2012 inspections show overall improvement in audit quality; 2011 action plans yielded positive results
TORONTO, April 4, 2013 /CNW/ - Canadian audit firms must commit to continuous improvement at all levels of their organizations to consistently execute high-quality audits, the Canadian Public Accountability Board (CPAB) says in its 2012 public report.
"We believe investors should continue to have confidence in the integrity of public company financial statements audited in Canada," said CPAB Chief Executive Officer Brian Hunt. "CPAB's 2012 inspection results generally show overall improvement in audit quality, with a 30 per cent decline in audit deficiencies in the audit files we inspected, compared to 2011."
CPAB's 2012 inspections indicated that audit methodologies at firms are generally sound, and that the majority of audits are well done. CPAB's inspections resulted in only five restatements of financial statements, representing two per cent of files inspected.
Mr. Hunt said CPAB attributes the improvement to the action plans CPAB required the Big Four audit firms to implement after their disappointing inspection results in 2011.
"These action plans resulted in an overall improvement in the inspection results for the Big Four firms," Mr. Hunt said. "However, not all of the Big Four firms demonstrated the same level of improvement. Firms that focused on the drivers of consistency in audit execution performed better."
The Big Four firms that showed the most improvement in audit quality focused on consistency of audit execution and provided on-site support for their people, by, for example, making national resources available at the local office level to deal with audit issues or by changing roles and accountabilities to focus on quality.
Mr. Hunt said that while the decrease in the number of audit deficiencies is encouraging, firms must commit to continuous improvement at all levels of their organizations. "This includes, in some cases, a shift in audit firm culture to encourage collaboration and increased accountability, in order to improve audit quality," he explained. "CPAB believes a multidisciplinary team approach to the audit, where different expertise is brought together and held accountable, would best serve the needs of both public companies and the investing public."
Since most of Big Four firms' action plans were only implemented in late 2011, not all the audit files CPAB inspected in 2012 benefited from the changes the plans brought about. CPAB therefore expects audit quality to continue to improve in 2013, as firms will have been able to fully implement their action plans in advance of the December 31, 2012 audits.
Mr. Hunt said the CPAB's 2012 inspection results at the Other Four National Network firms were mixed; some demonstrated solid improvement in audit quality and others did not. Consequently, where needed, CPAB is requiring these firms to implement action plans for 2013. CPAB also noted improvement in the quality of audits in certain of the Regional audit firms, especially where these firms focused on audits of public companies within their area of expertise.
To further improve audit quality, CPAB believes firms of all sizes need to:
• Execute high-quality audits consistently
• Develop and implement action plans to support consistency
• Reinforce an accountability culture to support consistency
• Strike the appropriate balance between commercialism and professionalism
CPAB's public report discusses issues relevant to today's challenging audit environment, including the need to enhance professional skepticism, and the globalization of auditing. The report also states that audit committees can play a significant role as contributors to audit quality. It highlights the work of the Enhancing Audit Quality (EAQ) initiative, which CPAB has undertaken in conjunction with the Canadian Institute of Chartered Accountants. The EAQ initiative has facilitated discussion on various audit reform proposals being discussed internationally, with a view to developing Canadian positions on them.
In 2012, CPAB inspected 61 audit firms and reviewed 236 engagement files. These included Canada's Big Four firms, 10 other firms reviewed annually, 24 other firms and 23 follow-up inspections. CPAB's inspection process identifies the higher-risk clients of each firm and the audits inspected are chosen from this subset.
Following each inspection, CPAB sent each firm a private report that summarized the inspection findings and identified key recommendations to improve audit quality. The firms are required to implement each recommendation to CPAB's satisfaction within a prescribed period of time and CPAB follows up to make sure these recommendations are implemented. Firms are also implementing CPAB's mandatory action plans for improvement. CPAB will continue to monitor the implementation, sustainability and effectiveness of these actions plans as part of its 2013 inspection program, and will take action as necessary.
The full public report of CPAB's 2012 inspections is available at www.cpab-ccrc.ca.
CPAB is Canada's audit regulator, dedicated to protecting the investing public's interests. CPAB regulates the auditors of Canadian public companies through its national inspection program. CPAB's risk-based inspection process focuses on key audit risks that could have the greatest impact on audit quality. By promoting high-quality, independent auditing, CPAB contributes to public confidence in the integrity of financial reporting, which supports our capital markets.
SOURCE: Canadian Public Accountability Board
For further information:
or to arrange an interview, contact:
416-504-5151, ext. 222
Brian Hunt, CEO Canadian Public Accountability Board