THE STANDING COMMITTEE ON AUDIT AND OVERSIGHT
EVIDENCE
OTTAWA, Wednesday, April 10, 2024
The Standing Committee on Audit and Oversight met with videoconference this day at 1:29 p.m. [ET], to supervise and report on the Senate’s internal and external audits and related matters; and, in camera, to supervise and report on the Senate’s internal and external audits and related matters.
Senator David Wells (Deputy Chair) in the chair.
[English]
The Deputy Chair: Good afternoon, colleagues, witnesses and staff.
I’m Senator David Wells from Newfoundland and Labrador, Deputy Chair of the Standing Committee on Audit and Oversight. Participating in the room in today’s meeting are Senator Hassan Yussuff, deputy chair from Ontario; Senator Colin Deacon from Nova Scotia; Mr. Robert Plamondon, external member from Ontario. Participating virtually, we have Madam Hélène Fortin, external member from Quebec. Welcome, everyone.
Our first agenda item is a presentation from Ernst & Young on the 2024 audit plan for the financial statement audit. Before we proceed with the presentation, a few reminders. We’ll have a chance to meet in camera with the auditors at the end of our public portion. After that, we will continue in camera to discuss the draft risk-based audit plan with the chief audit executive.
Today we’re welcoming from Ernst & Young, Suzanne Gignac, Partner, Assurance Services; and Niguel Givogue, Senior Manager, Assurance Services. I thank you both for being here today.
We also welcome Pierre Lanctôt, Chief Financial Officer, Finance and Procurement Directorate; and Nathalie Charpentier, Comptroller and Deputy Chief Financial Officer.
Ms. Gignac, the floor is yours.
Suzanne Gignac, Partner, Assurance Services, Ernst & Young LLP: Thank you very much. We’re here to present the March 31, 2024 audit plan. Thank you for having us here to present it. I think it’s very similar to the prior year audit plan. I am actually going to turn it over to Niguel to walk you through a high level of what’s in the plan.
Niguel Givogue, Senior Manager, Assurance Services, Ernst & Young LLP: Thank you, Suzanne. Good afternoon, senators. I’ll walk you through at a high level — as Suzanne said — the audit plan for the 2024 audit.
We have been engaged to express an audit opinion on the Senate’s financial statement for the year ending March 31, 2024. We have set our planning materiality at $2.9 million. We’ll be performing actual testing at much lower levels and report any differences to management and those charged with governance — differences that are above 5% of materiality or $145,000.
Our audit approach will consist of a substantive audit, which is consistent with prior years. Our areas of audit emphasis are consistent with that of prior years. We have included more details on pages 5 and 6 of our plan. Our audit procedures will mostly consist of walk-throughs to confirm our understanding of the processes, tests of details — which will include random sampling — and also substantive analytical procedures.
To address the risk of management override, we’ll be performing general entry testing over the entire general entry population using our data analytics tool. For an audit timeline, we plan to conduct our audit mid-June to mid-July, being ready to present to those charged with governance at the end of August or at the beginning of September. Our audit team remains consistent with prior years. In fact, it’s all the same individuals as listed here. We’ve also included some appendices regarding new accounting standards, some required communications and also some thought leadership and a draft engagement letter.
This concludes our presentation, if there are any questions.
The Deputy Chair: Thank you for your presentation. Before I open the floor to questions, I will remind committee members that we are in public and we’ll have an opportunity to meet with the auditors in camera and without any staff present after the first portion of this meeting.
Robert Plamondon, external committee member: Thank you to Niguel and Suzanne for being here today and for your reappointment as auditors for the Senate of Canada. We greatly appreciate your work.
In the planning for this year’s audit, have you identified any risks that have changed from a prior year or that you are focusing on in particular this year? If I can get them in while I’m on a roll here, I have two other questions. Do you undertake an analytical review, which would compare the results in comparison to budget and the prior year and examine those variances to identify whether additional procedures would be required?
My third question is on salaries and benefits because they make up a large portion of the expenditures of the Senate of Canada. You’re doing a substantive audit, which means you are developing working papers substantively on all of the year-end balances, the balance sheet, in effect. But there are so many transactions that happen over the course of the year. You do reference doing substantive analytical procedures and salary benefits. Can you describe what those would entail and the confidence that gives you about the credibility of the number that appears on the statement of operations for salaries and benefits? Thank you.
