Shifting gears: Audit inspectors change direction to enhance audit quality

The Canadian Public Accountability Board (CPAB) plays a leading role in the financial reporting process by inspecting the work of auditors of financial statements of reporting issuers.

The Canadian Public Accountability Board (CPAB) plays a leading role in the financial reporting process by inspecting the work of auditors of financial statements of reporting issuers. CPAB’s recently issued strategic plan charts an interesting shift in direction.

CPAB’s strategic plan is intended to address the realities in today’s auditing environment, such as business and fee pressures on auditing firms; the increased complexity of audits, in large part due to globalization; the competition for audit talent, increased audit risks resulting from the continuing economic downturn, and more.

To address these challenges, CPAB is charting a new course that focuses on four priorities – thought leadership; enhanced stakeholder engagement; risk management; and focused, effective inspections. So what will be different from CPAB in the future? Here is a short overview of the priorities:

  • Thought leadership: In addition to its current practice of responding to such things as exposure drafts of international auditing standards, CPAB is now considering providing implementation guidance/expectations in areas where it believes the implementation of auditing standards needs to be improved.
  • Enhanced stakeholder engagement: By providing stakeholders with better information on audit quality issues, and by engaging in a dialogue with them about CPAB’s overall findings, CPAB believes that all stakeholders can perform their roles more effectively.
  • Risk management: CPAB plans to implement processes to keep abreast of the many risk factors affecting it. These processes may include such things as research and analysis of the reporting issuer population and key stakeholder engagement.
  • Focused, effective inspections: Changes in the operating environment require CPAB’s methodology to better evaluate underlying factors that are affecting audit quality, for example, by enhanced root-cause analysis when deficiencies are identified. CPAB will also focus on direct communication with audit committees about emerging issues and factors impacting audit quality and greater transparency of inspection reporting to stakeholders. This greater transparency will be done in a way that does not undermine CPAB’s regulatory methodology.

Some thoughts from my perspective:

  • If CPAB engages with key stakeholders in the financial reporting process this will serve to enhance understanding not only of CPAB but also of the role of auditors and encourage collaboration among stakeholders in developing appropriate responses to CPAB’s inspection findings.
  • It is also important that CPAB plans to continue to play a role in influencing the development of international audit inspection methodologies and regulation through the International Forum for Independent Audit Regulators (IFIAR). This should help drive a more consistent global audit inspection environment and provide a counterpoint to some of the potential regulatory changes taking place in Europe and the United States that could have a significant impact on Canada.
  • By providing input to the International Auditing and Assurance Standards Board (IAASB) on its inspection findings, CPAB can influence changes to auditing standards where these need to be improved.
  • It will be interesting to see how CPAB’s thought leadership initiatives evolve, for example in relation to thought leadership and implementation guidance issued by other bodies such as the IAASB, the Auditing and Assurance Standards Board (AASB) and the CICA. It would be unfortunate if there was conflicting guidance on similar topics, which up to now has not been the case.
Keep the conversation going… what do you think about CPAB’s shift in strategic direction? Will it help or hurt audit quality, and why?

Post a comment below; or 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

Highlights

Update your knowledge and strengthen your network at this must-attend conference covering the most important issues and trends affecting audit committee members.

It’s probable that someone you know is deep in debt. If you are observant, you might see one of these seven signs.