Canadian Public Accountability Board

Canadian Public Accountability Board

Abbreviation	CPAB
Formation	April 14, 2003 (2003-04-14)
Founder	Canadian Securities Administrators Office of the Superintendent of Financial Institutions Canadian Institute of Chartered Accountants
Type	NGO
Tax ID no.	890500705RC0001
Registration no.	4157826
Legal status	Not-for-profit corporation
Purpose	National audit regulator with respect to public reporting issuers
Location	Toronto, Ontario
Chair	Nicholas Le Pan
Chief Executive Officer	Brian A. Hunt
Budget (2015)	$16,265,000
Revenue (2014)	$16,139,000
Expenses (2014)	$16,914,000
Slogan	World class audit regulation
Mission	Effective regulation
Website	www.cpab-ccrc.ca

The Canadian Public Accountability Board ("CPAB") (French: Conseil canadien sur la reddition de comptes) is a national body organized by the Canadian Securities Administrators ("CSA") which oversees Canadian accounting firms performing auditing work.

Formation

The CPAB was formed in 2003, as part of Canada's response to the occurrence of accounting scandals that were happening worldwide, such as at Enron and Worldcom. It was different in approach from the Sarbanes-Oxley Act adopted in the United States. In 2016, its CEO stated that the Board "encourages a more holistic approach to better understand the root causes of lapses in audit quality," in contrast to that taken by the US Public Company Accounting Oversight Board.

The CSA have specified that a "reporting issuer" (ie, a publicly traded company) must have its financial statements audited by a "participating audit firm," being one that has entered into a participation agreement with the CPAB which has not been terminated. Its authority is reinforced through legislation passed at the provincial level, of which Ontario has passed the most extensive example.

Scope

164 Canadian and 133 foreign firms have entered into participation agreements with the CPAB. These firms audit approximately 4,000 reporting issuers and 3,000 investment funds. Of these firms, fourteen are inspected annually, of which the Big Four account for 98% of total market capitalization on Canadian markets, and the other 10 large firms account for a further 1.5%. The other firms are subject to inspection on a triennial basis.

Governance

The CPAB has two governing bodies. The Council of Governors consists of six members, who are the Superintendent of Financial Institutions, the Chair of the Ontario Securities Commission, the Chair of the Autorité des marchés financiers, the Chair of the Canadian Securities Administrators, a fifth Governor selected by the CSA, and a sixth Governor selected by the other five who is a public accountant that has audit oversight regulatory experience. In turn, the Council appoints the Board of Directors, who are responsible for supervising the activities of the organization.

Deficiencies and controversies

A 2007-8 review by CPAB of financial statements audited by the Big Six firms revealed that of 130 audit files examined, 11 were found to have deficiencies.

In 2011, the Board raised concerns that auditors only reacted when issues were raised by its inspectors, and that they were not taking proactive measures to improve the quality of their work. The report also noted that the same findings were being noted year after year, and that the majority of deficiencies related to basic audit procedures. Little progress was seen to have occurred in 2012, and a low level of professional skepticism was still seen as a major issue in 2013.

In 2012, CPAB released a review it conducted of work done by Canadian audit firms with Chinese clients. It found flaws in 12 of the 24 companies examined, and barred one auditor from doing such work until it upgraded its procedures. This was significant, as, in 2011, 56 companies from China and other parts of Asia were listed on the TSX or TSX Venture Exchange, many getting their listings through reverse takeovers of dormant shell corporations, and Sino-Forest Corporation had collapsed in mid-year after irregularities were found in its financial results. In 2014, the Board reported that it was still experiencing difficulties in being able to review foreign operations of some Canadian-based companies.

Because of irregularities such as those occurring at Sino-Forest, the CSA issued proposals in 2013 to require mandatory notification of certain events to reporting issuers and regulatory authorities, which were subsequently adopted in 2014.

In November 2015, the Board reported that the incidence of significant findings in files examined was increasing, and that the most prominent audit issues concerned the execution of audit fundamentals and the understanding of a client's business processes that are relevant to financial reporting. A report earlier that year stated that the incidence of deficiencies observed appeared to be declining in files concerning the Big Four and other national/network firms, but was increasing in files concerning regional firms.