In its first public report on Canada’s Big Four accounting firms released today, the Canadian Public Accountability Board (CPAB) said that its inspection findings indicate the quality of audits performed by Deloitte LLP, EY LLP, KPMG LLP, and PwC LLP improved in 2014.
“Based on the positive trend in 2014, it is clear that Canada’s four largest public accounting firms continue to take audit quality seriously,” said Brian Hunt, CEO, CPAB.
“There is, however, still room for improvement in terms of driving consistent audit execution deeper into the organization. To this end, we have emphasized to the Big Four the need for continued focus on addressing audit issues that recur year over year as well as issues that we have identified in this inspection report,” he added.
In 2014, CPAB inspected 98 Big Four engagement files, up from 105 in 2013, and found an overall improvement in audit quality, including a 36 per cent decline in files with significant audit deficiencies, down from 43 per cent in 2013.
Since 2011 – when CPAB first issued its call to action to improve audit quality – the number of files inspected by CPAB with significant audit deficiencies has declined overall by more than two-thirds.
While no new audit quality themes emerged this year, CPAB’s inspections indicate that challenges persist in the areas of complex accounting estimates, auditing in foreign jurisdictions, understanding and evaluating internal controls, applying professional judgment and executing professional skepticism.
A key development in 2014 was the introduction of the Protocol for Audit Firm Communication of CPAB Inspection Findings with Audit Committees (Protocol). Audit firms are now required to share significant inspection findings and CPAB’s public reports with their clients’ audit committees. CPAB strongly encourages audit committees to discuss the report and any file-specific findings, if applicable, with their auditor.