Wanted: Canadian views on auditor reporting and auditor independence

Two discussion papers have been released inviting Canadians to share their perspectives on key auditor reporting and auditor independence issues being deliberated in the U.S. and Europe.

Two discussion papers have been released inviting Canadians to share their perspectives on key auditor reporting and auditor independence issues being deliberated in the U.S. and Europe. What’s your view on the issues?

Enhancing Audit Quality: Canadian Perspectives is a consultation process being led by the Canadian Public Accountability Board (CPAB) and the CICA to gain stakeholder input on key issues emerging with respect to enhancing audit quality globally, and the impact on Canada. There are EAQ working groups dealing with the role of the audit committee, the auditor reporting model and auditor independence. Two working groups recently released discussion papers – on auditor reporting and auditor independence.

Auditor reporting

Various global bodies perceive that the auditor’s report could be more informative and are proposing reforms to improve auditor communications. These proposals are intended to narrow gaps that exist between (a) user expectations about the audit and what an audit actually is (the expectation gap), and (b) the information users believe they should receive about the entity and its financial statements and what they actually receive (the information gap).

The Auditor Reporting Working Group (ARWG) has examined auditor reporting proposals in the following areas:

  • Providing additional information through an auditor commentary;
  • Including statements about whether the entity is a going concern;
  • Describing the auditor’s responsibilities relating to other information in documents containing audited financial statements;
  • Clarifications and transparency about the audit process; and
  • Expanding the information on which the auditor provides assurance beyond the financial statements.

Being involved with the ARWG as it grapples with many complex issues, I can tell you that there are several areas where it needs feedback from Canadians to develop its final positions. For example, does disclosing the engagement partner’s name in the auditor’s report provide useful information? The ARWG has not reached a consensus on this point.

Auditor independence

After the financial crisis, numerous regulators, accounting bodies and policy makers have proposed or considered how professional skepticism could be enhanced during the performance of the audit. The fundamental question is whether audit teams are applying an appropriate level of skepticism, or whether actual or perceived conflicts of interest could be impacting their independence and objectivity.

The Auditor Independence Working Group examined proposals relating to the appointment and rotation of, and services provided by, auditors. These included mandatory audit firm rotation, mandatory tendering, and mandatory comprehensive audit firm review by audit committees, non-audit services, audit-only firms and joint audits.

The consultation process on the auditor reporting and auditor independence discussion papers will conclude at the end of October 2012.

The discussion paper on audit committees is expected to be released at the end of 2012. The consultation process with stakeholders will take place in early 2013.

On completion of the consultation process, a report on the proposals reflecting the findings of the consultation will be prepared and issued in spring 2013.

Keep the conversation going…this is your opportunity to provide input on the discussion papers and, ultimately, to Canadian and international policy makers making decisions on these important issues.  Email me directly.

Eric

Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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