Audit firms rapped for faults

For the past few years, auditing firms have been hard at work conforming to America’s Sarbanes-Oxley Act and other new regulations, but that doesn’t mean they’re problem free yet. According to a new report released by the Canadian Public Accountability Board, a number of auditing firms have been issued notices for failing to meet CPAB recommendations.

While the report doesn’t name names, it says one national firm, four firms that have more than 50 reporting issuer clients and 10 firms with fewer than 50 reporting issuer clients have been given citations for a variety of infractions.

Gordon Thiessen, chair of CPAB, says concerns range from auditors not consulting enough with experts to improper documentation. He says the former issue is the biggest problem. “It would be areas where consultations haven’t been used, where something really difficult needed to be done, like a tax or evaluation issue, and the work just hadn’t been done.”

Another problem is when independent partners in a firm are engaged to review all the work before an audit’s final report is issued. Thiessen says CPAB finds that the review process isn’t done as well as it should be. “If it’s done properly, it’s going to catch all the issues,” he explains. “Firms need to be more rigorous in that process.”

In some cases, CPAB had to ask firms to restate their findings. “We found that because the work hasn’t been done, once it was fixed, the valuation or taxation turned out to be slightly different.”

He says none of the firms had to make major restatements, so the public should not be concerned. Accounting errors aren’t a sign of a broken system

He says companies are still adjusting to Sarbanes-Oxley, so there are bound to be some reporting errors. “There have been so many changes in audit and accounting standards,” he explains. “They’ve been pressed in the last few years and sometimes parts of an audit just slide by.”

When an accounting firm does slip up, though, it’s given half a year to repair the problem. If it’s a national firm, CPAB will check up on the issue six months later, but problems at smaller firms are addressed during the yearly review.

If changes aren’t made, CPAB can issue sanctions, such as placing restrictions on firms that would hinder their ability to do audits, or make the company’s name public. “Reputation is so crucial in this business,” says Thiessen.

But so far, in four years of assessing auditing firms, Thiessen says, firms have always complied with CPAB’s recommendations.

However, if CPAB needed to go public, it would. “If we thought investors were at risk, we would do something more dramatic,” he assures. “If necessary, we would go public, but we’ve never found ourselves in a situation of that sort.”

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com