Audit regulator reports fewer inspection findings for Big Four in 2017
Auditors must watch for pervasive risk of management bias
TORONTO, Nov. 28, 2017 – The Canadian Public Accountability Board (CPAB) found fewer significant inspection findings across Canada’s largest public accounting firms in 2017 compared to 2016 and 2015. CPAB is Canada's audit regulator responsible for the regulation of public accounting firms that audit Canadian reporting issuers.
In its annual Big Four Inspections Report, CPAB reports that, of the 86 audit engagement files inspected, six files had significant findings compared to 11 files out of 87 in 2016 and 24 files out of 93 in 2015. A significant finding is defined as a deficiency in the application of generally accepted auditing standards that could result in a restatement. (CPAB reports there are two restatements to date.)
The Big Four accounting firms (Deloitte, EY, KPMG, PwC) and their foreign affiliates, audit approximately 98 per cent of all Canadian reporting issuers by market capitalization.
"While each Big Four firm demonstrated an acceptable level of inspection findings overall, CPAB continued to find exceptions where they are still not executing consistently across the organization," said CPAB Chief Executive Officer Brian Hunt in a press release. "The need to fully embed audit approach improvements into every practice and every engagement still requires more attention."
While the report finds that, overall, “firms have sound audit methodologies and in most cases we see compliant execution,” CPAB highlights a number of deficiencies in basic audit fundamentals, significant accounting estimates, and professional judgment and skepticism. Notably, significant estimates is one of the most challenging aspects of an audit, as “the risk of management bias is pervasive.”
CPAB will launch a new approach to inspections in the 2018 inspection cycle, beginning in March 2018, that will “incorporate additional operational reviews of the effectiveness of firm structure, accountabilities, quality processes, and culture.” It will begin with the Big Four and is expected to apply to 10 other annually inspected firms in 2019 or beyond.