Mr. Givogue: We’ll start with the third question regarding our procedures for salaries.
We separate the population into two: one is senators’ remuneration and the other non-senator staff. There we do test of details over the population of non-senator payroll expenses. That will consist of random sampling throughout the year, so that will cover us from an income statement perspective also. We also do testing on the accuracy of management’s personnel listing, from new hires, termination, retiree or movement like that within that listing. We use that listing to base our substantive analytical procedure, and that will give us coverage over the occurrence, measurement and completeness of payroll expenses both on the profit and loss, or P&L, and for the year for non-senator salary expenses.
For senator salary expenses, we do a substantive analytical procedure for which we’re able to obtain publicly available pay ranges for senators. Depending on the number of senators, we’re then able to calculate with very high precision what the payroll expense ought to be.
Mr. Plamondon: It sounds like you’re doing substantive and analytical procedures.
Mr. Givogue: That’s right.
Mr. Plamondon: When you said substantive analytical procedures, I wondered how they combined, but you’re doing both.
Mr. Givogue: Yes, analytical procedures and also our substantive test — we’ll do a test of details also. We do a combination of those two types of procedures to get comfort over salary expenses, and our substantive analytical procedure over both gives us high precision, but we also top that off with a test of details.
On the analytical procedure over budget number, we do an analytical procedure in regard to the difference between the budget and actuals. We do that at the planning stage and also at the end of the audit as required by Canadian auditing standards to do overall analytical procedures. It’s part of our planning and also part of the execution work.
Ms. Gignac: From a risk perspective, we always have the presumed risk of management override, and we do our journal entry testing specifically related to that. Other than that, we haven’t identified any other specific risks. However, as Niguel mentioned, we have all of our significant accounts, which are all the accounts of significant balances where we do specific procedures, but we haven’t identified significant risks in those.
Hélène F. Fortin, external committee member: Thank you so much for allowing me to speak next.
I would first like to congratulate you, as my colleague Mr. Plamondon did. We’re happy to see you back. Ms. Gignac and Mr. Givogue. Thank you for presenting.
I have two questions. We’ve covered nature and extent — part of it — through Mr. Plamondon’s questions. I would like to ask a question about nature and extent, and timing of the audit. I did not see any details specific to that, so maybe you can speak to when you plan to execute and complete. That’s one thing.
Second, have you considered or identified — albeit, it’s a bit early in the whole process — how the work of the external auditor with our own internal auditor can somehow be integrated when it comes to work on controls and so on? I leave it up to you. It might be early in the process, but I’d like to hear you speak to that as well.
Ms. Gignac: I can take these ones.
Regarding the timing of the audit, we’re planning to be out to start the audit mid-June, and we should substantially be done the audit by mid-July. Then, we’ll be ready to report in the normal time frame, which would be the end of August or early September. That’s the timing.
As far as internal audit, we have had a discussion with the internal auditor, and we will look at the internal audit plan once it’s released. We will generally use that primarily to assess if there are any new risks from a financial statement perspective that we think we should consider. Of course, if there are any reports issued by the internal auditor by the time we issue our own audit report, we will review those to see if there are any additional items that we should take into consideration. At this point, that’s the extent of interaction between the two groups right now. However, we will continue to interact as we move forward.
Ms. H. Fortin: Thank you. I have a follow-up question on the timing, more precisely. It would be very interesting if we could be kept apprised of the development of your audit. I don’t want to interfere — I don’t want it to become too much or not enough — but now that we’ve started this practice of engaging between you and Audit and Oversight Committee, it’s greatly appreciated. Of course, if there is anything that comes to your attention between now and the end of your audit, we are available to have a conversation with you or to answer any questions. This engaged relationship will be very much appreciated on our part. I just wanted to add that to the context.
Ms. Gignac: Thank you.
The Deputy Chair: Thank you, Madam Fortin.
I have a few questions. One is regarding the adoption of the new accounting standards. I recognize they’re not going to have a significant impact in the audit that you’re doing now, but are these new national standards or are they in-house standards? Why were they decided to be added to this? In particular, I’m looking at the one called “purchased intangibles.” Could you explain that to me, please?
