Skip to main content
Complete Olympic Games coverage at your fingertips
Your inside track on the Olympic Games
Enjoy unlimited digital access
$1.99
per week for 24 weeks
Complete Olympic Games coverage at your fingertips
Your inside track onthe Olympics Games
$1.99
per week
for 24 weeks
// //

Canada’s audit industry regulator is considering disclosing more about the problematic audits it finds and the names of the accounting firms that perform them.

The Canadian Public Accountability Board, which oversees the firms that audit publicly traded companies, is also considering making it mandatory for audit firms to tell client companies when CPAB has made “significant findings” about the quality of a company’s audit.

CPAB, which began work on the possible changes to its disclosure policy last year, has launched a consultation, seeking public comment until the end of September. Some changes would require signoff from provincial accounting or securities regulators, or perhaps changes to laws.

Story continues below advertisement

All public accounting firms that audit public companies must register with CPAB, and any firm that audits at least 100 public companies gets reviewed annually. CPAB picks some of each accounting firm’s audits for review based on its assessment of high risk factors, such as complex companies, or areas in which the audit firm may lack some expertise.

CPAB’s key performance metric is what it calls a “significant finding” – where an accounting firm falls short of accepted auditing standards for a material part of a company’s financial statements and has to go back and do additional work to support its audit opinion. One example of a deficiency, CPAB said, is “overreliance on management representations without corroboration with third-party evidence.”

At the time CPAB issued its 2020 annual report in April, it had reviewed 119 audits and made significant findings in 35 of them, or 29.4 per cent. But while CPAB reports statistics in groups, by firm size, it does not disclose inspection findings by firm, citing the confidentiality provisions of the Canadian Public Accountability Board Act of 2006.

That means investors, and even the boards of directors of public companies themselves, do not know which audit firms have the best record at avoiding the significant findings of the CPAB. Sometimes, a company’s leadership doesn’t know CPAB found the audit of its finances to be flawed.

In its request for public feedback issued this week, CPAB said there is a range of disclosure practices among audit regulators internationally, with many providing information on the inspection results of individual audit firms. The U.S. Public Company Accounting Oversight Board releases partly redacted inspection reports on Canadian audit firms that audit U.S. companies.

“In considering the current environment including high rates of inspection findings, a demand for additional disclosures from our certain stakeholders and our public interest responsibility, a change to our disclosures in this area is likely warranted,” CPAB said in its feedback request.

CPAB is also considering changing its rules to make the sharing of the results of individual audit file inspections with the companies’ audit committees mandatory. Currently, the system is voluntary, and audit firms willing to do so have signed a protocol for sharing.

Story continues below advertisement

As of January, just 102 of the 161 audit firms under CPAB’s purview had signed the protocol and share inspection findings. CPAB says of the 35 files with significant inspection findings in 2020, just 24 were reported to an audit committee. In 2019, that number was 35 out of 47.

CPAB says it does not believe mandatory disclosure would have much impact on how quickly it can complete inspections or how long it will take audit firms to fix their problems. “This change has the potential to improve audit quality and enhance the protection of the investing public by providing additional information to support the audit committee’s oversight of the auditor,” it said.

The group Chartered Professional Accountants of Canada said Tuesday it welcomes CPAB’s decision to undertake the consultation and “looks forward to any changes to CPAB’s policies that might result.”

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies