The Canadian Public Accountability Board (CPAB) recently released its second public report on its examinations of public accounting firms, finding that audits by these firms needed significant improvements. Problems cited in the report included lack of effective internal control, high risk clients, auditor independence and inadequate training on current accounting and auditing rules, according to Investment Executive.
The CPAB’s current inspections focused on 23 accounting firms that provide audits to more than 5,500 public companies, 80 percent of the total for all Canada and 90 percent of the market capitalization.
The CPAB inspections resulted in restrictions placed on four firms until they improve, Canadian Business reported. Three firms (not named in the report) have been barred from accepting new auditing work from publicly traded companies. Material departures from generally accepted accounting principles were discovered in 15 financial statements and could result in restatements for the public companies involved.
The first CPAB report, issued in 2004, examined the four largest accounting firms in Canada and found no major auditing issues, according to the Canadian Business report. The CPAB was established in July 2002, in response to U.S. accounting scandals. All accounting firms that wish to audit Canada’s public traded companies must register with the CPAB and submit to its oversight.
Certification of auditors of public companies in Canada is governed by the Agreement on Internal Trade (AIT), signed by all the Canadian provinces/territories and the government of Canada. The AIT requires signatories to establish objective criteria to assess the competence required to perform an occupation such as public accounting.
Under the AIT, New Brunswick CGAs recently challenged a requirement by Quebec according to Certified General Accountants – Canada that audits of public companies be performed by chartered accountants. The AIT panel report concluded that Quebec should change its laws to ensure that the occupation of public accounting is not restricted to chartered accountants.
Rigorous certification requirements and stringent professional standards ensure that GCAs are well qualified to perform audits, according to Terry LeBlanc spokesperson for CGA New Brunswick. “CGA requirements are as demanding as those of any other accounting designation,” LeBlanc said in the CGA-Canada report.