4.1 This Report contains chapters that describe the results of audit work and studies completed by the Office during the past year.
4.2 The purpose of this chapter is to provide some background on a few key features of the audit process, including what the Office considers when deciding what programs or activities to audit. Information on the cost of audit work in Crown corporations is also included.
4.3 A more complete description of the activities and costs of the Office, and its organization and staff, is shown in its Part III of the Estimates for 2004-05.4.4 A long-range audit plan is prepared for all departments, multidepartmental programs, and a number of functions that are common across government, such as internal audit and program evaluation. This plan normally covers a five-year period and identifies the proposed approach to completing the annual financial attest, compliance with authority, and value-for-money audit work required for a comprehensive audit of the entity.
4.5 The plan lays out a proposed cycle for audit work for each entity. These proposed cycles vary according to the nature of the entity, its level of expenditure and importance in government operations, and the resources available to carry out the audit. The Office's approach does not call for all operations of an entity to be audited within a fixed audit cycle. The principles of audit worthiness and auditability are fundamental in deciding what to audit.
4.6 Some issues are such that they are included in all entity audits. For example, in every audit, the Office considers the quality of reporting by a department or agency on its stewardship of the resources voted by Parliament, and on the results achieved with those resources. There are other issues on which the Office exercises its judgment as to what it believes is important to Canadians at a given time. An example is the Office's concern that Canadians receive better information about the deficit and accumulated debt.
4.7 In assessing whether something is worth auditing, the Office looks at the significance of an entity or activity, including both its impact on government spending and revenue and the social, economic, environmental, safety or equity issues involved. The risk factor is another important consideration in assessing audit worthiness. The Office assesses the possibility that an undesirable result might occur, and what its consequences might be.
4.8 A further aspect of judging audit worthiness is sensitivity to the general political and managerial climate. The Office wants its work to be as timely and relevant as possible. For example, it must determine whether the area under consideration is the subject of current public attention. If it is, then the Office will determine whether an audit at that time could produce additional independent information to Parliament. If not, the audit would probably be delayed. The Office must at all times remain - and be seen to remain - independent and objective.
4.9 Another fundamental consideration is auditability, or whether a particular audit is possible. This involves consideration of such questions as the following:
- Does the proposed area fall within the Office's audit mandate?
- Can the Office obtain sufficient evidence to reach an objective conclusion on the audit area?
- Can the Office assemble the expertise needed to carry out the audit successfully?
- Does the Office have the resources needed to conduct the audit in accordance with generally accepted auditing standards?
4.10 A proposed audit area must meet the tests of being both audit worthy and auditable to be selected for audit.
Ensuring Audit Quality
4.11 Once an area has been selected for audit, the Office establishes an advisory committee to provide advice throughout the course of the audit. These committees usually have advisors from outside the Office and the public service, as well as from inside the Office.
4.12 Advisors are chosen to bring the perspectives and experiences of managers or auditors of similar entities, or of persons knowledgeable in the area under audit, or of others affected by the operations of the entity. External advisors have included former members of Parliament and deputy ministers, business executives, academics, representatives of client groups, and recognized subject-matter experts.
4.13 The purpose of these advisory committees is to provide advice and guidance on matters such as audit scope, criteria, methodology, the reasonableness of observations and recommendations, and the overall presentation of the report. In short, these committees guide, review and challenge the work of audit teams over the life of an audit.
4.14 For this year's Report, the Office used 76 outside advisors based on their current or former positions in a variety of professions, including:
4.15 Observations, conclusions and recommendations are presented to entity management before an audit chapter is finalized. This permits the Office to obtain confirmation of audit facts, and management's reaction to the chapter. Management responses are included in the final report. This process serves to highlight any areas of agreement or disagreement on any conclusions or recommendations emerging from an audit.
4.16 This process is applied to all audits and reports to create an end product of the highest quality possible, in terms of both the way an audit is conducted and how it is reported. It also permits the Public Accounts Committee to focus on the issues raised in a chapter.
Costs of Crown Corporation Audits4.17 Section 147 of the Financial Administration Act requires that the Office disclose the costs of preparing audit reports on all Crown corporations other than those exempted under section 85 of the Act (see Exhibit 4.2). An audit report includes an opinion on a corporation's financial statements and on its compliance with specified authorities. It may also include reporting on any other matter deemed significant.
4.18 The Office is also required by section 68 of the Broadcasting Act to report the cost of any audit report on the Canadian Broadcasting Corporation. For the fiscal year ended 28 February 2005, the full cost of the annual audit report was $634,070.
4.19 Section 138 of the Financial Administration Act requires that, at least once every five years, each parent Crown corporation named in Schedule III of the Act undergo a special examination. This is distinct from the requirement for the annual audit of financial statements.
4.20 The objective of a special examination is to determine whether a corporation's financial and management control and information systems and its management practices provide reasonable assurance that:
- assets have been safeguarded and controlled;
- financial, human and physical resources have been managed economically and efficiently; and
- operations have been carried out effectively.