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The Canadian Public Accountability Board, the country’s audit industry regulator, is running into opposition to its plan to disclose more about the problematic audits it finds and the names of the accounting firms that perform them.

It may be surprising to learn who agrees with more disclosure, and who does not.

Before we line up the parties into supporters and opponents, however, let’s explain the issue.

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 is deemed by the regulator to have fallen 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.

CPAB reports the results annually grouped by size of audit firm, but it does not disclose inspection findings for each firm, citing the confidentiality provisions of the Canadian Public Accountability Board Act of 2006.

That restriction yields information like this: One unidentified member of the “Big Four” accounting firms, CPAB said, missed the goal in 2020 of having a significant finding in no more than 10 per cent of its audits. That firm also “did not meet the target in previous years” and now must “perform a number of procedures” to evaluate why this keeps happening.

Which firm? We do not know. 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.

CPAB is interested in strengthening some of this disclosure. Last year, CPAB launched a consultation, seeking public comment on a number of changes.

The feedback is in, and, perhaps surprisingly, the Big Four firms generally approve of the changes. In a joint letter, Deloitte LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP said they support the proposed disclosures of findings that identify the individual firm. “We believe meeting the desire for enhanced transparency is necessary to maintain trust and confidence in the profession in Canada.”

They say, however, that the disclosures should be provided for all inspections of audit firms, regardless of size, “in order to provide consistent and relevant information.”

But smaller audit firms don’t agree.

In separate letters, Grant Thornton LLP and BDO Canada LLP both expressed opposition to firm-specific disclosure. One of their key arguments: For firms smaller than the Big Four, CPAB doesn’t review a large number of audits, so one problem skews the results. “In our view, audit quality cannot be defined by a single data point,” Grant Thornton argued.

CPAB might ultimately be able to develop consensus among the firms. However, the bigger problem is Quebec.

The Order of Chartered Professional Accountants of Quebec, the province’s self-regulatory body for accountants, has told CPAB that its proposal for disclosing audit-firm inspections runs counter to the Quebec Charter of Human Rights and Freedoms, which protects professional secrecy, including the auditor-client relationship.

In its letter, written by its chief executive, Geneviève Mottard, the Order says CPAB’s disclosure proposals cannot be implemented under Quebec law. Even so, the Order doesn’t like the disclosure proposals anyway, saying it doesn’t see much benefit to the public, investors, the companies or the auditors. It’s not clear to the Order that audit quality would improve and the increased disclosure could create problems between CPAB and auditors, and mislead the public.

“The CPAB has not shown that the proposed approach would serve public protection or the common interest,” Order spokeswoman Ginette Bourbonnais said in an e-mailed statement summarizing the Order’s views. “Pressure from stakeholders or the media is insufficient justification for infringing a right with quasi-constitutional status.”

The Order says that to allow for mandatory disclosure, the agreement between the province and CPAB that expires in early 2024 – and, possibly, provincial law – would need to be amended. That requires the approval of l’Office des professions du Québec, the government department that oversees professional regulatory groups. And, Ms. Mottard told CPAB, “the Office has not shown any interest in reopening this agreement for the moment and does not agree to meet with the CPAB for this purpose” – something Jacques Nadeau, a spokesman for the office, confirmed via e-mail.

Super. Since its creation 15 years ago, CPAB has brought an important new oversight role to auditing in Canada, protecting investors by putting audit firms on notice for their sometimes-underwhelming work. The problem is no one else learns which auditors have the most problems, so there’s no external pressure from investors to make the firms fix their flaws.

Releasing firm-specific inspection results would fix that – but if Quebec isn’t on board, we might not have what we elegantly call “pan-Canadian” uniformity in audit regulation.

Instead, we risk having it resemble the unworkable and seemingly unfixable hodgepodge of our provincial-based securities regulation. Allowing Quebec’s objections to move us to that model would be a step back for audit quality in Canada.

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