The results are in: Final EAQ report proposes next actions for enhancing audit quality in Canada

The conclusions and recommendations in the final report of the Enhancing Audit Quality (EAQ) initiative issued in May set a roadmap for further actions needed in Canada to heighten audit quality.

The conclusions and recommendations in the final report of the Enhancing Audit Quality (EAQ) initiative issued in May set a roadmap for further actions needed in Canada to heighten audit quality. They make interesting reading.

The Chartered Professional Accountants of Canada (CPA Canada) and the Canadian Public Accountability Board (CPAB) launched the EAQ initiative to gain stakeholder input on proposed reforms in jurisdictions hardest hit by the financial crisis, such as Europe and the United States. The goal of the proposed reforms is to improve the relevance and quality of the audit function.

Three working groups of prominent Canadian business people carried out the EAQ effort examining questions about enhancing audit quality, developing consultation papers and inviting comments on their analysis and conclusions. A steering group provided oversight.

The report reached ten conclusions and listed ten recommendations for further action. Here are some of the highlights:

  • Having audit committees perform a periodic comprehensive review of their audit firm at least every five years, resulting in a recommendation to retain or replace the audit firm, is the preferred approach to address any institutional familiarity threats potentially created by audit firm tenure. CPA Canada should develop resources and tools to assist audit committees when undertaking a periodic comprehensive review of an audit firm, including guidance on the preparation and content of the audit committee’s public report on the review. CPA Canada should also work with experienced audit committees and audit firms to help implement comprehensive reviews.
  • Audit committees should perform an annual assessment of the auditor’s performance every year. CPA Canada should undertake a project to further develop the guidance on performing the annual assessments.
  • The audit committee’s evaluation of auditors and audit firms would benefit from having increased information about CPAB findings. CPAB, together with audit firm and audit committee representatives, should develop a protocol for increasing the information made available to audit committees.
  • The Canadian Securities Administrators (CSA) and the Auditing and Assurance Standards Board (AASB) should review the assurance requirements on quarterly financial statements to enhance the transparency to investors of auditor involvement in quarterly statements.
  • Auditor reporting could be enhanced, under certain conditions, but proposals for the auditor to report on going concern were rejected as they would increase the expectation gap. The AASB should consider the detailed auditor reporting conclusions as it reviews proposals to revise the auditor reporting model.

The report acknowledged that much work is needed before the conclusions can be finalized for review and action by pertinent competent bodies in Canada. As well, reforms introduced in other jurisdictions, such as Europe and the United States, will have to be carefully monitored to ensure that Canadian reforms are not in direct conflict with those proposed elsewhere, frustrating attempts to harmonize the solutions ultimately implemented.

What has impressed me most about the EAQ initiative has been the comprehensive analysis by the working groups of the complex issues being raised both here and abroad; and the extent of interest shown by stakeholders in responding, under tight time constraints, to the working group discussion papers. Not only were responses obtained from both international and Canadian individuals and organizations, several organizations also conducted surveys of their members that likely required significant effort in tabulating and analyzing responses. The EAQ initiative has evidently generated significant amount of discussion across Canada and other parts of the world. Who would have thought that auditing could generate so much interest!

Now is the time to take this good work to the next level, by developing, for Canada, meaningful enhancements to audit quality that are appropriate to our environment. The work done to date inspires confidence that this will be achieved.

Keep the conversation going….take the time to read the final EAQ report and let me know what you think about the EAQ’s conclusions and recommendations.

Post a comment below; or email me directly.

Eric

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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