Comprehensive reviews one year later: What’s the feedback?

How are audit committees faring in their auditor assessment efforts? Are they effectively making use of the EAQ practical guidance? One year on, hear what CPA Canada’s Eric Turner and audit expert Axel Thesberg have to say about Canada’s progress, and what’s next.

A 2013 collaboration between Chartered Professional Accountants of Canada (CPA Canada) and the Canadian Public Accountability Board (CPAB) to review audit reforms taking place in major jurisdictions, including the United States, United Kingdom and Europe, dealt with addressing the implications of long audit tenure on audit quality.

The initiative recommended that the audit committee perform a periodic comprehensive review of the audit firm at least every five years, resulting in a decision to retain or replace the audit firm. The comprehensive review, in addition to the annual assessment of the auditor, will form the basis of the audit committees’ recommendation to the board on whether or not the auditor should be put forward for reappointment. Watch my video above, with audit expert, Axel Thesberg  for more detailed information on comprehensive reviews.

In 2014, CPA Canada, working with a group of experienced audit committee members through the Institute of Corporate Directors (ICD) and CPAB, provided guidance and practical tools to help audit committees conduct annual assessments and comprehensive reviews, with a focus on audit quality. Full disclosure: I was directly involved in this work.

So now, one year later, my burning question is: are audit committees performing annual assessments and comprehensive reviews, and how are these tools working?

Auditors have told me that many audit committees are beginning to have more robust discussions with auditors when performing annual assessments. Audit committees are often using the annual assessment tool to conduct the assessment, tailoring it to meet their needs.

In a few cases, audit committees are planning or have conducted a comprehensive review. At a CPAB symposium last year, a large pension plan made a presentation to the group on their own comprehensive review experience and learnings. They believe the review helped the parties better understand each other’s expectations and clarified whether or not the audit firm would be able to address audit risks as the entity evolves in the future.

Of course, some audit committee members are concerned about the time involved in performing a comprehensive review, given their already heavy schedules. The time and resources required to perform a comprehensive review will depend on a number of factors, including the complexity of the entity’s operations, and how robust their annual assessments have been over the review period.

For a smaller entity, the review might only take a couple of hours, possibly spread over two meetings — the first to scope out the information the audit committee requires from management and the auditor, and the second to discuss the information provided, the audit committee’s assessment of the auditor and reach a conclusion to recommend reappointment or tender the audit. In all cases, the key to good management of the comprehensive review process is upfront planning and tailoring of the tool.

Although it is still early days, I’m beginning to see evidence that audit committees are becoming aware of the value of performing robust auditor evaluations. Over the next year or so, I hope to hear about more comprehensive reviews being undertaken, and disclosed in companies’ proxy statements.

Time will tell if the full benefits of comprehensive reviews will be achieved. CPA Canada is eager to receive feedback on the tools so that they can be improved over time to further enable audit committees conduct their reviews efficiently and effectively while enhancing audit quality. And so am I.

KEEP THE CONVERSATION GOING.

What has your experience been with annual assessments or comprehensive reviews? Are the CPA Canada tools working for you?

Post a comment below; or email me  directly.

CPA Canada’s Audit Quality Blog is designed to create an exchange of ideas on developments and issues in global audit quality, as well as their impact in Canada.

RELEASES, PROPOSALS AND RESPONSES

CPAB Symposium report
Enhancing Audit Quality initiative

About the Author

Eric Turner, CPA, CA

Director, Auditing and Assurance Standards, CPA Canada

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