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4100 Special Examination Plan
Jul-2020
Overview
The OAG informs the audited entity of the audit plan (including the audit objective, criteria, and scope and approach) and requests that the head of each audited corporation formally acknowledge the suitability of the criteria as a basis for assessing the subject matter and concluding on the objective. This is done through a document called the special examination plan.
The audit team also submits the special examination plan to the Crown corporation’s audit committee and meets with the committee to discuss the plan.
CSAE 3001 Requirements
24. The practitioner shall accept or continue a direct engagement only when: (Ref: Para. A31-A34)
[...]
(c) The basis upon which the engagement is to be performed has been agreed, through:
[...]
(ii) Confirming that there is a common understanding between the practitioner and the engaging party of the terms of the engagement, including the practitioner’s reporting responsibilities.
29. The practitioner shall agree the terms of the engagement with the engaging party. The agreed terms of the engagement shall be specified in sufficient detail in an engagement letter or other suitable form of written agreement, written confirmation, or in law or regulation. (Ref: Para. A55-A57)
30. The practitioner shall seek the responsible party’s written acknowledgement of responsibility for the underlying subject matter. If the practitioner does not obtain such acknowledgement, the practitioner shall:
(a) obtain other evidence that the responsible party is responsible for the underlying subject matter, such as a reference to legislation or a regulation; and
(b) consider how the lack of the responsible party’s written acknowledgement might affect the practitioner’s work and conclusion.
31. The practitioner shall seek to obtain from the responsible party, written acknowledgement that the criteria are suitable for the engagement. When such acknowledgement cannot be obtained, the practitioner shall consider the effect, if any, on the practitioner’s work and report.
33. The practitioner shall not agree to a change in the terms of the engagement where there is no reasonable justification for doing so. If such a change is made, the practitioner shall not disregard evidence that was obtained prior to the change. (Ref: Para. A58)
47. If it is discovered after the engagement has been accepted that one or more of the applicable criteria are unsuitable, the practitioner shall, if practicable, revise the criteria and seek acknowledgement from the responsible party that the revision is appropriate. When such an acknowledgement cannot be obtained, the practitioner shall consider the effect, if any, on the practitioner’s work and report.
CSAE 3001 Application Material
A55. It is in the interests of both the engaging party and the practitioner that the practitioner communicates in writing the agreed terms of the engagement before the commencement of the engagement to help avoid misunderstandings. The form and content of the written agreement or contract will vary with the engagement circumstances. For example, if law or regulation prescribe in sufficient detail the terms of the engagement, the practitioner need not record them in a written agreement, except for the fact that such law or regulation applies and that the appropriate party acknowledges and understands its responsibilities under such law or regulation.
A56. In certain types of engagement, agreeing on the terms and conditions of the engagement may be done before the commencement of the engagement using an engagement letter. For other types of engagement (such as performance audits in the public sector), the details typically included in an engagement letter (such as the engagement objective, scope and criteria to be used) are known only at the end of the initial planning phase. In such cases, agreement on the terms of the engagement is obtained from the appropriate party at the end of the initial planning phase.
A57. Law or regulation, particularly in the public sector, may mandate the appointment of a practitioner and set out specific powers, such as the power to access an appropriate party(ies)’s records and other information, and responsibilities, such as requiring the practitioner to report directly to a minister, the legislature or the public if an appropriate party(ies) attempts to limit the scope of the engagement.
A85.Planning involves the engagement partner, other key members of the engagement team, and any key practitioner’s external experts developing an overall strategy for the scope, emphasis, timing and conduct of the engagement, and an engagement plan, consisting of a detailed approach for the nature, timing and extent of procedures to be performed, and the reasons for selecting them. [...]
A86.The practitioner may decide to discuss elements of planning with the appropriate party(ies) to facilitate the conduct and management of the engagement (for example, to coordinate some of the planned procedures with the work of the appropriate party(ies)’s personnel). Although these discussions often occur, the overall engagement strategy and the engagement plan remain the practitioner’s responsibility. When discussing matters included in the overall engagement strategy or engagement plan, care is required in order not to compromise the effectiveness of the engagement. For example, discussing the nature and timing of detailed procedures with the appropriate party(ies) may compromise the effectiveness of the engagement by making the procedures too predictable.
