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8019 Submitting the Principal’s (PX) Draft and Transmission Draft
Nov-2018
Overview
In the reporting phase, the audit team formally presents drafts of the audit report to audited entities: first the principal’s (PX) draft, and then the transmission draft, the near final version of the audit report that is issued to the deputy head for performance audit or to the audit committee of the corporation for special examination. Both drafts incorporate the results of discussions with entities and extensive review within the OAG, including a review to ensure that there is sufficient appropriate evidence to support the findings and conclusions in the audit report. The OAG has a process for ensuring that these reviews take place and that comments are addressed.
CSAE 3001 Requirements
- The practitioner shall request from the appropriate party(ies) a written representation that it has provided the practitioner with all information of which the appropriate party(ies) is aware that has been requested or that could significantly affect the findings or the conclusion of the assurance report. (Ref: Para. A52-A53 and A137-A139)
- If, in addition to required representations, the practitioner determines that it is necessary to obtain one or more written representations to support other evidence relevant to the underlying subject matter, the practitioner shall request such other written representations.
- When written representations relate to matters that are significant to the underlying subject matter, the practitioner shall:
(a) Evaluate their reasonableness and consistency with other evidence obtained, including other representations (oral or written); and
(b) Consider whether those making the representations can be expected to be well-informed on the particular matters.
- The date of the written representations shall be as near as practicable to, but not after, the date of the assurance report.
- If one or more of the requested written representations are not provided or the practitioner concludes that there is sufficient doubt about the competence, integrity, ethical values, or diligence of those providing the written representations, or that the written representations are otherwise not reliable, the practitioner shall: (Ref: Para. A140)
(a) Discuss the matter with the appropriate party(ies);
(b) Reevaluate the integrity of those from whom the representations were requested or received and evaluate the effect that this may have on the reliability of representations (oral or written) and evidence in general; and
(c) Take appropriate actions, including determining the possible effect on the conclusion in the assurance report.
- The assurance report shall include at a minimum the following basic elements:
[...]
(n) The date of the assurance report. The assurance report shall be dated no earlier than the date on which the practitioner has obtained the evidence on which the practitioner’s conclusion is based including receipt of the written representations under paragraphs 61 and 62. (Ref: Para. A183)
[...]
CSAE 3001 Application Material
A52. Seeking the agreement of the appropriate party(ies) that it acknowledges and understands its responsibility to provide the practitioner with the following may assist the practitioner in determining whether the engagement exhibits the characteristic of access to evidence:
(a) Access to all information of which the appropriate party(ies) is aware that is relevant to the engagement, such as records, documentation and other matters;
(b) Additional information that the practitioner may request from the appropriate party(ies) for the purpose of the engagement; and
(c) Unrestricted access to persons from the appropriate party(ies) from whom the practitioner determines it necessary to obtain evidence.
A53. The nature of relationships between the responsible party and the engaging party may affect the practitioner’s ability to access records, documentation and other information the practitioner may require as evidence to complete the engagement. The nature of such relationships may therefore be a relevant consideration when determining whether or not to accept the engagement. Examples of some circumstances in which the nature of these relationships may be problematic are included in paragraph A140.
A137. Written confirmation of oral representations reduces the possibility of misunderstandings between the practitioner and the appropriate party(ies). The person(s) from whom the practitioner requests written representations will ordinarily be a member of senior management or those charged with governance depending on, for example, the management and governance structure of the appropriate party(ies), which may vary by jurisdiction and by entity, reflecting influences such as different cultural and legal backgrounds, and size and ownership characteristics.
A138. Other written representations requested may include the following:
- That the appropriate party(ies) has communicated to the practitioner all deficiencies in internal control relevant to the engagement that are not clearly trivial and inconsequential of which the appropriate party(ies) is aware; and
- That the responsible party acknowledges responsibility for the underlying subject matter.
A139. Representations by the appropriate party(ies) cannot replace other evidence the practitioner could reasonably expect to be available. Although written representations provide necessary evidence, they do not provide sufficient appropriate evidence on their own about any of the matters with which they deal. Furthermore, the fact that the practitioner has received reliable written representations does not affect the nature or extent of other evidence that the practitioner obtains.
A140. Circumstances in which the practitioner may not be able to obtain requested written representations include, for example, when:
- An intended user engages the practitioner to undertake an assurance engagement on the underlying subject matter but does not have a relationship with the responsible party of the kind necessary to ensure that party responds to the practitioner’s request for a written representation.
- The assurance engagement is undertaken against the wishes of the responsible party. This may be the case when, for example, the engagement is undertaken pursuant to a court order, or a public sector practitioner is required by the legislature or other competent authority to undertake a particular engagement.
In these or similar circumstances, the practitioner may not have access to the evidence needed to support the practitioner’s conclusion. [...]
A183. Including the assurance report date informs the intended users that the practitioner has considered the effect on the assurance report of events that occurred up to that date.
OAG Policy
Draft audit reports shall be submitted to entities to allow for entity input prior to finalizing the reports for publication or submission to the Board of Directors. [Nov-2016]
The engagement leader shall attend meetings with senior entity officials, during which the content of the audit report is discussed. [Nov-2015]
Audit teams shall document changes to draft reports (PX and transmission drafts) proposed by the audited entity, the quality reviewer, the internal specialists, as well as external advisors and prepare a disposition table thereafter. [Nov-2015]
The engagement leader shall 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. When such confirmation cannot be obtained, the engagement leader shall consider the effect, if any, on the audit work and audit report and document the assessment. [Nov-2016]
OAG Guidance
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. This written representation shall be obtained as close to the date of the report as possible. Given 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 by 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 quality reviewer (QR) also reviews the audit file before the PX draft is sent to the entity. OAG Audit 3063 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 the statements identified in the audit report have been substantiated (OAG Audit 7060 Substantiation); and that differences of opinion with those consulted have been resolved.
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 DM 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:
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the entity’s comments on the PX draft,
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the entity’s responses to recommendations, and
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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 (OAG Audit 8017 Report content approval and date of the report). If the team is unable to obtain this confirmation, however, 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.
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 and OAG Audit 8095 Submitting the special examination report to the board of directors and making it public).
The transmission draft
For performance audits, the transmission draft refers to the deputy minister (DM) draft, while for special examinations it 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 adding a sentence in the “About the Audit” section (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).
Special examinations
The transmission report is sent to the audit committee for discussion prior to submitting it to the board of directors. The purpose of this review is to allow members of the audit committee to ask questions to the engagement leader that will help them understand the report and subsequently provide advice to the board of directors. The OAG encourages the audit committee to play an active role in reviewing and assessing the adequacy of responses to recommendations and in providing feedback.
The engagement leader will attend the audit committee meeting and discuss the content of the special examination report. After the meeting, a disposition table should be prepared by the engagement team to document the significant issues noted, including any disagreements and how they were resolved.
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 unless requests for such copies have been discussed and approved by the Performance Audit Practice Management Committee.
Next steps
Performance audits
Before publishing a final report, the OAG provides entities with the opportunity to review and comment on draft audit reports and to validate facts.
About three weeks before tabling, the Auditor General (or the Commissioner of the Environment and Sustainable Development) sends a letter to the minister responsible for the entity, copied to the deputy head, offering to meet to discuss the report within two weeks before tabling.
Special examinations
The team will revise the draft report to reflect the feedback received from the audit committee and, at least one week in advance of the meeting, will provide the final special examination report and transmittal letter in both official languages to the Crown corporation’s board of directors. See OAG Audit 8095 Submitting the special examination report to the board of directors and making it public.