3081 Consultations

Jun-2020

Importance of consultations

An important element of every assurance engagement is the formal and informal consultation that takes place within audit teams, between audit teams, and between audit teams and Office internal specialists or practice teams. Consultation reduces the risk of error and improves the application of professional judgment.

Engagement team members should apply their collective knowledge, skills, and experience in resolving minor difficulties and in completing the audit. Consultation between team members is advantageous for reaching sound conclusions and for staff development and training. Consultation between teams is also encouraged. Team members could benefit from the experience of colleagues having similar audit entities and/or similar accounting or audit issues.

The engagement leader and the team have to consider for each difficult or contentious matter whether the team has the expertise and experience to resolve the matter without consultation or whether there is a need to consult. The more complex or significant a matter is, and the greater the degree of judgment to be applied, the more likely it is that consultations with internal specialists are required. The engagement leader is expected to lead and be actively engaged in consultations, ensuring those consultations are properly documented, agreed to by the parties consulted, and that the conclusions are implemented.

Internal specialists must possess the required expertise and experience, including any formal professional accreditation, qualifications, and/or affiliation required to perform the role. Internal specialists are generally at the level of principal. Where an internal specialist team exists in the Office for a particular subject, the consultation is done with the specialist team. The Office has listed on the Intranet its specialists and others available for consultation.

Effective consultation with internal specialists and other professionals on significant and complex matters can be achieved when

• those consulted are given all the relevant facts that will enable them to provide informed advice;
• those consulted have appropriate knowledge, seniority, and experience; and
• conclusions resulting from consultations are appropriately documented and implemented.

A senior person on the engagement team should brief specialists and other professionals consulted on the issue.

Where consultations are escalated beyond the level of the individual assigned the role of an internal specialist, the escalation path typically follows that set out in OAG Audit 3082 Resolution of differences of opinion.

Implementation of the agreed position. On every formal consultation, it is important to establish that a meeting of the minds has occurred between the engagement team and the consultant. Best practice for formal consultations is to provide the consultation memorandum in sufficient time for the consultant to review it and for the engagement team to finalize all documentation and obtain sign off of the written documentation of both the facts and the definitive OAG conclusion, before communicating the conclusion to the entity.

Consulting outside the Office. It may be appropriate for the engagement team to consult outside the Office. It may take advantage of advisory services provided by other firms, professional and regulatory bodies, or commercial organizations that provide relevant services. When it uses an external consultant, the engagement team confirms the competence and capacities of the external consultant to determine whether the external provider is suitably qualified for that purpose. In addition, the terms of the consultation, including safeguarding client confidentiality, must be agreed to by the Office and the consultant before the work commences.

Types of consultations: formal and informal

Formal consultations. A consultation (which may also be referred to as a formal consultation) is a discussion in which the engagement team wants to obtain an objective view or receive guidance regarding a specific set of facts and circumstances. A formal consultation includes any consultation that an engagement team wants to reference in support of the audit opinion or report. Formal consultations also include those matters that require consultation under OAG policy. In addition, an engagement leader may designate any other matter as a formal consultation and follow the consultation and documentation protocols for a formal consultation.

In certain circumstances, technical reviews of audit work, financial statements, or reports are carried out by individuals or teams not connected with the performance of such work. The aim of these reviews is to bring an objective technical viewpoint to an aspect of the work before it is finalized. Criteria and procedures for this type of review are often determined by those reviewers and include conventions for recording and responding to review comments raised.

When minor points, which are not necessary to provide evidence of the procedures performed or to support conclusions on significant matters, are raised during the review process (e.g., formatting or other detailed observations), they do not need to be retained, unless required by the reviewers, documentation guidelines, or procedures. For such review arrangements, engagement teams follow the appropriate procedures and documentation guidance in place.

Informal consultations. Information consultations or inquiries are other types of discussions and are often limited to situations where the engagement team is looking for high-level conceptual guidance, such as a point me in the right direction or have you seen this type of question.

