25.2 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 will be audited. Information on the cost of audit work in Crown corporations is also included in paragraph 25.21 and Exhibit 25.2 .
25.3 A description of the organization structure and other activities of the Office will be shown in its Part III of the Estimates for 1993-94. This Part III will be tabled in February 1993. A summary organization chart is contained in Exhibit 25.1 .
25.5 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. One department, for example, because of its size, may be on a 15-year cycle, while another can be covered in 5 to 9 years. A larger department may have more sophisticated control mechanisms, such as internal audit. Where these are functioning effectively, the need for the Office to audit various operations of the department on a more frequent cycle is reduced.
25.6 The Office's approach does not call for all operations of an entity to be audited within a particular audit cycle. The principles of audit worthiness and auditability are fundamental in deciding what to audit.
25.7 In assessing whether something is worth auditing, the Office looks at the significance of an entity or activity, including the social, economic, environmental, safety or equity impacts involved. Chapter 21 (National Revenue-Taxation: Resolving Disputes on Income Tax Assessments) deals with an area that is relatively small in terms of departmental expenditures, but is high in importance because it involves fair treatment of the taxpayer.
25.8 The risk factor is another important consideration in assessing audit worthiness. Some programs involve a high level of discretion in decisions on the eligibility of recipients and the amount of benefits received. The risk associated with this type of program tends to be higher. Payroll-related activities are basically routine and traditionally considered to be low-risk. However, the cash-out program described in Chapter 7 (Payments to Employees Under the Work Force Adjustment Policy) is an example of a payroll-related activity that is relatively high-risk from an audit perspective.
25.9 A further point when judging audit worthiness is sensitivity to the general political and managerial climate. Is the area under consideration the subject of current public debate? If it is, then the Office would determine whether an audit at the time could produce additional independent information to Parliament that would be of use to the debate. If not, the audit would probably be delayed. The Office must at all times remain - and be seen to remain - independent and objective.
25.10 The second fundamental principle the Office must assess is auditability, or whether a particular audit is possible. This involves consideration of such questions as:
25.13 External advisors have included former Members of Parliament and deputy ministers, business executives, academics, representatives of client groups, and recognized subject matter experts.
25.14 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.
25.15 For this year's Report, the Office used 56 outside advisors, including:
11 university professors
8 former deputy ministers and assistant deputy ministers in federal and provincial governments
7 former senior military officers in the regular forces and senior officers in the reserves
6 management consultants
5 current and former senior business executives
3 senior officials from an audit office outside Canada
3 engineers
3 lawyers
2 accountants
2 economists
1 former federal Cabinet minister
1 former member of Parliament
1 psychologist
1 research scientist
1 chief of police
1 current assistant deputy minister in the federal government
25.16 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 reaction to the chapter. Management responses are included in the final draft. This process serves to highlight any areas of agreement or disagreement on any conclusions or recommendations emerging from an audit. It also permits the Public Accounts Committee to focus on the issues raised in a chapter.
25.17 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.
25.19 Section 138 of the FAA 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.
25.20 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: