The Canadian Public Accountability Board today released its second public report on its inspections of accounting firms, noting that “there is significant room for improvement”.

Most firms need simply to enhance existing practices, the CPAB says. However, a minority of firms have an urgent need to make substantial improvements the report warns. Problems include: lack of effective internal controls, accepting clients that pose an unacceptable risk, failing to implement new auditor independence rules, and inadequate training on current accounting and auditing rules.

The report is based on the CPAB’s inspection of 23 public accounting firms that audit more than 5,500 public companies, representing 80% of companies in Canada and about 90% of the market capitalization. Its first report, released October 2004, focused on the big four accounting firms. The latest report notes that many of the changes it recommended to those firms have been implemented.

As a result of this latest round of inspections all firms have received recommendations for change, the CPAB reports. And, requirements have been placed on four firms, which will bar them from accepting new audit clients until improvements are made. These restrictions remain in place until all the recommendations have been implemented.

CPAB acting CEO, Keith Boocock said that many of the deficiencies are the result of inadequate resources being devoted to audit quality.