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Canada’s audit regulator releases annual public report on Big Four accounting firm inspections

  • CPAB Image

Nov 30, 2015

On November 30, 2015, the Canadian Public Accountability Board (CPAB) released its public report on the 2015 inspections of Canada’s four largest accounting firms (the Big Four ― Deloitte LLP, EY LLP, KPMG LLP, PwC LLP). Its findings indicate that audit quality across the four firms was inconsistent.

“With some exceptions, this year’s findings tell us that firm action plans are making a difference and that audit quality is being maintained at larger reporting issuers,” said Brian Hunt, CEO, CPAB. “However, our inspections of smaller reporting issuer audit files show a different result. We are now working with all firms to ensure the quality improvements we’ve seen over the past two years are applied effectively, regardless of the size of the issuer or the size of the market.”

Key takeaways are:

  • CPAB shifted its focus this past year, adding more mid cap companies to its inspection process, thereby moving beyond only large cap companies that have previously been the focus of prior years’ inspections.
  • CPAB found the levels of audit quality it had seen in prior years’ inspections did not extend into these mid cap companies.  As a result there were more inspection findings across all firms.  In 2014, there were 98 total files inspected with significant in only 7.  This year (2015) 24 of the 93 files inspected had significant findings.
  • CPAB’s report does not speak to the performance of individual firms.  Its summary comment is that two firms had overall results comparable to 2014, while two firms had challenges – one particularly in mid cap company audits, and one more broadly.
  • CPAB highlights that improvements in audits is required in: executing audit fundamentals, understanding business processes relevant to financial reporting, complex accounting estimates, internal controls and professional judgment and skepticism.
  • CPAB highlights a number of areas in which it has directed the firms to focus their future audit quality efforts, including:   learning programs, robust causal factor analysis, strengthening of firm-wide systems of quality control and enhance quality plans.

Review the report, press release and Highlights for Audit Committees on CPAB's Web site.

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