A new report by the Canadian Public Accounting Board (CPAB) shows the Big Four have to improve their audit quality and adhere consistently to internal and professional standards. The CNW Group reports this is the CPAB’s third public report based on 87 audit engagements performed by the Big Four in Canada. The first public report was issued in October 2004 and the second in August 2005.
Canada’s largest four firms are Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP. The CNW Group reports these firms audit more than 4,000 public companies and other financial reporting issuers. The Big Four in Canada represent about 90 percent based on market capitalization and 63 percent by the number of clients.
CPAB Chairman Gordon Thiessen told the CNW Group, “While a number of recommendations have been made to each firm, they have all made progress since we first inspected them in 2004, and each one has given us written commitments that the problems we identified in this round of inspections will be remedied.”
One of the areas needing improvement for the firms was compliance with firm policies and procedures ensuring auditor independence. Of the 87 audits inspected, five were found to be deficient and not performed in accordance with General Accepted Accounting Standards (GAAS). Specifically, insufficient audit evidence was provided to support the audit opinion.
Thiessen continued, “Over the past two years, CPAB has instigated a number of changes to improve the quality of audits in this country. These improvements are now being implemented and should enhance the credibility of financial statements of public companies and confidence in Canada’s capital markets.”
In other news, the Canadian Institute of Chartered Accountants Alliance for Excellence in Investigative and Forensic Accounting (IFA Alliance) released their draft version of their Standards for Investigative and Forensic Accounting Engagements for comment. This is an emerging area of practice.
The document sets out the minimum standards for all chartered accountants conducting IFA engagements. The comprehensive framework for conducting these engagements was developed via numerous discussions held previously and the issuing of previous documents for comment. Application of professional judgment is more of the intention of the document, rather than a rules-based system.
And finally, Statistics Canada reported solid growth for Canada's accounting services industry. Operating revenues for the industry increased by almost 5 percent, to $8.8 billion in 2004.