Canada’s audit regulator reports that its latest round of inspections saw a jump in significant deficiencies, and that two of the Big Four audit firms have quality issues to address.
The latest annual report from the Canadian Public Accountability Board (CPAB), published today, reveals that the number of audits with significant deficiencies uncovered in its reviews jumped to 14 in 2018 from just six in 2017 — out of 77 audit files reviewed. Significant findings are deficiencies in the firms’ use of generally accepted auditing standards that could result in a restatement, such as issues involving revenue recognition, impairment testing and basic audit fundamentals. However, the report notes, no restatements have been required so far.
Overall, the regulator concludes that audit quality remains “inconsistent” among the Big Four firms it examines (Deloitte LLP, Ernst & Young LLP, KPMG LLP, and PwC LLP). Two of the firms are providing acceptable audit quality, the report states, whereas the other two are working to address its remediation recommendations. The CPAB did not name the firms in question.
Further, the CPAB states, one of the firms must review the regulator’s findings to determine whether the latest results “are an anomaly or an early indication of a shift in audit quality and amend its action plan as needed.”
The other firm under review is required to provide the CPAB with a detailed plan to address its results, “including targeted communications of quality expectations to the partnership at large and a root cause analysis, to address these unacceptable results.”
The CPAB says the shortcomings it found in audit files often highlight weaknesses in the firms’ quality controls.
“Firm leadership and CPAB identified specific weaknesses and gaps across all firms’ quality management systems,” said Jane Williamson, senior vice president, audit regulation, at the CPAB. “In many cases our file-related significant findings were indicative of deficiencies in the firms’ quality management systems.”
Added Carol Paradine, CEO of the CPAB: “As we examine these inspection findings, we are continuing to see inconsistent audit quality; while the overall state of public company auditing in this country is strong, this prolonged inconsistency is something we are focused on requiring the firms to resolve.
“More specifically,” Paradine added, “these results tell us that public accounting firms in Canada need to do more to fully embed audit quality across the whole assurance portfolio. We have a plan in place to work with all firms to ensure this inconsistency is addressed.”