A87.Planning is not a discrete phase, but rather a continual and iterative process throughout the engagement. As a result of unexpected events, changes in conditions, or evidence obtained, the practitioner may need to revise the overall strategy and engagement plan, and thereby the resulting planned nature, timing and extent of procedures.
A165.The assurance report identifies the applicable criteria against which the underlying subject matter was measured or evaluated so the intended users can understand the basis for the practitioner’s conclusion. The assurance report may include the applicable criteria, or refer to them if they are otherwise available from a readily accessible source. It may be relevant in the circumstances, to disclose:
- The source of the applicable criteria, and whether or not the applicable criteria are embodied in law or regulation, or issued by authorized or recognized bodies of experts that follow a transparent due process; that is, whether they are established criteria in the context of the underlying subject matter (and if they are not, a description of why they are considered suitable). [...]
Financial Administration Act Requirements for Special Examinations
Section 138(3) Before an examiner commences a special examination, he shall survey the systems and practices of the corporation to be examined and submit a plan for the examination, including a statement of the criteria to be applied in the examination, to the audit committee of the corporation, or if there is no audit committee, to the board of directors of the corporation.
Section 138(4) Any disagreement between the examiner and the audit committee or board of directors of a corporation with respect to a plan referred to in subsection (3) may be resolved
(a) in the case of a parent Crown corporation, by the appropriate Minister; and
(b) in the case of a wholly-owned subsidiary, by the parent Crown corporation that wholly owns the subsidiary.
OAG Policy
The audit team shall
- submit the special examination plan to the Crown corporation’s management and to its audit committee, and
- inform the Crown corporation’s management and its audit committee of any subsequent significant changes to the special examination plan. [Nov-2016]
As part of the letter sent to the head of the Crown corporation with the special examination plan, the audit team shall seek the entity management’s acknowledgement of the suitability of the audit criteria. When the audit team is unable to obtain such acknowledgement, the engagement leader shall consider the effect, if any, on the audit work and the audit report, and document the assessment. [Nov-2016]
OAG Guidance
What the CSAE 3001 means for the special examination plan
The Financial Administration Act (FAA) requires the audit team to submit a plan for the examination to the audit committee before starting the examination phase of the audit. According to OAG policy, the audit objective, scope, approach, criteria, and their sources are to be included in the special examination plan submitted to the audit committee.
CSAE 3001 requires the audit team to seek the audited entity’s written acknowledgement of responsibility for the subject under audit and written acknowledgement that the criteria are suitable for the audit. This reduces the risk of disputes with the entity over the terms of the engagement later in the audit process.
The requirement to seek a written acknowledgement that the criteria are suitable for the audit is reflected in the cover letter accompanying the special examination plan that is sent to the head of the Crown corporation at the end of planning phase. The audited entity acknowledges that the criteria set out in the document are suitable as a basis for assessing the subject matter and concluding on the audit objective. CSAE 3001 requires that the audit team seeks acknowledgment that the entity understands the terms of the performance audit. Seeking such acknowledgment may help to avoid misunderstandings. Entity management’s acknowledgement of responsibility for the subject matter and the terms of the engagement is provided earlier in the audit process as part of the response to the engagement letter (see OAG Audit 2030 Communication with the entity: initial and ongoing).
Drafting the special examination plan
When preparing a special examination plan, the audit team must use the OAG-approved template. The template’s content may be modified according to the professional judgment of the engagement leader to address the information needs of the entity’s senior management and/or the audit committee. However, the audit team must ensure that any modifications to the audit plan do not compromise compliance with CSAE 3001 requirements.
