Accounting firms get vote of confidence

(October 6, 2004) Canada’s four biggest accounting firms have passed quality control inspections conducted by the Canadian Public Accountability Board (CPAB).

The report states that there are no systemic problems with the quality of external audits done by the firms, referred to as “dedicated professionals who generally do a difficult job very well,” by board chair Gordon Thiessen, a former governor of the Bank of Canada.

However, the report adds there is room for improvement in several areas and makes a number of recommendations for change.

“This is the most comprehensive independent scrutiny these firms have ever faced with respect to the quality of their audit work,” says board CEO David Scott. “They accept that the public interest requires this and have fully cooperated with our inspection staff.”

The CPAB was created in 2002 in the wake of a number of accounting scandals in the U.S., such as Enron and WorldCom. The board scrutinized Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers. Together, those firms audit more than 4,000 public companies, representing about 70% of the Canadian market.

Although all of the firms emphasized audit quality, responsibility for day-to-day quality control operations wasn’t always well articulated, the board found.

Each of the four firms has extensive policies in place related to independence, the CPAB says. Still, further enhancement or clarification of those policies is required and certain firms and one company was asked to implement more training on independence standards.

In addition, some firms do not have a code of conduct with respect to compliance, the report notes, and some have not yet established a formal “whistleblower” procedure.

The CPAB conducted a thorough examination of 46 audits and found no errors. However, in three cases, the audits were not conducted in accordance with generally accepted standards.

The board says it expects the companies to implement its recommendations and will revisit them in the first quarter of 2005 to ensure they are doing so.

The CPAB is examining another 13 accounting firms and expects to issue a second report early next year.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com