Ms. Gignac: Yes. These are Canadian auditing standards for public-sector entities. They go through a process in determining the standards, and as issues arise, new standards can be put into place.
In the public-sector accounting standards, there used to be a prohibition from recording intangibles, but the Public Sector Accounting Board and task force looked at that and considered that they might not be reasonable anymore and there should be the ability to record tangible assets. Therefore, they issued PSG-8, which allows for the recognition of purchased intangibles. That was why it was put into the standards.
The Deputy Chair: Can you give me an example of a purchased intangible?
Ms. Gignac: The one that was discussed at the public sector accounting discussion group is a fishing licence. You own a fishing licence, but maybe that has value to you long term, so it should be recorded on your balance sheet, versus something that’s just expensed that you get no value from in the future.
There are others, such as customer lists and things like that, which are not generally as relevant to public sector entities. Intellectual property and that type of thing are other examples, yes.
Senator C. Deacon: Thank you, Ms. Gignac and Mr. Givogue.
I just wanted to speak to the audit letter, and the audit responsibilities and limitations that you outlined. On page 3, points 8 and 9, it says that “We will communicate in writing significant efficiencies and internal control identified during the audit of the organization’s financial statements,” and “We also may communicate our observations as to the potential economies in or improved controls over the organization’s operations.”
Ottawa is a city that, historically, can manage risk in a way that can often create it, because the process is so opaque and complex. We’ve seen that with programs being cancelled in the federal government. It’s an issue in the country. As a senior parliamentary organization, I’m wondering whether this would be included — where you see a more complex and a more opaque process being applied in the Senate around certain processes that you’re examining when doing your examination versus something that, relatively speaking, could be simpler or more valid and transparent.
Is that something that we would expect to hear from you? I’m thinking that point 9 speaks to that. That’s the way I’ve interpreted it. I’m wondering if you can give me some insight as to that.
Ms. Gignac: When we go through walk-throughs, which is what we do with the Senate — we walk through each process — if we identify ways to simplify the process in terms of improvements and controls that could be made, then that’s what we would potentially raise. We generally raise them with management if they’re not significant issues, and we would bring them to those charged with governance if it’s a significant deficiency that’s creating an issue.
That said, we don’t actually test controls at the Senate, so it’s just the extent of walking through and see if we identify anything. We aren’t actually doing a controls-based audit, so we’re not testing each control, so we may not identify the significant deficiency.
Senator C. Deacon: Basically, points 8 and 9 are if you happen to come across something; it’s not something you’re looking for, as such?
Ms. Gignac: It’s not that we’re not looking for it; we would potentially identify something just by doing the procedure. But in general, it would be the case that if we came across something, we would bring it to your attention, because we’re not actually doing detailed testing of the controls.
Senator C. Deacon: Thank you.
Senator Wells mentioned intangibles. The move toward reporting carbon footprint and climate risks among organizations is significant in this country. Other international parliamentary bodies are recording those in their financial statements.
Where does that fit in as a standard and something you’re looking toward potentially doing in the Senate?
Ms. Gignac: At the moment, there are two standards that have been issued by the International Sustainability Standards Board, the IFRS S1 and S2. Those are not applicable to Canada yet. We have created a Canadian body, which is the Canadian Sustainability Standards Board, and they are looking at how those will be applied in Canada. A lot of that information is held in separate documents. There’s a separate Task Force on Climate-related Financial Disclosures, the TCFD. Organizations have TCFD disclosures that are outside of the financial statements.
At this point, we’re not seeing significant disclosures or issues related to that in financial statements such as those of the Senate, but it may evolve. There may be some obligations associated with it at some point. There are some organizations that would have obligations, but we haven’t seen that from a Senate perspective at this point in time.
Senator C. Deacon: So it’s something that’s coming generally.
Ms. Gignac: It’s evolving, absolutely. It’s coming. People want to see and hear what’s happening from a sustainability standards perspective. Exactly where it will be, whether in your financial statements or in a separate document, is still under review. As well, how [Technical difficulties] will be applied in Canada is still under review.
Senator C. Deacon: Thank you very much.
The Deputy Chair: Thank you. Did any other colleagues have any questions? Okay, thank you.
I think we’ll now take the opportunity to meet in camera.
(The committee continued in camera.)