8019 Submitting the Principal’s (PX) Draft and Transmission Draft

Dec-2022

What the CSAE 3001 means for draft audit reports

CSAE 3001 requires that a written representation be provided by the audited entity to confirm that it has provided the audit team with all information that was requested during the course of the audit. The report cannot be dated until the audit team has received this written representation from the entity management. The date of the written representation shall be as near as practicable to, but not after, the date of the report. Given that the determination of the date of the report (OAG Audit 8017 Report content approval and date of the report) occurs between the PX draft and transmission draft, written representation has to be obtained from entity management at the time it provides its comments on the PX draft.

The principal’s (PX) draft

Although communication with entities takes place throughout the audit, the PX draft is the first full written description of the audit findings and conclusions that entities receive. This draft gives entities the opportunity to comment on the validity and completeness of the findings. The reputation and credibility of the OAG depend to a great extent on the quality of the reports it issues. It is critical that audit reports be accurate and well presented. For this reason, there is an extensive review process within the OAG before an audit report can be approved for issuing to entities.

Drafting of an audit report begins in the examination phase. OAG Audit 7030 Drafting the audit report outlines the essential elements audit reports must contain to conform to CSAE 3001 requirements and OAG policy. The team submits a first draft, known as the internal draft, for review by the engagement leader and discusses it with internal and external advisers as necessary (OAG Audit 2050 Advisory committee meetings).

At this stage of the reporting phase, the team also seeks input on difficult or contentious matters or other matters requiring specialized knowledge or experience from internal specialists who have been involved with the audit. OAG Audit 3081 Consultations and OAG Audit 3082 Resolution of differences of opinion provide more detail on consulting with internal specialists. These consultations may involve several rounds of discussions before agreement on the changes is reached. The engagement quality reviewer (EQR) also reviews the audit file before the PX draft is sent to the entity OAG Audit 3063 Engagement quality reviewer responsibilities explains the role of the QR in more detail.

Before sending out the PX draft, the engagement leader must be satisfied that sufficient appropriate evidence was obtained to support the conclusions expressed in the report (OAG Audit 7021 Evaluate the Sufficiency and Appropriateness of Audit Evidence).

Entities are given this draft to validate the facts on which the conclusions are based, provide any additional information required, and prepare responses to the recommendations. The drafts are confidential and are therefore controlled by the OAG. As is done for other controlled documents, the team follows the OAG’s procedures, as described in OAG Audit 9020 Management of controlled documents.

Audit teams inform entities of the dates on which drafts of the audit report will be sent in advance to them and how long they will have to respond. The cover letter sent with the PX draft, signed by the engagement leader, includes the deadline for submitting comments. Audit teams arrange to meet with entities within a specified time after sending out PX drafts to discuss the findings and conclusions in the audit report. The engagement leader also offers to meet with entity senior management (usually at the assistant deputy minister level, or the chief executive officer) to discuss the draft audit report, including the suitability of the proposed audit recommendations and how the entity might respond (OAG Audit 8020 Recommendations and entity responses). The cover letter sent with the PX draft also asks entities to submit—by a specified date—a first draft of responses to the audit recommendations as well as a written representation to confirm that it has provided the audit team with all information that was requested during the course of the audit or that could significantly affect the findings or the conclusions of the report. The party responsible for the program or activity subject to the audit, usually an assistant deputy minister (ADM), deputy head, or equivalent, shall provide the written confirmation that all the information that has been requested or that could significantly affect the findings or the conclusion of the audit report has been provided. In the event that these documents are signed by anyone other than the parties indicated above, the audit team should ask to obtain documentary evidence of delegation of signing authority from the entity.

In some cases, an entity may disagree with statements made in the draft audit report. At the meetings held between the team and entity, efforts are made to resolve the disagreements. If an agreement cannot be reached, the dispute is immediately referred to the assistant auditor general. If the issue remains unresolved, it may be referred to the Auditor General. These matters may be mentioned in the main text of the audit report if they are not resolved by the time the transmission draft is issued.

OAG Audit 8060 Third-party references explains the process of reviewing the validity and completeness of facts with individuals or organizations that are referred to in the audit report but are not audited entities. This is done at the PX draft stage.

The entity may request to receive the PX draft and the Transmission draft in only one official language or may request to receive the drafts in both languages. If the entity requests the drafts in both languages, they must be sent at the same time. The audit team needs to know this early in the audit so timelines (T-minus dates) can be adjusted accordingly to allow the OAG’s Editorial Services and Translation team time to provide translation services. For performance audits, it is mandatory to send the PX draft to Editorial Services for a substantive edit before sending it to the entity. Such an edit may also be needed for a special examination, unless the engagement leader determines that the draft is acceptable and it can be sent to the entity without editing.

