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2020 Significance
Nov-2015
Overview
The concept of significance is a matter of professional judgment that is integrated into all aspects of an audit: when selecting performance audits and when performing an engagement (whether it is a performance audit or a special examination) from the planning phase to the reporting phase.
CSAE 3001 Requirements
49. The practitioner shall consider significance when: (Ref: Para. A90-A98)
(a) Planning and performing the assurance engagement, including when determining the nature, timing and extent of procedures; and
(b) Evaluating whether the underlying subject matter is free from significant deviation.
CSAE 3001 Application Material
A90. Professional judgments about significance are made in light of surrounding circumstances, [...] because significance is based on the information needs of intended users.
A91. The applicable criteria may discuss the concept of significance and thereby provide a frame of reference for the practitioner in considering significance for the engagement. Although applicable criteria may discuss significance in different terms, the concept of significance generally includes the matters discussed in paragraphs A90-A98. If the applicable criteria do not include a discussion of the concept of significance, these paragraphs provide the practitioner with a frame of reference.
A92. Deviations, including omissions, are considered to be significant if they, individually or in the aggregate, could reasonably be expected to influence relevant decisions of intended users taken on the basis of the practitioner’s report. The practitioner’s consideration of significance is a matter of professional judgment, and is affected by the practitioner’s perception of the common information needs of intended users as a group. In this context, it is reasonable for the practitioner to assume that intended users:
(a) Have a reasonable knowledge of the underlying subject matter, and a willingness to study the underlying subject matter with reasonable diligence;
(b) Understand that the practitioner has applied the concept of significance in measuring or evaluating and obtaining assurance regarding the underlying subject matter, and have an understanding of any significance concepts included in the applicable criteria;
(c) Understand any inherent uncertainties involved in the measuring or evaluating the underlying subject matter; and
(d) Make reasonable decisions on the basis of the underlying subject matter taken as a whole.
Unless the engagement has been designed to meet the particular information needs of specific users, the possible effect of deviations on specific users, whose information needs may vary widely, is not ordinarily considered (see also paragraphs A19–A20).
A93. Significance is considered in the context of qualitative factors and, when applicable, quantitative factors. The relative importance of qualitative factors and quantitative factors when considering significance in a particular engagement is a matter for the practitioner’s professional judgment. Materiality and significance are considered similar concepts for the purpose of this CSAE.
A94. Qualitative factors may include such things as:
- The number of persons or entities affected by the subject matter.
- The interaction between, and relative importance of, various components of the underlying subject matter when it is made up of multiple components, such as when the practitioner’s report includes numerous performance indicators.
- The wording chosen with respect to information that is expressed in narrative form.
- The nature of a deviation, for example, the nature of observed deviations from a control relevant to the underlying subject matter.
- Whether a deviation affects compliance with law or regulation.
- Whether a deviation is the result of an intentional act or is unintentional.
- Whether a deviation is significant having regard to the practitioner’s understanding of known previous communications to users, for example, in relation to the expected outcome of the measurement or evaluation of the underlying subject matter.
- Whether a deviation relates to the relationship between the responsible party, and the engaging party or their relationship with other parties.
- When a threshold or benchmark value has been identified, whether the result of the procedure deviates from that value.
- When the underlying subject matter is a governmental program or public sector entity, whether a particular aspect of the program or entity is significant with regard to the nature, visibility and sensitivity of the program or entity.
- When the engagement is intended to provide a conclusion on compliance with law or regulation, the seriousness of the consequences of non-compliance.
A95. Quantitative factors relate to the magnitude of deviations, if any, that are:
- Expressed numerically; or
- Otherwise related to numerical values (for example, the number of observed deviations from a control).
A96. When quantitative factors are applicable, planning the engagement solely to detect individually significant deviations overlooks the aggregate effect of detected individually insignificant deviations or possible undetected deviations. It may therefore be appropriate when planning the nature, timing and extent of procedures for the practitioner to determine a quantity less than significance as a basis for determining the nature, timing and extent of procedures.