The special examination plan communicates the terms of the engagement to the audited entity. It includes key information from the audit logic matrix (OAG Audit 4044 Developing the audit strategy: audit logic matrix), including a summary of the risks identified, the audit objective (OAG Audit 4041 Audit objective), and scope and approach (OAG Audit 4042 Audit scope and approach), as well as selected systems and practices, audit criteria, and their sources (OAG Audit 4043 Audit criteria). The objective of the special examination plan is to provide sufficient information to enable entity management and the members of the audit committee to understand the specific terms of the engagement and acknowledge the suitability of the audit criteria. In order to ensure the Crown corporation has a clear understanding of the basis upon which they will be examined, the engagement leader may wish to consider including audit questions in the special examination plan and encouraging the corporation’s management to review the source materials of the criteria.
Once the special examination plan is drafted, it should be reviewed and approved by the engagement leader after having been discussed with internal and external specialists according to the consultation process in place (OAG Audit 3081 Consultations). The engagement leader, in consultation with the assistant auditor general, may also decide that the Auditor General’s input will be sought on the scope of the engagement.
In most cases, information in the special examination plan will later be included in the About the Audit section of the audit report (OAG Audit 7030 Drafting the audit report). Note that the draft special examination plan sent to the head of the Crown corporation might be treated as a controlled document, if the engagement leader deems it necessary (OAG Audit 9020 Management of controlled documents).
Communicating the special examination plan to the Crown corporation
The draft special examination plan is communicated to the Crown corporation’s management for review and comments before it is finalized. Communicating the draft special examination plan to the Crown corporation’s management allows for a common understanding of the areas the audit team will examine and why, and provides an opportunity for management to comment on the content of the plan, including the criteria, before submission to the audit committee.
The engagement leader must take into account the comments obtained from the Crown corporation’s management, and review and approve the final special examination plan before sending it to the head of the Crown corporation and to the audit committee. The plan is accompanied by a transmission letter that includes an “acknowledgement letter template” to be used by the head of the corporation in order for him or her to acknowledge that the criteria are suitable for the audit. It is important to note that this step does not delay progress on the audit—including, in some cases, early examination work. This should be made clear to the entity from the outset. However, the examination phase of the special examination does not start before the final plan is submitted to the audit committee.
The audit team will also meet with the audit committee to discuss the special examination objective, the scope, approach, and the criteria against which the corporation’s systems and practices will be measured, the expected timing of key communication and phases of the special examination, and any questions the audit committee may have concerning the special examination plan. The team should consolidate and record significant comments received from the audit committee and how they were resolved.
If the audit team decides that there should be changes to the plan as a result of obtaining audit committee input, it will resubmit the plan (if the changes are significant), or submit an addendum to the audit committee, and meet again as appropriate.
Changes to the terms of the engagement after the plan was sent to the entity
Sometimes in the course of the examination phase, circumstances require changes to be made to the audit plan, to the criteria, to the examination approach, or to audit resources. These changes and their rationale are documented in the audit file and approved by the engagement leader, discussed with the quality reviewer (if any), and if significant, communicated to the audited entity.
When the audit team modifies the applicable criteria, the audit team may consider it necessary to seek acknowledgment of the change from the entity to avoid misunderstandings.
If a disagreement between the audit team and the audit committee arises, it should be resolved with reference to section 138(4) of the FAA.
The practitioner should not agree to a change in the terms of the engagement if there is no reasonable justification for doing so.
Unresolved differences
If there is a disagreement regarding the acknowledgement of the suitability of the audit criteria, or if the entity fails to respond to the special examination plan, the engagement leader must deal with these matters immediately.
The engagement leader and audit team work closely with entity management to reach a resolution. If the disagreement is not resolved or a suitable response is not received, the engagement leader, in consultation with the assistant auditor general, takes the issue to the Auditor General in order to decide on further action.
If the disagreement persists and the audit is pursued, the engagement leader will consider and document the effects on the audit work and the report. Any such disagreement related to the suitability of the audit criteria must be disclosed in the audit report, typically in the About the Audit section (OAG Audit 7030 Drafting the audit report).