Written confirmation that all information requested has been provided

The cover letter sent to the entity with the PX draft requests the following:

• the entity’s comments on the PX draft,

• the entity’s responses to recommendations, and

• written confirmation that the entity has provided all information of which it is aware that has been requested or that could significantly affect the findings or the conclusion of the report (with the exception of information classified as a Cabinet confidence).

A standard response is provided as an example in the PX draft letter to the audited entity.

In the event that the audited entity does not provide such written confirmation, or if there is doubt about the reliability of it, the engagement leader must consider the effect, if any, on the audit work and report and document his or her assessment. In doing so, the audit team should discuss the issue with entity officials in order to understand the nature of the entity’s refusal to provide this confirmation.

The written confirmation has to be obtained before the date of the report. However, if the team is unable to obtain this confirmation, production of the transmission report should not be delayed. The team should proceed with dating the report and disclose in the report, with an appropriate explanation, the fact that this confirmation, required by audit standards, has not been obtained.  Detailed information is found in OAG Audit 8017 Report content approval and date of the report.

Report content approval and date of the report

Before sending the transmission draft to the deputy minister (performance audit) or the audit committee (special examination), the audit team needs to obtain the approval on the report content, and must also date the audit report. Detailed information on this subject is found in OAG Audit 8017 Report content approval and date of the report.

From the end of the period covered by the audit until the date of the report, the audit team must remain alert to any evidence or events that may indicate that the findings and conclusions in the draft audit report are incorrect and consider impacts of subsequent events on the content of the audit report (OAG Audit 8030 Subsequent events).

The transmission draft

For special examinations, the transmission draft refers to the audit committee (AC) draft.

The transmission draft includes changes resulting from the entity’s review of the PX draft and discussions between the entity and audit team, as well as the entity’s responses to recommendations. This draft also incorporates any additional feedback received from internal specialists on difficult or contentious matters or other matters requiring specialized knowledge or experience. The team will then discuss the transmission draft with the Auditor General (OAG Audit 2040 Discussions with the Auditor General) before issuing it to the entity’s deputy head for a performance audit or to the chair of the audit committee for a special examination.

The transmission draft is very close to the final version of the audit report and subsequent changes should be limited. As with the principal’s draft, the transmission draft is a controlled document and the team follows the OAG’s procedures, as described in OAG Audit 9020 Management of controlled documents.

The cover letter sent with the transmission draft is signed by the engagement leader and, in the case of performance audits, includes an offer to meet with the deputy head to discuss the audit results.

In response to the transmission draft, within two weeks of receipt, the entity’s deputy head (for performance audits) or the chair of the audit committee (for special examinations) confirms in writing that

• the audit report is factually accurate—or gives the reasons for any disagreement, and
• the entity’s responses to recommendations are final (OAG Audit 8020 Recommendations and entity responses).

If the team is unable to obtain this sign-off, the report should indicate this to the reader. This would typically be done by removing,  in the “About the Audit” section, the affirmation that we obtained from entity management the confirmation that the audit report is factually accurate. A sentence would typically be added instead (e.g. “Although every effort was made to obtain management’s confirmation that the audit report is factually accurate, we did not obtain such a confirmation.”) The team might also consider being more specific and explaining what findings the entity disagrees with and its rationale.

From the date of the report to the time the report is made public, the audit team must remain alert to any facts or events that might have influenced the conclusion of the audit report had they been known earlier. If events occur after the date of the report, audit teams are not required to perform any procedures regarding the underlying subject matter, but should consider their impact (OAG Audit 8030 Subsequent events for performance audits and OAG Audit 8095 Submitting the special examination report to the board of directors and making it public for special examinations).

Providing copies of performance audit reports after the transmission draft

The engagement leader decides whether an advance copy of the final audit report will be provided to audited entities. The main consideration is how much the final report has changed from the transmission draft signed by the entity or entities. For this reason, entities should not expect that advance copies will necessarily be provided for all reports. The engagement leader should make it clear that the advance copy is provided to help the entity prepare for tabling, and not to invite the entity’s additional comments.

Requests should come from chief audit executives or their offices. CODI should be used for this purpose. In response to requests by entities, teams may provide a maximum of two hard copies of OAG-controlled documents for use by the deputy head and the Minister. These copies should be returned to the Office along with the other hard copies that were provided as part of the audit.

Teams should get their report copies from Editorial Services to ensure that they have the latest versions.

Audit teams should not provide advance copies to entities other than those audited, the Treasury Board Secretariat, or the Privy Council Office.

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