A97. Significance relates to the information covered by the assurance report. Therefore, when the engagement covers some, but not all, aspects of the information communicated about an underlying subject matter, significance is considered in relation to only that portion that is covered by the engagement.
A98. Concluding on the significance of the deviations identified as a result of the procedures performed requires professional judgment. For example:
- The applicable criteria for a performance audit for a hospital’s emergency department may include the speed of the services provided, the quality of the services, the number of patients treated during a shift, and benchmarking the cost of the services against other similar hospitals. If three of these applicable criteria are satisfied but one applicable criterion is not satisfied by a small margin, then professional judgment is needed to conclude whether the hospital’s emergency department represents value for money as a whole.
- In a compliance engagement, the entity may have complied with nine provisions of the relevant law or regulation, but did not comply with one provision. Professional judgment is needed to conclude whether the entity complied with the relevant law or regulation as a whole. For example, the practitioner may consider the importance of the provision with which the entity did not comply, as well as the relationship of that provision to the remaining provisions of the relevant law or regulation.
OAG Policy
The audit team shall select issues on the basis of their significance, their relevance to the OAG’s mandate, and shall ensure that significance is considered when evaluating whether the subject matter of the audit is free from significant deviation. [Nov-2015]
OAG Guidance
What CSAE 3001 means for significance
CSAE 3001 requires that the audit team considers the concept of significance when planning and performing the assurance engagement, and also to consider it when evaluating whether the underlying subject matter is free from significant deviation (i.e. when the underlying subject matter does not conform to the applicable criteria).
The audit team’s consideration of significance is a matter of professional judgment and is affected by the perception of the common information needs of intended users as a group. It requires a good knowledge of the audited entity and an understanding of risks.
The concept of significance is considered in the context of qualitative factors (for example, a particular aspect of a program or entity that is significant regarding the nature, visibility, and sensitivity of the program or entity) and, when applicable, quantitative factors (for example, the importance of the budget allocated to a program).
Significance in selecting performance audits
As stated in subsection 7(2) of the Auditor General Act, “the Auditor General shall call attention to anything that he considers to be of significance and of a nature that should be brought to the attention of the House of Commons . . .”
Successful performance audits have considerable impact. They provide information to Parliament that is useful for it to carry out its oversight responsibilities. The audit and their recommendations result in changes by government where improvements are needed (Exhibit 1—Mission for performance audits in OAG Audit 101 Overview of Performance Audits).
OAG Audit 1510 Selection of performance audit topics describes the OAG’s long-range planning process for its audit products and how the OAG selects topics for audit based on its mission to audit significant matters and report what it finds.
Significance in performing an engagement (whether it is a performance audit or a special examination)
The concept of significance must also be considered when performing an audit and should be considered throughout the audit process, from the planning phase to the reporting phase.
During the planning phase of an audit, when the team conducts research to gain an understanding of the entity and subject matter to inform their audit approach and scoping decisions, the team should assess whether the subject matter is free from significant deviation. This is done during the risk assessment. OAG Audit 4020 Risk assessment explains how to assess subject matter risks (to decide on the focus of the audit and approach to be taken) and how to assess and manage the engagement risk (to ensure that the audit team is able to form a reasonable assurance conclusion).
The OAG’s guidance set out in OAG Audit 4042 Audit scope and approach also describes the importance of selecting the significant matters at the early stage of an audit to ensure its efficiency and effectiveness. The guiding principle in scoping an audit is selecting matters of significance that should be brought to the attention of Parliament or to the Crown corporation.
During the examination phase of an audit, the team should always use its professional judgement and remain alert about possible deviation, including omissions while collecting findings. Omissions could be considered significant and could have an impact on the conclusion of the audit report, with the risk of not properly concluding against the objective of the audit. For further information on audit conclusions, see OAG Audit 7040 Audit conclusion.
During the reporting phase of an audit, the team must decide which audit findings are significant enough to report in the audit report. Decisions are guided by the audit objectives and based on the causes and consequences of the findings that are of interest to parliamentarians or to the board of directors of the Crown corporation (OAG Audit 7030 Drafting the audit report).