Meeting with IESBA
CPAB Update
Glenn Fagan and Kam Grewal
April 7, 2014
Topics for Discussion
• Overview of CPAB
 Inspections universe
 Strategic plan
 Inspection approach
• Enhancing audit quality
• CPAB Protocol
• Other Initiatives
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April 7, 2014
OVERVIEW
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April 7, 2014
Overview
• The Canadian Public Accountability Board (CPAB) was
incorporated in 2003 under the Canada Corporations Act.
• CPAB is an audit regulator independent of, but
accountable to the Canadian securities regulators.
• CPAB oversees auditors of Canadian reporting issuers
(RIs), that is, companies that have raised funds from the
Canadian investing public.
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April 7, 2014
CPAB’s Mission
The mission of CPAB is set out at section 3.1 of its Articles
of Incorporation.
“To contribute to public confidence in the integrity of financial
reporting of reporting issuers in Canada by effective
regulation and promoting quality, independent auditing.”
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April 7, 2014
Participating Firm Statistics
(As of January 1, 2013)
Participating Audit Firms Subject to CPAB
Inspection
No. No of
Market
of
RIs capitalization
firms
of RIs
($billions)
Canadian Firms
•
Firms subject to annual inspection by CPAB
•
Firms subject to bi-annual inspection by CPAB
5
347
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•
Firms subject to tri-annual inspection by CPAB
114
660
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•
Registered firms with no reporting issuers
-
-
Total Canadian Registered Firms
Foreign Firms
6
15 6,703
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163 7,710
•
Firms subject to tri-annual inspection by CPAB
76
270
•
Registered firms with no reporting issuers
57
-
$1,995
$2,006
186
-
Total Foreign Registered Firms
133
270
$186
Total Registered Firms
296 7,980
$2,192
April 7, 2014
Annual Firm Influence
• By market capitalization
 99.5% of domestic based audits
 91% of total market
• By number of reporting issuers
 83% of total RIs
Note: Annual firms are those having more than 100 reporting issuer
clients and are inspected each year
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April 7, 2014
Distribution of Canadian Reporting Issuers (RIs) by Head Office Location
As at January 1, 2013
371
2
Foreign
1
14
1,784
711
46
232
57
954
5
3,803
1 Foreign RIs are Canadian reporting issuers headquartered outside of Canada that are primarily audited by foreign audit firms.
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April 7, 2014
CPAB’s Strategic Plan
• During the last strategic plan, CPAB evolved its inspection
methodology, systems and processes, and people to
provide effective audit oversight.
• The thrust of CPAB’s current 2013-2015 strategic plan is
to build on these accomplishments and further enhance
the organization’s effectiveness.
• The core issue to be addressed by the strategic plan is to
ensure audit firms reduce the rate of audit deficiencies in
a manner that is sustainable in the longer term.
