Like its U.S. counterparts, the Canadian Public Accountability Board says that the Big Four firms have more work to do in order to improve audit quality and consistently meet professional standards. It was the board's third public report on its continuing inspections of accounting firms."They have all made progress since we first inspected them in 2004, and each one has given us written commitments that the problems we identified in this round of inspections will be remedied," stated CPAB Chairman Gordon Thiessen.
The CPAB's third public report is based on inspections conducted in 2005 for Canada's four largest firms - Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers. The firms audit more than 4,000 public companies and other reporting issuers in Canada, representing about 63 percent of the total market share measured by number of clients, and more than 90 percent measured by market capitalization.
The report says that the firms must improve in two areas:
* Compliance with firm policies and procedures to ensure auditor independence - the inspections found that more than half of the individuals subject to compliance audits were in violation of at least one aspect of firm policies.
* Performance on audit engagements - of 87 audit engagements selected by the CPAB for review in the four firms, five engagements (at least one at each firm) had serious deficiencies. In all five cases, the common shortcoming was insufficient appropriate audit evidence to support the unqualified audit opinion that was given.
Each firm inspected has received a private report from the CPAB that includes specific recommendations. The firms have 180 days or less to implement the recommendations. The report noted that substantially all of the recommendations that the CPAB made to the four firms as a result of its 2004 inspections have been implemented effectively.
Inspections of the four largest accounting firms were the subject of the CPAB's first report in October of 2004. Its second report, released in August of 2005, was based on inspections of 23 public accounting firms in Canada, ranging in size from national partnerships with numerous offices to sole proprietors with a single office.
