A Vancouver-based economic think tank has called for reform of the watchdogs overseeing the North American auditing industry.
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The Fraser Institute released a report on Monday that says the Canadian Public Accountability Board (CPAB) is too easy on accounting firms, and the Public Company Accounting Oversight Board (PCAOB) in the U.S. is too strict. While Canada relies on self-regulation, the U.S. depends upon government regulation.
In the report, called "The Regulation of Public Auditing in Canada and the United States: Self-Regulation or Government Regulation," the Fraser Institute seeks a middle ground, CBC News reported. Regulations in Canada can be improved without enacting overly tough, U.S.-style rules, the think tank contends.
"Striking the appropriate balance among market-based, legal, and self-regulatory mechanisms is a delicate task," said professor Adam Pritchard of the University of Michigan Law School and a co-author of the study.
The CPAB swiftly responded to the study by calling it “misinformed and misleading.”
"It is unfortunate," CPAB CEO David Scott Scott said, "that they did not contact us during the course of their research to gain a better understanding of what we do and how we do it."
The think tank says the CPAB, which was created by the accounting industry and provincial securities administrators, has the power to punish firms embroiled in scandal, but has not done so.
On the other hand, the PCAOB places a burdensome toll on U.S. firms being investigated, in terms of time and money needed to respond to the probes, the report says. Unlike the CPAB, the U.S. counterpart names the firms and makes its sometimes-stinging reports available to the public.
The Fraser Institute suggested giving CPAB investigators statutory power to investigate auditors–a point the CPAB said it agrees with. The think tank said the move would give staff more independence, freeing them to perform a thorough probe without fear of retaliation.
The think tank also recommended that industry members should not have voting rights. The CPAB should also be more financially independent from the firms that it is overseeing, the report said.
Scott said that the industry members' role in governance is “negligible,” as they can only approve bylaw changes and recommend the CPAB's external auditor. Scott also said five of the 16 members of the Council of Governors and Board of Directors are professional accountants, but none is a member of a firm overseen by the CPAB.