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April 7, 2014
CPAB’s Strategic Plan
Strategic Shift 2013-2015
From
Compliance mindset
Rigorous tactical risk assessment
Granular inspection focus
Periodic stakeholder communication
Responding to international regulatory developments
Standard inspection reporting
Confidential disclosure
Risk of being marginalized
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April 7, 2014
To
Regulator mindset
Comprehensive risk assessment and
mitigation
Enhanced root-cause analysis/valueadded recommendations/requirements
Disciplined proactive stakeholder
engagement
Participating in shaping global regulatory
framework
Timely targeted stakeholder communication
Judicious transparency
Participate in the domestic regulatory
agenda
CPAB’s Strategic Plan
• CPAB will focus on four priorities to further enhance audit
quality
 Thought leadership
 Enhanced stakeholder engagement
 Enhanced risk management
 Focused, effective inspections
• CPAB will work to increase the transparency of its
inspection findings
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CPAB’s Strategic Plan
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April 7, 2014
CPAB’s Strategic Plan
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CPAB’s Inspection Approach
• Risk based + risk over-ride
• Annual firms
 Big-4
 Other network firms (4)
 Regional firms (6 – 7)
• Bi-annual firms
 1 - 2 per year
• Tri-annual firms
 Focus on those with > 4 RIs (about 17 per year)
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April 7, 2014
Risk Based Inspections
• The risk assessment reflects:
 the number of reporting issuers (RIs) – 7,980 RIs
 the number of participating firms – 296 audit firms
• Risk analysis and assessment embedded into the entire
organization
• Research and analysis of the reporting issuer population
• On going environmental scanning (including media
monitoring)
• Risk-based selection of reporting issuers
• Risk-based allocation of resources to audit firm inspection
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Firm Inspection
• Elements of quality control
 Leadership
 Ethical requirements (including independence)
 Acceptance and continuance
 Human resources
 Quality monitoring
• Engagement performance
 File inspections
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Key Messages – Public Report
Released March 31, 2014
Key considerations to improve audit quality:
• Results for 2013 have improved over the prior years
• Sustainability is needed
• Develop and implement action plans to support consistency
• Reinforce an accountability culture to support consistency
• Strike the appropriate balance between commercialism and
professionalism
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ENHANCING AUDIT QUALITY
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Background
Enhancing Audit Quality Initiative
• Provide input to /influence international initiatives to
improve audit quality
• Challenge the status quo in Canada
• Enhancing Audit Quality (“EAQ”) Steering Group
• Three working groups
 Auditor reporting
 Auditor independence
 Audit committee
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April 7, 2014
Key Recommendations
Enhancing Audit Quality Initiative
• Rejected mandatory rotation/ tendering in favour of
comprehensive review of audit firm
• Need for guidance for audit committees re annual
assessments and comprehensive review
• Development of tools for audit committees to perform
annual assessment and comprehensive review
• Recommended CPAB work with stakeholders to share
inspection findings with audit committees
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CPAB PROTOCOL
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April 7, 2014
Increased Transparency
• CPAB believes greater transparency of inspection
reporting will enhance audit quality, encourage audit
partners and firm leadership to focus more on continuous
quality improvement, and raise awareness of noteworthy
audit issues at the audit committee level and beyond.
• CPAB has worked with key stakeholders to develop a
protocol designed to provide information that will improve
an audit committee’s ability to effectively oversee the work
of the auditor.
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April 7, 2014
The CPAB Relationship
Board of Directors
Audit
Committee
The Canadian Public
Accountability Board
(CPAB)
The Audit
Environment
External Auditors
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Management
Development of Protocol
Key Considerations
• Fair and balanced communication of inspection findings
• Maintain confidentiality
• Retain effectiveness of current regulatory model
• Voluntary approach
• Public consultation
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Key elements of Protocol
Sharing of RI file specific findings
Communication of RI audit file specific inspection
findings with audit committees
• Significant inspection findings will be communicated
• Importance of fair and balanced communication
• Excerpt from CPAB’s Engagement Findings Report to be
sent by audit firm to audit committee
• Interaction between the audit committee, auditor and
management will change
• Confidentiality
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April 7, 2014
Key elements of Protocol
CPAB Public Report
Annual communication of CPAB Public Report to audit
committees
• All RI audit committees will receive CPAB’s public report
• Highlights audit quality issues
• Highlights recurring firm level issues (Big 4 and Non-Big 4
firms)
• Provides basis for dialogue on how firm and engagement
team are responding to issues identified in Public Report
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April 7, 2014
Effective Date
• Protocol is effective for RI audit file inspections
commencing on or after March 1, 2014
• Voluntary approach
• Listing of audit firms participating in the Protocol to be
made available on CPAB’s website
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OTHER CPAB INITIATIVES
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April 7, 2014
Other CPAB Initiatives
• Role in IFIAR
• Auditing in Foreign Jurisdictions
• Auditing Standards- Application guidance
• Audit Quality Symposium
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