For example, the engagement team may wish to learn about or clarify its understanding of a matter before deciding whether formal consultation is necessary. This dialogue is a normal part of the audit process. Whether or not such inquiry needs to be documented is a matter of judgment. It may be documented, provided the documentation is clear regarding the nature of the inquiry, and that formal consultation guidance was neither sought, nor provided. This is because, unless a formal consultation process takes place, it cannot be assumed that those consulted have a proper understanding of the matter inquired about or the nature of factual information provided, or that both parties to the consultation have a clear understanding of the results of the dialogue. Such informal dialogue, therefore, provides weak audit evidence, if it is evidence at all, and cannot be regarded as a substitute for formal consultation.

If the engagement team wants to rely on a consultation they should follow the formal consultation protocols described in Documentation of consultations and conclusions. For example, discussions of issues or procedures with practice teams may be viewed as informal consultations if the teams seek only general advice or guidance. However, the practice teams consulted may request that a consultation be designated as formal consultation.

An internal specialist or other professional consulted may also request that a consultation that began as an inquiry be designated as formal consultation. In situations in which detailed facts or consultation memoranda are being provided, the nature of the analysis often extends well beyond what was anticipated for inquiries, and the engagement team should follow the formal consultation protocols. Similarly, consultations addressing highly structured or unique fact patterns are also likely to be designated as formal.

Consultations for performance audits and special examinations. For all performance audits and special examinations, the audit team consults with Legal Services. Teams may consult with Audit Services and internal specialists as required.

In addition, teams work with Editorial Services and Translation and Communications to develop their audit report and related communications.

Consultations for annual audits. The need to consult will be greater in the early years of a new accounting standard or framework than after audit teams have obtained experience applying it. When making the decision to consult, the engagement team considers the potential benefits of achieving consistent application of accounting standards by entities the Office audits. These benefits include the entity being informed on whether its reporting is consistent with other entities’ reporting, the Office’s preferred solutions for high-quality reporting, other supportable alternatives (if any), and disclosures to achieve accountable and transparent reporting.

When dealing with complex, unusual, or unfamiliar issues, audit teams refer to authoritative literature and seek the assistance of Office specialists and others with the appropriate competence, judgment, and authority. Teams may consult external specialists when warranted. Typically, an external consultation would be coordinated by Audit Services. Audit teams consult Audit Services following the principles outlined in OAG Audit 1012 Audit quality, including roles and responsibilities for audit quality.

Examples of circumstances where consultation with Audit Services or others would be appropriate during an annual audit include

• newly issued technical pronouncements;
• special industry accounting, auditing, or reporting requirements;
• emerging practice problems;
• choices among alternative generally accepted accounting principles when an accounting change is contemplated;
• analytical techniques;
• information technology auditing;
• legal issues;
• disagreements between the entity and the audit team relating to matters discussed in the report; and
• a proposed qualification of the Auditor's Report.

It is also appropriate to consult regarding more commonplace situations. For example, it is important that the Office strives for consistency, to the extent considered appropriate, in such areas as

• terms of the engagement,

• accounting policies for similar transactions,

• expectations regarding compliance with authorities and other matters being considered for inclusion in the auditor’s report in response to our role as a legislative auditor,

• Office positions on issues that are conceptually similar, and

• wording of the auditor’s report.

Achieving this consistency across the audit practice, however, is beyond the practical capability of individual audit teams. Consequently, the Office needs to rely on individuals with specialized knowledge and experience in these and other areas. Working with these specialists is another aspect of consultation that is important to meet the expectations of the system of quality control.

Certain significant matters are brought to the attention of the Auditor General before the signing of the Auditor’s Report, even when the Auditor General has delegated signing authority. Consultation with the Auditor General on these significant matters may be directed by Office policy; however, it is also a matter of professional judgment. The engagement leader shall assess if significant matters have the potential for broader implications to the Office and our audit practices and consult the assistant auditors general of the practice and the Auditor General as appropriate.

