Out of the Enhancing Audit Quality (EAQ) initiative collaboration between Chartered Professional Accountants of Canada (CPA Canada) and the Canadian Public Accountability Board (CPAB) there were a number of recommendations on how to enhance audit quality in light of various global developments. One recommendation was to increase the information on audit inspections made available to audit committees of reporting issuers. CPAB has issued a consultation paper Protocol for Audit Firm Communication of CPAB Inspection Findings with Audit Committees (the draft Protocol, or Consultation Paper) which proposes to do just that.\nAudit committees of reporting issuers have been requesting greater transparency into CPAB’s inspection findings, beyond the summary in CPAB’s annual public report, to support them in their role of overseeing the external auditor and enhancing audit quality. CPAB developed a voluntary draft Protocol for audit firms to report two key components to audit committees:\n\n findings in CPAB’s annual public report, which highlights systemic issues across inspections of audit firms and provides examples of mandatory recommendations that audit firms must implement to improve audit quality; and\n findings specific to the inspection of the audit of an individual reporting issuer.\n\nThe most important change resulting from the draft Protocol, in my view, occurs when the audit firm provides the following information to the audit committee of a reporting issuer whose audit file has been inspected:\n\n a description of the focus areas selected for inspection by CPAB;\n an indication of whether or not there are any significant inspection findings; and\n any significant inspection findings as reported by CPAB, including a description of actions taken in response by the audit firm and CPAB’s disposition.\n\nThe Protocol anticipates that the audit committee will want to discuss significant inspection findings with the external auditor, including:\n\n the nature and root cause of the deficiency in the application of auditing standards;\n the additional work performed by the audit firm to address the findings and related results;\n the impact, if any, on previously issued or future financial statements; and\n changes the auditor will be making to the audit approach to address the inspection findings.\n\nIt will be interesting to see how audit committees use this new information in their assessment of audit quality given that the audit regulator has a different perspective on, and different information available to it in assessing, audit quality than does the audit committee.\nIn responding to the Consultation Paper, which is open for comment until January 24, 2014, audit committees will need to consider whether the information shared under the Protocol will assist them in their oversight role and improve audit quality.\nCPAB expects that the final Protocol will be effective for inspections of audit files commencing on or after March 1, 2014.\nKeep the conversation going….talk to your audit committee about the Consultation Paper and encourage the committee to provide feedback to CPAB. What are they telling you about the practical challenges they might face in using the new communications in their auditor oversight activities?\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.