Audit committees have a pivotal role to play in enhancing audit quality. Effective audit committees and auditors build confidence in the integrity of financial reporting.
The audit committee plays a critical role in creating the right environment for quality auditing. It is the audit committee's responsibility to create an environment that accommodates an open discussion in a culture of integrity, respect and transparency between management and auditors.
Audit committees are responsible for overseeing the work of the auditors. Among other things, they need to understand the audit strategy, be satisfied that it addresses the major audit risks, and make sure the auditors exercise appropriate professional skepticism. They also need to ensure that the auditor has an appropriately independent mindset from management and is truly objective. Ultimately, this will enable the audit committee to draw conclusions about the effectiveness of the audit.
Audit committees should ask their auditors what they are doing to promote consistency of audit execution, whether additional resources are available if needed to do the audit, and who in the audit firm is accountable for the quality of the work done. Audit committees should consider meeting the engagement quality control review partner (second partner reviewer) as part of the audit process to understand what they did to ensure quality and address any issues that arose.
CPAB believes it is appropriate for audit committees to have a frank discussion with their auditors about what is considered to be a reasonable fee for audit services. However, if the quality of the audit is affected by a fee that is less than reasonable, the audit committee is doing a disservice to the shareholders. Audit committees need to ensure that audit fees are fair and that they are obtaining a quality audit. Investors want and expect a quality audit.
Audit committees can contribute to the solutions to many of the audit quality issues being debated internationally. This includes the risk that, over an extended period of time, audit firms may develop a cozy institutional relationship with their clients that could negatively impact auditor independence and professional skepticism.
Audit committees have told CPAB they want more transparency with respect to inspection findings in order to improve the effectiveness of their oversight role. A key recommendation of the Enhancing Audit Quality Audit Committee Working Group was for CPAB to work in conjunction with audit firms and audit committee representatives to develop a protocol for increasing inspection information made available to audit committees. During 2013 CPAB has consulted with key stakeholders including corporate directors, audit firms and securities regulators to develop a Protocol for Audit Firm Communication of CPAB Inspection Findings with Audit Committees (Protocol). The sharing of inspection findings applies to CPAB's audit file inspections commencing on or after March 1, 2014 which will include inspections of 2013 year-ends. Please click here for more information.
CPAB releases 2017 Annual Report.
CPAB releases 2016 Annual Inspections Report.
CPAB held its first Financial Institutions Industry Forum on January 20, 2017 for audit committee chairs serving the boards of banks and insurance companies in Canada.
CPAB 2016 Big Four Public Report: Highlights for Audit Committees.
CPAB 2015 Big Four Public Report: Highlights for Audit Committees.
See how the 2014 Audit Quality Symposium participants voted on key questions relating to audit quality.