How can the role of the audit committee enhance audit quality?
February 7, 2013
A discussion paper on the role of the audit committee invites Canadians to share their perspectives on the role of the audit committee in enhancing audit quality.
Enhancing Audit Quality: Canadian Perspectives (EAQ) is a consultation process being led by the Canadian Public Accountability Board (CPAB) and the CICA to gain stakeholder input on key issues emerging with respect to enhancing audit quality globally, and the impact on Canada. There are three EAQ working groups dealing with the role of the audit committee, the auditor reporting model and auditor independence. Two discussion papers on auditor reporting and auditor independence were issued previously. The audit committee working group (ACWG) has just released a discussion paper for public comment by March 15.
The aim of the ACWG is to generate guidance to help audit committees continually enhance the quality and effectiveness of the external audit and of the issuer’s financial reporting governance. It examines the role of audit committees in overseeing the work of external auditors as established in National Instrument 51-110 Audit Committees (NI 51-110) issued by the Canadian Securities Administrators (CSA). It concludes that audit committees should perform the following activities every year:
- Establish an effective financial reporting environment.
- Oversee the annual work of the auditor.
- Review the audit plan.
- Consider the impact of business risks on the audit plan.
- Assess the reasonableness of the audit fee.
- Monitor the execution of the audit plan, with emphasis on the more complex and risk areas of the audit.
- Review and evaluate the auditor’s findings.
- Conduct an annual assessment.
The ACWG also believes that audit committees should conduct a comprehensive review of the external audit firm no less frequently than every five years and that Canadian securities regulators consider extending audit committee requirements to mandate such a review. Such comprehensive reviews will be considerably more rigorous than the annual assessments of the auditor’s work and the audit committee would use the results of the review to make recommendations on retaining the present audit firm or engaging another firm. The ACWG outlines factors the audit committee might consider in conducting a review, over and above the factors it considers during its annual assessment.
To facilitate the performance of comprehensive reviews, the ACWG recommends that CPAB and the audit firms it regulates develop a protocol for increasing the information made available to audit committees.
The ACWG recommends that the audit committee publicly report on its comprehensive review, describing the process undertaken and the conclusions reached, and that this disclosure be mandated by the CSA and other regulators. Further, the ACWG encourages audit committees to adopt the comprehensive review process before the necessary changes are made to securities regulation.
Keep the conversation going…this is your opportunity to provide input on the discussion paper and, ultimately, to Canadian and international policy makers making decisions on these important issues.
Post a comment below; or email me directly.
Conversations about Audit Quality is designed to create an exchange of ideas on global audit quality developments and issues and their impact in Canada.
Releases, Proposals and Responses
CPA Canada’s website is in development and will launch on October 22, 2014. The ability to comment has been suspended until then. Thank you for your understanding.