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Canadian Public Accountability Board

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Canadian Public Accountability Board
AbbreviationCPAB
FormationApril 14, 2003; 21 years ago (2003-04-14)
FounderCanadian Securities Administrators
Office of the Superintendent of Financial Institutions
Canadian Institute of Chartered Accountants
TypeNGO
890500705RC0001
Registration no.4157826
Legal statusNot-for-profit corporation
PurposeNational audit regulator with respect to public reporting issuers
Location
Chair
Benita M. Warmbold
Chief Executive Officer
Carol Paradine
Budget$16,265,000 (2015)
Revenue$16,139,000 (2014)
Expenses$16,914,000 (2014)
Websitewww.cpab-ccrc.ca

The Canadian Public Accountability Board (CPAB) (Template:Lang-fr) is a national body, organized by the Canadian Securities Administrators (CSA), that oversees Canadian accounting firms that perform auditing work.

Formation

The CPAB was formed in 2003 as part of Canada's response to the occurrence of accounting scandals that were happening worldwide, such as at Enron and Worldcom.[1] It was different in approach from the Sarbanes-Oxley Act[2] adopted in the United States.[1] In 2016, its CEO stated that the Board "encourages a more holistic approach to better understand the root causes of lapses in audit quality," in contrast to that taken by the US Public Company Accounting Oversight Board.[3]

The CSA have specified that a "reporting issuer" (ie, a publicly traded company) must have its financial statements audited by a "participating audit firm," being one that has entered into a participation agreement with the CPAB which has not been terminated.[4] Its authority is reinforced through legislation passed at the provincial level,[5] of which Ontario has passed the most extensive example.[6]

Scope

164 Canadian and 133 foreign firms have entered into participation agreements with the CPAB. These firms audit approximately 4,000 reporting issuers and 3,000 investment funds.[7] Of these firms, fourteen are inspected annually, of which the Big Four account for 98% of total market capitalization on Canadian markets, and the other 10 large firms account for a further 1.5%.[7] The other firms are subject to inspection on a triennial basis.[7]

Governance

The CPAB has two governing bodies. The Council of Governors consists of six members: the Superintendent of Financial Institutions, the Chair of the Ontario Securities Commission, the Chair of the Autorité des marchés financiers, the Chair of the Canadian Securities Administrators,[a] a Governor selected by the CSA, and public accountant that has audit oversight regulatory experience, selected by the other five.[8] In turn, the Council appoints the Board of Directors, who are responsible for supervising the activities of the organization.[9]

Deficiencies and controversies

A 2007-8 review by CPAB of financial statements audited by the Big Six firms revealed that of 130 audit files examined, 11 were found to have deficiencies.[1]

In 2011, the Board raised concerns that auditors only reacted when issues were raised by its inspectors, and that they were not taking proactive measures to improve the quality of their work.[10] The report also noted that the same findings were being noted year after year, and that the majority of deficiencies related to basic audit procedures.[11] Little progress was seen to have occurred in 2012,[12] and a low level of professional skepticism was still seen as a major issue in 2013.[13]

In 2012, CPAB released a review it conducted of work done by Canadian audit firms with Chinese clients. It found flaws in 12 of the 24 companies examined, and barred one auditor from doing such work until it upgraded its procedures.[14] This was significant, as, in 2011, 56 companies from China and other parts of Asia were listed on the TSX or TSX Venture Exchange, many getting their listings through reverse takeovers of dormant shell corporations,[14] and Sino-Forest Corporation had collapsed in mid-year after irregularities were found in its financial results.[14] In 2014, the Board reported that it was still experiencing difficulties in being able to review foreign operations of some Canadian-based companies.[15]

Because of irregularities such as those occurring at Sino-Forest, the CSA issued proposals in 2013 to require mandatory notification of certain events to reporting issuers and regulatory authorities,[16] which were subsequently adopted in 2014.[17]

In November 2015, the Board reported that the incidence of significant findings in files examined was increasing,[18] and that the most prominent audit issues concerned the execution of audit fundamentals and the understanding of a client's business processes that are relevant to financial reporting.[19] A report earlier that year stated that the incidence of deficiencies observed appeared to be declining in files concerning the Big Four and other national/network firms,[20] but was increasing in files concerning regional firms.[21]

Further reading

  • "National Instrument 52-108: Auditor Oversight" (PDF). Canadian Securities Administrators. October 9, 2014.
  • "Report on 2015 Inspections of Canada's Big Four Accounting Firms" (PDF). CPAB. November 2015.
  • "CPAB 2014 all firm inspections report" (PDF). CPAB. March 2015.

Notes

  1. ^ when the Chair of the CSA is already a Chair of the OSC or AMF, the CSA will select an alternative Governor

References

  1. ^ a b c Perkins, Tara (August 18, 2008). "Piecemeal system hampers watchdog". The Globe and Mail. Retrieved 2008-08-20.
  2. ^ Pub. L. 107–204 (text) (PDF), 116 Stat. 745, enacted July 30, 2002
  3. ^ Jeffrey, Gundi (February 2016). "Canadian board has concerns over new U.S. rules". The Bottom Line. Toronto.
  4. ^ NI 52-108, s. 2
  5. ^ "Legislation". CPAB.
  6. ^ Canadian Public Accountability Board Act (Ontario), S.O. 2006, c. 33, Sch. D
  7. ^ a b c "Audit Firms". CPAB.
  8. ^ CPAB By-laws, Article 8
  9. ^ CPAB By-laws, Article 3
  10. ^ McFarland, Janet (April 18, 2011). "Audit quality at risk in Canada, regulator warns". The Globe and Mail.
  11. ^ Tedesco, Theresa (April 4, 2012). "Watchdog still finds 'deficiencies' in high-risk audits in Canada". The Financial Post.
  12. ^ McFarland, Janet (April 3, 2012). "Audit firms show little progress, weaknesses persist: report". The Globe and Mail.
  13. ^ McFarland, Janet (April 4, 2013). "Audits improving but more 'professional skepticism' needed: Watchdog". The Globe and Mail.
  14. ^ a b c McFarland, Janet (February 21, 2012). "Canadian audits of China firms had major gaps: regulator". The Globe and Mail.
  15. ^ McFarland, Janet (March 31, 2014). "Audit firm regulator says it can't vouch for work outside Canada". The Globe and Mail.
  16. ^ Schecter, Barbara (October 17, 2013). "Canadian securities regulators to ramp up oversight of auditors". The Financial Post.
  17. ^ NI 52-108, ss. 3-4
  18. ^ CPAB 2015a, p. 3.
  19. ^ CPAB 2015a, pp. 4–5.
  20. ^ CPAB 2015b, p. 4.
  21. ^ CPAB 2015b, p. 5.
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