Although securities regulators have made improvements to their auditing processes, those processes need to be more efficient and the auditors themselves should take a more educated and holistic approach to the audit process, according to the compliance officers (COs) and company executives surveyed for this year’s Regulators’ Report Card.

That sentiment was shared by survey participants from firms big and small across the country. For example, they argued that auditors focus their attention on minute and largely irrelevant details that drag the audit process out and hurt firms’ bottom lines.

“[Auditors] sometimes focus on things that are not material, such as minor account document deficiencies,” says a chief CO (CCO) with a securities dealer in British Columbia about Investment Industry Regulatory Organization of Canada (IIROC) auditors. “They sometimes [use] obscure rules, and their interpretations are different than ours.”

“[The auditors] tend to be a little bit more picky than they should be,” says a CCO with a mutual fund dealer in Ontario about the Mutual Fund Dealers Association of Canada’s (MFDA) auditors. “Sometimes, they can get caught up with an issue that shouldn’t garner much attention.”

One issue that’s exacerbating these concerns for smaller firms is what their COs and company executives called an “unfairly broad” approach to audits. This criticism stems from the use of cookie-cutter models without understanding what specific businesses do.

“[Auditors] take this broad-brush approach, in which they treat small firms the same as the big firms,” says a CCO with an IIROC-licensed dealer in Eastern Canada, “scrutinizing things that aren’t material.”

“[Auditors] nitpick the smaller dealers and don’t hold everyone to the same standards,” says a CO with a mutual fund dealer in Ontario. “We’ve always felt that [audits] are not fair with small firms.”

For many other COs and company executives, it’s not the auditors’ approach that’s frustrating, but the auditors themselves. Specifically, the auditors’ inexperience or lack of knowledge about the business is cause for concern.

“[The quality of the audit] really depends on who you get. The person auditing our books now has no idea what the business is about,” says a CO with a large, IIROC-licensed firm in Ontario. “It’s frustrating trying to explain what we do.”

“Every time, the audit is about educating the auditors,” adds a CCO with an Ontario-based mutual fund dealer. “I think they come from an IIROC background, but it’s a different business on the MFDA side.”

However, these concerns represent only one part of the picture, as some COs and company executives lauded their regulators’ auditors for delivering a positive experience. IIROC stood out, with its rating in “the regulator’s fairness when performing audits and examinations of registrants” category rising to 7.4 from 7.0 year-over-year. In particular, COs and company executives with dual-platform firms prefer IIROC’s auditing practices to the MFDA’s.

“[IIROC’s audits are] a little more efficient,” says a CO with a dual-platform dealer based in Quebec. “Some [IIROC] people are easier to deal with [than those at the MFDA], and are a lot faster.”

A CCO with an Ontario-based dual-platform dealer said there are notable distinctions in the self-regulatory organizations’ (SROs) auditing processes. Specifically, the CCO said, the MFDA “wants proof” that the dealer is going to make a change – and a commitment from the firm is not good enough. In contrast, IIROC is “principles-based, so [its auditors] want responses – and that’s it. If I say I’m going to change policy, that’s good enough.”

Nevertheless, some COs and company executives with both IIROC- and MFDA-licensed dealers said they appreciate that auditors are being more pragmatic in their approach.

“They are pretty reasonable,” says a CO with an investment dealer in Alberta. “If they have questions, they will ask based on policies and procedures. They will advise on improvements. Sometimes, they listen to the different circumstances and try to balance their perspectives.”

Meanwhile, a CCO with a Quebec-based mutual fund dealer said that the SRO’s auditors “have evolved over the years. They’re practical now. They’re taking things into consideration more and more, and they’re also more conscious of the practical impact of what they require of us.”

The SROs, for their part, reported that they have put greater effort into collaborating with their member dealers. Says Karen McGuinness, senior vice president, member regulation, compliance, with the MFDA: “One thing that we’ve really improved upon over the last examination cycle is how we address deficiencies or examination findings. We will have a discussion as soon as we find it; we won’t wait until the end and surprise [a registrant] with it.”

IIROC also has focused on nipping issues in the bud, stating in an email to Investment Executive: “IIROC staff engage in ongoing dialogue with firms throughout the audit process and we ensure that senior examination staff are on site to encourage meaningful dialogue and resolve serious issues as early as possible.”

© 2016 Investment Executive. All rights reserved.