Attention is turning to whether auditors should be candidly discussing with audit committees matters that up to now have been largely in the dark – the results of the Canadian Public Accountability Board (CPAB)’s inspections of work done by audit firms.\nA key feature of our financial reporting system is independent inspections by CPAB of auditors of reporting issuers. Other jurisdictions have similar inspection processes to ours and some are moving towards more transparent communication between the audit committee and the auditor of inspection results. For example, the US audit inspector, the Public Company Accounting Oversight Board (PCAOB), and the US Center for Audit Quality (CAQ) have recently issued documents on this topic. The CPAB/CICA Enhancing Audit Quality (EAQ) initiative in Canada also has the question of improved communications between the audit committee and the auditor on its to-do list.\nCPAB inspections include testing auditor compliance with standards, firm policies and procedures, and reviewing part or all of selected individual audit files of reporting issuers. Although CPAB often sets out specific recommendations that individual audit firms are required to implement, these are not made public. Instead, CPAB publishes an annual report summarizing information about the results of its inspections, including the results at the Big Four audit firms (Deloitte, Ernst & Young, KPMG and PwC) and those at other firms. It also may conduct reviews of certain audits, for example of Canadian reporting issuers with primary operations in foreign jurisdictions, and publish special reports of its findings.\nSome audit committees would like to know more about the outcome of the audit inspection process affecting their auditors, arguing that they need this information to fulfil their responsibility for audit oversight. They would do this by better understanding how their auditors are addressing recommendations made by CPAB:\n\n respecting all auditors, groups of audit firms, or audits of similar size or complexity to the audit of the reporting issuer;\n specific to the auditor’s firm, for example, to address issues identified with respect to the firm’s system of quality control for all its reporting issuer clients; and\n specific to the reporting issuer’s audit, if the audit was selected for inspection.\n\nOf course, there may be challenges to providing this information to audit committees, for example:\n\n how to provide a balanced communication that fairly reflects the results of the inspection and the auditor’s response (the audit inspector and the auditor may have different views on what is a significant problem);\n whether there are legal liability or confidentiality concerns to making information in inspection reports available to audit committees;\n how to make the communications timely so the audit committee can address urgent issues, for example if the reporting issuer’s underlying accounting or internal controls are called into question;\n how to incorporate the results of foreign regulatory reviews that impact the audit of the reporting issuer; and\n how to increase transparency without adversely impacting the inspection process, including completing inspections and implementing recommendations.\n\nTo move this idea forward in Canada, I can see a need for guidance that will lead to consistent, appropriate communications between auditors and audit committees about inspection results. It will be interesting to see what the EAQ initiative recommends in this respect.\nKeep the conversation going…what do you see as the benefits and challenges of auditors talking to audit committees about audit inspection results?\nPost a comment below; or email me directly.\nEric\nConversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.\nThis was originally published by one of CPA Canada’s legacy bodies.