December 19, 2005
Canadian Public Accountability Board (CPAB) Not Pleased with Inspection Results
Much like its bigger cousin in the USA the PCAOB, CPAB is not impressed with much of the audit inspections it has done on Canada's public audit firms. While it cites improvements since 2004, there is a much room for improvement.
One area of particular interest is in Auditor Independence. Unlike firms in the US, many Canadian public accounting firms have told their clients that they can help on documentation of MI 52-109 and MI 52-111. This seems to be a conflict of interest. While documentation is not addressed in today's announcement, it seems that Canada is at least beginning to crack down on these areas of concern.
Excerpt from news release earlier today,
Canadian Public Accountability Board issues public report on 2005 inspections of big four accounting firms
TORONTO, Dec. 19 /CNW/ - Canada's four largest public accounting firms
have more work to do in a number of areas to improve audit quality and achieve
consistent adherence to internal and professional standards, the Canadian
Public Accountability Board (CPAB) said today in a third public report on its
inspections of accounting firms.
"While a number of recommendations have been made to each firm," said
CPAB Chairman Gordon Thiessen, "they have all made progress since we first
inspected them in 2004, and each one has given us written commitments that the
problems we identified in this round of inspections will be remedied."
CPAB's third public report is based on inspections conducted in 2005 of
Canada's four largest firms: Deloitte & Touche LLP, Ernst & Young LLP, KPMG
LLP and PricewaterhouseCoopers LLP. These firms audit more than 4,000 public
companies and other reporting issuers in Canada, representing about 63 per
cent of the total market share by numbers of clients and more than 90 per cent
if measured by market capitalization.
The report says that substantially all of the recommendations CPAB made
to the four firms as a result of its 2004 inspections have been implemented
effectively. "The firms have strong quality leadership and tone at the top and
have generally effective controls over client acceptance and continuance,
human resources and quality monitoring," said CPAB CEO David Scott.
However, the report says the firms must improve in two areas:
- Compliance with firm policies and procedures to ensure auditor
independence - Each firm undertakes internal compliance audits of
partners and managerial employees to ensure they do not have
investments that would violate independence standards. The inspections
found that more than half of the individuals subject to these
compliance audits were in violation of at least one aspect of firm
policies. Most of the violations involved the failure of individuals
to report all of their investments. However, each firm found cases
where the non-reported investments were securities on the firm's
prohibited investment list. There is no evidence in any firm of
improper motivation in holding or failing to report holdings of client
securities.
- Performance on Audit Engagements - Of 87 audit engagements selected by
CPAB for review in the four firms, five engagements (one in each of
three firms and two in the fourth firm) had serious deficiencies, and
CPAB concluded those audits were not conducted in accordance with
Generally Accepted Auditing Standards (GAAS). In all five cases, the
common shortcoming was insufficient appropriate audit evidence to
support the unqualified audit opinion that was given. In addition, a
significant number of other engagements had departures from firm and
professional standards. "While high-quality audit work was evident
throughout our inspections, we were nevertheless disappointed that our
inspection work identified such a large number of cases where
engagement teams did not fully comply with an aspect of professional
standards, or with the firms' own policies and procedures," Scott
said." For the complete article, click here.
If your company needs to effectively and efficiently comply with Canadian or US Investor Protection Legislation such as Sarbanes-Oxley or MI 52-109/MI 52-111, see www.issuescentral.com or call 800.410.6681 ext 112 for more information to learn more about the Compliance Playbook(reg) or Compliance Partner (tm).
One area of particular interest is in Auditor Independence. Unlike firms in the US, many Canadian public accounting firms have told their clients that they can help on documentation of MI 52-109 and MI 52-111. This seems to be a conflict of interest. While documentation is not addressed in today's announcement, it seems that Canada is at least beginning to crack down on these areas of concern.
Excerpt from news release earlier today,
Canadian Public Accountability Board issues public report on 2005 inspections of big four accounting firms
TORONTO, Dec. 19 /CNW/ - Canada's four largest public accounting firms
have more work to do in a number of areas to improve audit quality and achieve
consistent adherence to internal and professional standards, the Canadian
Public Accountability Board (CPAB) said today in a third public report on its
inspections of accounting firms.
"While a number of recommendations have been made to each firm," said
CPAB Chairman Gordon Thiessen, "they have all made progress since we first
inspected them in 2004, and each one has given us written commitments that the
problems we identified in this round of inspections will be remedied."
CPAB's third public report is based on inspections conducted in 2005 of
Canada's four largest firms: Deloitte & Touche LLP, Ernst & Young LLP, KPMG
LLP and PricewaterhouseCoopers LLP. These firms audit more than 4,000 public
companies and other reporting issuers in Canada, representing about 63 per
cent of the total market share by numbers of clients and more than 90 per cent
if measured by market capitalization.
The report says that substantially all of the recommendations CPAB made
to the four firms as a result of its 2004 inspections have been implemented
effectively. "The firms have strong quality leadership and tone at the top and
have generally effective controls over client acceptance and continuance,
human resources and quality monitoring," said CPAB CEO David Scott.
However, the report says the firms must improve in two areas:
- Compliance with firm policies and procedures to ensure auditor
independence - Each firm undertakes internal compliance audits of
partners and managerial employees to ensure they do not have
investments that would violate independence standards. The inspections
found that more than half of the individuals subject to these
compliance audits were in violation of at least one aspect of firm
policies. Most of the violations involved the failure of individuals
to report all of their investments. However, each firm found cases
where the non-reported investments were securities on the firm's
prohibited investment list. There is no evidence in any firm of
improper motivation in holding or failing to report holdings of client
securities.
- Performance on Audit Engagements - Of 87 audit engagements selected by
CPAB for review in the four firms, five engagements (one in each of
three firms and two in the fourth firm) had serious deficiencies, and
CPAB concluded those audits were not conducted in accordance with
Generally Accepted Auditing Standards (GAAS). In all five cases, the
common shortcoming was insufficient appropriate audit evidence to
support the unqualified audit opinion that was given. In addition, a
significant number of other engagements had departures from firm and
professional standards. "While high-quality audit work was evident
throughout our inspections, we were nevertheless disappointed that our
inspection work identified such a large number of cases where
engagement teams did not fully comply with an aspect of professional
standards, or with the firms' own policies and procedures," Scott
said." For the complete article, click here.
If your company needs to effectively and efficiently comply with Canadian or US Investor Protection Legislation such as Sarbanes-Oxley or MI 52-109/MI 52-111, see www.issuescentral.com or call 800.410.6681 ext 112 for more information to learn more about the Compliance Playbook(reg) or Compliance Partner (tm).
