The Canadian Securities Administrators (CSA) has proposed revisions to National Instrument 52-108, Auditor Oversight, to alter the level of disclosure that audit firms are required to make to securities regulators and the audit committees of their clients when the Canadian Public Accountability Board (CPAB) imposes remedial actions on the audit firm.
Currently, audit firms are required to notify Canadian securities regulators and the audit committees of all their clients if the audit firm is subject to (i) CPAB restrictions in connection with the audit firm’s quality control systems and has failed to address them or (ii) sanctions imposed by CPAB.
The proposed changes would remove the obligation to provide notice of CPAB-imposed sanctions. Audit firms would be required to notify Canadian securities regulators if CPAB requires the audit firm to (i) terminate any audit engagement, (ii) engage an independent monitor to report on the audit firm’s compliance with professional standards, (iii) engage an external reviewer or supervisor to review the audit firm’s work, (iv) limit the type or number of new reporting issuer clients that the audit firm may accept, or (v) comply with any other remedial actions that CPAB has publicly disclosed or required the audit firm to disclose to Canadian securities regulators (collectively, CPAB remedial actions). By contrast, audit committees would be notified only if the audit firm fails to comply with any CPAB remedial actions or fails to notify securities regulators of CPAB remedial actions; audit committees will not be notified that the audit firm is subject to CPAB remedial actions so long as the audit firm is in compliance with them.
The Chartered Professional Accountants of Canada and CPAB are collaborating on ways to enhance the quality of audits (the EAQ Initiative) and on May 31, 2013, issued a report recommending that CPAB and the audit firms it oversees develop a protocol that would increase the information made available to audit committees, including information regarding the results of CPAB inspections of audit firms (further information about the initiative can be found here). The CSA intends to consider whether to introduce additional requirements for audit firms to notify their clients’ audit committees regarding CPAB remedial actions after additional progress is made to develop a protocol.
The proposed rule also reduces the time frames for delivery of notices in connection with a change of auditor and sets out the disclosure to be included in a prospectus if the auditor of the financial statements in the prospectus was not subject to CPAB oversight.