2013-04-04 Audit Committee Working Group discussion paper

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Various global views have been put forward for discussion related to auditors and whether audit quality and the reliability of financial reporting could be improved through changes to the auditor independence and reporting models and the involvement of audit committees. In Canada, these matters are being discussed by relevant stakeholders as part of the Enhancing Audit Quality joint initiative of the Canadian Institute of Chartered Accountants and the Canadian Public Accountability Board. We have prepared this newsletter to assist you in understanding our views on proposals related to the involvement of audit committees.

Recently the Audit Committee Working Group (ACWG) of the Enhancing Audit Quality initiative issued a discussion paper considering ways that audit committees can enhance audit quality, specifically focusing on relationships among audit committees and other participants in the audit process as well as enhancing and promoting the application of professional skepticism by audit committees and auditors. The ACWG also considered relevant recommendations and proposals by the Independence Working Group and the Auditor Reporting Working Group that impact audit committees. A discussion paper from the ACWG was issued January 31, 2013 and recommended the following:

  • oversight of the audit on an annual basis by the Audit Committee;
  • mandatory comprehensive review by the audit committee on five year basis;
  • communication of CPAB’s audit inspection results with audit committees; and
  • communication of the results of mandatory comprehensive review to the shareholders.

This comprehensive review would assess the ongoing effectiveness of the professional relationship between the audit firm and the issuer, focusing on the external audit team’s independence and any impairment of objectivity or effectiveness in conducting the audit. The comprehensive review would be of greater depth and breadth than the annual assessment that is currently performed as required by National Instrument 52-110 prior to the appointment of the auditor. For example, where the annual assessment would focus on the audit team, the engagement partner, their independence and objectivity and the annual quality of audit work performed, the comprehensive review would focus more on the audit firm, its independence and the application of professional skepticism. A comprehensive review conducted at least once every five years can focus on areas that the annual assessment cannot do, such as focusing on the audit firm and any institutional familiarity threats potentially created by increased audit tenure. The comprehensive review would provide the audit committee with information not otherwise included in its assessment activities. In certain circumstances, the passage of time allows the committee to identify issues not readily apparent on an annual basis. The audit committee would be responsible for determining the scope of the comprehensive review.