In the aftermath of the financial crisis, fingers were pointed at the rating agencies, the regulators, the banks, the trading desks. The one group you didn’t hear much about were the auditors.
For this profession, it was a nice break. After gob-smacking dilemmas like the Enron scandal, which effectively shut down Arthur Anderson, it must have been nice to watch other people put out fires.
But that doesn’t mean accounting firms aren’t adapting in the wake of the crisis. In fact, in Europe and the U.S., heavy discussions are under way to make audits much more reliable and to fix any conflicts of interest inherent in the current system.
For the most part, Canadian auditors aren’t having such serious discussion. But they are starting to talk, encouraged by co-operation between the securities commissions, the Canadian Institute for Chartered Accountants and the Canadian Public Accountability Board.
Proposed changes now being talked about include requiring mandatory auditor rotation every few years and limiting the number of services that an audit firm can offer outside of its audit practice, according to a recent paper by KPMG. In Europe, legislation such measures has been put forward, and in the U.S. the Public Company Accounting Oversight Board has put together a few concept papers on the same topics. (The only country to actually implement changes is the Netherlands, which passed a bill that requires companies to rotate their auditors.)
In Canada, some of more drastic measures have seen some pushback. For instance, John Gordon, Canadian managing partner for audit at KPMG, notes that a few years ago rules were passed to limit the services audit firm can provide. Going a step further and outright banning them would only hurt the audit process, he said, because firms need things like tax specialists on board when they uncover complex issues.
At this point, the discussions in Canada are very high level, but the issue is being talked about because a number of Canadian firms operate in Europe and the U.S., so they will be affected by the new rules. Canada also doesn’t want to be seen as not having best practices.
Although some of the proposals currently on the table are contentious, the one that Canadians appear to agree on, Mr. Gordon said, is preparing more detailed audit reports for audit committees.