Canadian audit firms must commit to continuous improvement at all levels of their organizations to consistently execute high-quality audits, the Canadian Public Accountability Board (CPAB) says in its 2012 Public Report.
CPAB's 2012 inspections indicated that audit methodologies at firms are generally sound, and that the majority of audits are well done. CPAB's inspections resulted in only five restatements of financial statements, representing two percent of files inspected.
Mr. Hunt said CPAB attributes the improvement to the action plans CPAB required the Big Four audit firms to implement after their disappointing inspection results in 2011.
"These action plans resulted in an overall improvement in the inspection results for the Big Four firms," Mr. Hunt said. "However, not all of the Big Four firms demonstrated the same level of improvement. Firms that focused on the drivers of consistency in audit execution performed better."
The Big Four firms that showed the most improvement in audit quality focused on consistency of audit execution and provided on-site support for their people, by, for example, making national resources available at the local office level to deal with audit issues or by changing roles and accountabilities to focus on quality.
Mr. Hunt said that while the decrease in the number of audit deficiencies is encouraging, firms must commit to continuous improvement at all levels of their organizations. "This includes, in some cases, a shift in audit firm culture to encourage collaboration and increased accountability, in order to improve audit quality," he explained. "CPAB believes a multidisciplinary team approach to the audit, where different expertise is brought together and held accountable, would best serve the needs of both public companies and the investing public."
Since most of Big Four firms' action plans were only implemented in late 2011, not all the audit files CPAB inspected in 2012 benefited from the changes the plans brought about. CPAB therefore expects audit quality to continue to improve in 2013, as firms will have been able to fully implement their action plans in advance of the December 31, 2012 audits.
Mr. Hunt said the CPAB's 2012 inspection results at the Other Four National Network firms were mixed; some demonstrated solid improvement in audit quality and others did not. Consequently, where needed, CPAB is requiring these firms to implement action plans for 2013. CPAB also noted improvement in the quality of audits in certain of the Regional audit firms, especially where these firms focused on audits of public companies within their area of expertise.
To further improve audit quality, CPAB believes firms of all sizes need to: