CPAB has been monitoring the extent to which Canadian reporting issuers have operations in foreign jurisdictions. Analysts, investors, securities regulators, and other audit regulators have also expressed concerns about the quality of these companies' financial reporting. Foreign operations present challenges to the performance of high-quality audits of financial statements. CPAB undertakes risk-based reviews of audits of foreign operations on an ongoing basis and our findings indicate that auditors often did not appropriately identify and assess the risks of material misstatement in the financial statements through a sufficient understanding of the entity and its environment. CPAB also found a lack of professional skepticism when auditors were confronted with evidence that should have raised red flags regarding potential fraud risk. CPAB believes auditors have the talent and the capabilities to perform audits of reporting issuers with operations in foreign jurisdictions. However, they must execute these audits with a high degree of professional skepticism and a thorough understanding of the business environment to ensure their audit procedures adequately address risks arising from the foreign jurisdiction's business customs and practices.
Foreign Jurisdictions where CPAB is unable to access Working Papers.
CPAB special report on inspections of audits of companies with operations in foreign jurisdictions, general improvement noted.