In an attempt quell the rising tide of investor panic and distrust over deficient audits of publicly traded companies, the Canadian Securities Administrators, the Canadian Institute of Chartered accountants and the Office of the Superintendent of Financial Institutions joined forces today to unveil a new Canadian Public Accountability Board.

Under the CPAB’s auspices the major accounting firms in Canada that conduct 85% of public company audits will now be reviewed annually. They will be subject to a more comprehensive examination of their quality control polices and procedures, says David Smith, president and CEO of the CICA.

The firms have contractually agreed to implement the new requirements in October 2002, which will coincide with the establishment of the CPAB. The CPAB requirements will apply to all other firms auditing public companies within three years, says David Brown, OSC chair.

Significantly, this “voluntary agreement,” says Smith, involves acquiescing to a wide variety of sanctions including suspension or even cancellation of an audit contract.

Enforcement of the new system is necessarily voluntary at this point, as accountants in Canada are regulated province by province. At this point only Ontario, Alberta and New Brunswick have legislation in place enabling their provincial accounting bodies to sanction accounting firms. Lobbying efforts are under way to amend provincial legislation across the country, says Smith, though he was vague as to when amended legislation might be passed.

In Ontario, the OSC intends to issue new rules for public comment that will require auditors of Canadian publicly listed companies to be members in good standing of the CPAB. He expects his other securities regulatory colleagues to follow suit.

In the meantime, the CPAB will provide a threat to an accounting firm’s most precious possession — it’s reputation.

The CPAB will be made up of 11 individuals, including seven from outside the CA profession, that ideally will be leading lights from the financial services sector, business, legal and academic communities. The board is expected to hold its first meeting in mid-October.

The CICA is estimated that the new system will cost at least $6 million annually, doubling the amount currently spent on inspection. The cost will be picked up by the firms, themselves, not through CICA member fees.