redundant policy statement regarding the PX and/or AAG’s attendance to the meeting of the board of directors during which the content of the special examination report is discussed.

Removed the policy statement regarding the documentation of changes to the special examination report proposed by the board of directors and the re- submission of the final report to the Crown corporation’s board of directors.

NEW guidance on the tabling reproduction of special examination reports in Parliament.

Revised guidance wording for clarity.

9020 Management of controlled documents

Revised guidance to include reference to the use of CODI when dealing with OAG’s external parties.

10010 Limited assurance engagements

NEW Policy statements and guidance.

NONE

NEW manual section: OAG 11010 Studies. It includes new policy and guidance.

2. Updates to templates and guidance

Audit teams are encouraged to refer to the table of changes below, for a detailed description of the nature and extent of changes made to the direct engagement 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.

Template/Guidance Document Changes made as a result of the update

Audit Report Submission (Performance Audit)

Revised to add text regarding the examination of the impacts of the program being audited on Canadians, businesses or other stakeholders, as applicable.

Terminology updates.

Engagement and Solicitor-Client Privilege Letter (Special Examinations)

Revised wording related to the written representation at the PX draft stage.

Added the Comptroller’s Group to the list of names copied to this letter.

Kick-off Meeting Checklist

Revised to add security requirements related to the collection of personal information, disclosure of confidential information, and labeling of documents.

Letter of Notification and Solicitor-Client Privilege (Performance Audit)

Revised wording related to the written representation at the PX draft stage.

Added the Comptroller’s Group to the list of names copied to this letter.

Summary SE Roles and Responsibilities (Special Examinations)

Revised to clarify DEPT’s role in reviewing the draft report for concurrence with the audit plan and for compliance with both OAG reporting policies and CSAE reporting standards.

What to Expect—A Crown Corporation’s Guide to a Special Examination (Presentation)

(Special Examinations)

Revised wording to clarify expectations for audited entity’s written representations:

  • acknowledgement of responsibility for the subject being audited and the terms of the engagement, including the suitability of criteria;
  • confirmation that it has provided all information requested or that could significantly affect the findings or the conclusion of the audit report (excluding Cabinet confidences).

Terminology updates.

What to Expect—An Auditee’s Guide to the Performance Audit Process (Presentation)

(Performance Audit)

What to Expect—A Crown Corporation’s Guide to a Special Examination (Special Examinations)

Revised to:

  • clarify expectations for audited entity’s written representations (i.e. acknowledgement of responsibility for the subject being audited and the terms of the engagement, including the suitability of criteria during the planning phase and confirmation that it has provided all information requested at the PX draft stage);
  • add reference to the three inquiries as part of the planning phase, to obtain a good understanding of the subject being audited;
  • add reference to the post-tabling action plans and progress reporting by entity;
  • clarify the role of the OAG liaison; and
  • add guidance on how to manage unresolved differences;

Terminology updates.

What to Expect—An Auditee’s Guide to the Performance Audit Process (Performance Audit)

Significant Judgments

Revised to provide better and more comprehensive examples to help auditors identify and document key decisions in their audit files.

Audit Logic Matrix

Minor wording change.

Audit Plan Summary Letter to the Deputy Head (Performance Audit)

Minor wording changes related to the acknowledgement of the terms of the engagement.

CODI Email for OAG Third Party

NEW email template for sending controlled documents via CODI to external parties—for example, external advisers and other third parties—under contractual agreement with the OAG.

CODI Instructions for the Office of the Auditor General’s External Parties

NEW guidance on how to send controlled documents via CODI to external parties—for example, external advisers and other third parties—under contractual agreement with the OAG.

Functional Risk Identification (FRIT)

Added questions related to the Internal Specialist area of Values and Ethics.

Memorandum for Advisory Committee Meeting during Early Planning Phase (Performance Audit)

Added reference to Commissioner of the Environment and Sustainable Development in title of the reports to Parliament.
Removed requirement to return controlled documents to the audit team, since they are now sent via CODI.

Memorandum for Advisory Committee Meeting during Planning Phase

Special Examination Plan (Special Examinations)

Significantly revised and streamlined to align with the audit plan for performance audits.

Special Examination Plan Letter to the Audit Committee of the Board of Directors (Special Examinations)

Revised to clarify the requirement for entity’s acknowledgement of the suitability of the audit criteria as a basis for concluding on the audit objective.

Removed the Acknowledgement Letter template (moved to the letter sent to the Head of the Crown corporation).

Special Examination Plan Letter to the Head of the Crown Corporation (Special Examinations)

Revised to clarify the requirement for entity’s acknowledgement of the suitability of the audit criteria as a basis for concluding on the audit objective.

Added the Acknowledgement Letter template (moved from the letter sent to the Board of Directors).

Findings Blocks for the Performance Audit Report (Performance Audit)

Terminology updates.

Findings Blocks for the Special Examination Report (Special Examinations)

Memorandum for Advisory Committee Meeting during Examination Phase

Removed requirement to return controlled documents to the audit team, since they are now sent via CODI.

Independent Review Report

NEW report template for limited assurance reports.

Study Report

NEW report template for Studies.

Checklist—Assurance on the Application of Reporting Standards and Policies

Revised to include all the reporting requirements from CSEA 3001 audit standard.
Clarified requirement that the checklist be completed by the 2nd AAG.

Entity PX Draft Audit Report Letter (Performance Audit)

Revised to:

  • add text related to the steps to be taken by the audit team if the entity does not confirm the facts in the report or provide a response to recommendations in time to meet our publication deadline;
  • add text regarding post tabling action plans and progress reports; and
  • clarify requirements related to entity’s written confirmation on information requested.

Entity PX Draft Audit Report Letter (Special Examinations)

Entity Hard Copy Transmission Draft Report Letter (for performance audits)

Revised to add text related to the steps to be taken by the audit team if the entity does not confirm the facts in the report or provide a response to recommendations in time to meet our publication deadline.

Removed reference to the CESD letterhead.

Entity Hard Copy Transmission Draft Audit Report Letter (Special Examinations)

Entity Transmission Draft Audit Report Letter (Performance audits)

Revised to add text related to the steps to be taken by the audit team if the entity does not confirm the facts in the report or provide a response to recommendations in time to meet our publication deadline.

Other minor wording changes.

Entity Transmission Draft Audit Report Letter (Special Examinations)

Performance Audit Sampling Plan

NEW template to help audit teams, in consultations with the IS of Research and Quantitative Analysis, select representative samples or conduct targeted testing (selections) that are used to conclude on an audit objective.

Making Performance Audits More Results Oriented

NEW Guide to help audit teams identify the intended results of audited programs and plan, conduct and report the results of their audits focusing on these results.

SAP Notification Letter (Performance Audit)

Revised to add text related to the solicitor-client and other privileges.

Guidance on Strategic Planning for Performance Audits (Performance Audit)

Revised SAP guidance.

3. Updates to TeamMate audit procedures

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 2 November 2016.

There were no key structural changes made to either the performance audit or the special examination TeamMate procedures. For a detailed description of the nature and extent of the changes made, refer to:

How these changes affect you:

Audit teams with audit work currently under way, continue using your current TeamMate file. Update your file to incorporate changes that are effective immediately, using the above mentioned tables 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.

Audit teams that have not yet created their TeamMate file (Spring 2018 or later), use the new TeamStore for Performance Audits that incorporates the required changes.

Audit teams that have questions or need assistance with determining what TeamMate changes apply to their current audit, should contact the Direct Engagement Practice Team using the DEPT mailbox.