Other annual audit situations where consultation is expected. Depending on the facts and circumstances, other accounting, auditing, or reporting matters may warrant consultation by the engagement leader. For matters other than those designated as requiring consultation, the decision to consult rests with the engagement leader. In deciding whether to consult, the engagement leader considers whether he or she possesses a level of knowledge and experience of the matter to enable an appropriate and supportable conclusion to be reached. Factors to consider when deciding whether to consult include

• the complexity of the matter;

• the complexity of the applicable professional standards and guidance, including whether there have been any recent changes to such standards or guidance, or whether changes are being considered that could affect the outcome of the matter;

• whether the facts and circumstances are such that more than one reasonable conclusion could exist, including whether the nature of the matter is such that the OAG may have taken a position regarding similar matters in similar circumstances, or the resolution of the matter may result in setting a precedent for the OAG, or may have wide-ranging impact on the government or an industry;

• the likelihood that the conclusion may be challenged by regulators or others; and

• the materiality of the matter and, if currently immaterial, whether the matter may become material or create a precedent.

Consultations with other accountants. When management has consulted other accountants about significant accounting and auditing matters, if the other accountant's opinion differs from the Office's views, the engagement leader consults, as appropriate, before communicating with management or those charged with governance.

Consultations for fraud

Auditors report to the engagement leader any suspicions of fraud, including any allegations received. Auditors also advise the engagement leader of fraud that the entity identified but failed to take sufficient and appropriate action on. The engagement leader takes the necessary actions required to appropriately deal with the fraud issues raised. The engagement leader consults the Internal Specialist for Fraud, and Legal Services the inability to dispel reasonable suspicions of fraud or situations where the entity has mishandled an identified instance of fraud.

If the integrity or honesty of management or those charged with governance is in doubt, the engagement leader consults with the Internal Specialist for Fraud. Before discussing matters relating to possible fraud with parties outside the entity, the engagement leader shall consult Legal Services, as potential conflicts with our ethical and legal obligations for confidentiality may be complex.

Possible non-compliance with authorities, laws and regulations. When instances of possible non-compliance are identified, the engagement leader consults the Internal Specialist—Compliance with Authorities, Legal Services and Audit Services.

OAG Annual Audit 7514 provides guidance on reporting considerations relating to non-compliance with laws and regulations.

Documentation of consultations and conclusions

Ordinarily, if the engagement leader considers that consultation is necessary, the matter will also be treated as a significant matter. Equally, many matters treated as significant will warrant consultation before being disposed of. If significant matters require consultation or arise from a consultation, the engagement leader uses the Consultation template to record the consultation.

When an engagement team concludes that consultation is necessary in other circumstances, including where there is a requirement to consult (see above, as appropriate), the team prepares concise and complete documentation, setting out

• the matter or issue on which consultation was sought and the names of the individuals substantively involved in the consultation;

• the applicable professional literature and OAG policies that were considered;

• the relevant entity-specific facts and circumstances, and any analyses performed by the entity and/or the engagement team, including significant aspects of the audit evidence obtained, if relevant;

• the entity's preliminary point of view and justification, where applicable;

• the audit team's preliminary point of view and justification; and

• if applicable, alternative views or positions that were discussed with the consultant(s) and the rationale for rejecting them.

The purpose of documenting a formal consultation is to provide a record of the facts underlying the issue and the rationale supporting the conclusion. In addition, since the consultation involves a matter that may be communicated to those charged with governance of the entity, the documentation facilitates the preparation of the Office’s report and discussion with those charged with governance. Proper documentation also provides background information and analysis of issues and/or options that may have continuing relevance.

The engagement team updates documentation to reflect the final guidance provided by the person consulted, the final conclusion reached and the rationale for it, and any steps taken to implement the decisions. Both the engagement leader and the person consulted approve the final documentation. Only through this formal documented process can the party consulted be satisfied that a full understanding of the facts and of the proposed resolution has been obtained.

Documentation in the audit file provides evidence that the Office has obtained the agreement of the party consulted, either through signature on hard copy, marking the significant matter as reviewed in the audit file; or other electronic confirmation that will be included in the audit file, such as email.

The engagement leader may determine that email correspondence sufficiently captures the nature, scope, and agreed upon conclusions from a consultation conducted via email and thus meets the documentation requirements for the consultation.

The documentation of the consultation must enable an understanding of the issue on which consultation was sought; the results of the consultation, including any decisions made; the basis for those decisions; and how they were implemented.

OAG Audit 1143 provides guidance on documentation of significant matters.