Greater consistency and transparency keys to advancing audit quality in Canada

Apr 03, 2014
New guidance resources and an information sharing protocol target greater consistency and transparency among audit committees to improve audit quality in Canada.
Working collaboratively with a group of senior audit committee members, Chartered Professional Accountants of Canada (CPA Canada), the Institute of Corporate Directors (ICD) and the Canadian Public Accountability Board (CPAB) developed the guidance tools to spark open and candid discussions about audit quality, especially as it pertains to the external auditor.
There is currently significant variation among Canadian audit committees regarding the process used to oversee the external auditor.
“Building stronger relationships is essential if audit quality is to improve so our approach focuses on getting audit committees, audit firms, and management talking,” explains Kevin Dancey, president and CEO, CPA Canada. “Establishing consistent approaches combined with effective scrutiny of the external auditor will improve quality and increase public trust.”
One of the resources addresses audit committee oversight of the external auditor. Two companion tools focus on conducting an annual assessment of the external auditor and a periodic comprehensive review of the audit firm. In addition, CPAB has developed a protocol to increase the amount of its audit inspection information available to audit committees.
The guidance resources and Protocol for Audit Firm Communication of CPAB Inspection Findings with Audit Committees (Protocol) are the result of the recommendations and conclusions of the Enhancing Audit Quality (EAQ) initiative completed by CPA Canada and CPAB in 2013.
The EAQ report outlined several recommendations aimed at improving audit quality including a comprehensive review of the external audit firm at least once every five years, conducting annual assessments of the external audit firm, and providing increased transparency to audit committees on CPAB’s annual inspections.
“While the guidance offered is not binding, it does pave the way for greater consistency among audit committees,” notes Stan Magidson, president and CEO, Institute of Corporate Directors. “The tools provided and access to CPAB’s inspection findings will assist audit committees in making their recommendation to the board as to whether the external auditor should be put forward for reappointment by the shareholders.”
Each year, CPAB assesses the quality of audits by Canadian public accounting firms. The Protocol, now in place, sets out how audit firms will communicate CPAB’s inspection findings to audit committees.
“Under the Protocol, for all inspections beginning on or after March 1 this year, audit firms will share CPAB’s significant file-specific findings with their clients’ audit committee where their audit has been inspected, along with a copy of our annual Public Report,” said Brian Hunt, CEO, CPAB. “With this Protocol, Canada is leading the way in addressing requests from audit committees for more information. We believe increased information sharing will improve dialogue among the audit firm, the audit committee and management on how the firm is responding to audit quality issues identified in our report.”

Click here for more information about the guidance resources and the CPAB Protocol.