Quality of some Canada audits seen as inadequate

Tue Apr 3, 2012 3:13pm EDT
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By Jennifer Kwan

TORONTO (Reuters) - Canadian auditing firms need to improve the quality of their work to assure they are fulfilling their responsibility to protect investors against corporate fraud and sloppy accounting, according to a watchdog's report released on Tuesday.

The Canadian Public Accountability Board's annual review, which examined 245 audits conducted by 88 firms, found the same weaknesses cropping up year and year without much improvement. It follows at least two other reports this year that identified weaknesses in Canadian auditing.

The board "believes the results of this review should be a wake-up call for Canada's auditing profession," it said in the report.

After the review, the board said it sought disciplinary action against seven of the firms, while additional firms also were given plans to improve their performances.

Audit firms are "identifying the risks, but they're not following through on the execution," Brian Hunt, the board's chief executive, said in an interview.

A review of files by "Big Four" firms - Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers - found 20 to 26 percent of the cases fell short of Generally Accepted Auditing Standards. Among smaller firms, deficiencies were even more common.

Despite the weaknesses, Hunt said investors could still have confidence in the integrity of public company financial statements audited in Canada.

"Our inspections did not lead to many restatements, and firms are progressing on their remedial action plans," he said.   Continued...