Changes to National Instrument 52-108 Auditor Oversight and its Companion Policy (the Amendments) require auditors that perform a significant portion of a reporting issuer’s audit work to provide the Canadian Public Accountability Board access to audit working papers, particularly in foreign jurisdictions.

• The Amendments introduce the concept of the “significant component auditor”, which is a component auditor that meets certain specified significance thresholds (as outlined below).
• A reporting issuer will be required to give notice in writing to a significant component auditor permitting the provision of access to the Canadian Public Accountability Board (CPAB) to its audit work if requested by CPAB.
• A reporting issuer will also be required to give notice in writing to a significant component auditor providing permission to enter into an agreement with CPAB governing access to its audit work (a CPAB access agreement) if this access is not voluntarily provided to CPAB upon its request.
• If the component auditor does not enter into a CPAB access agreement after the reporting issuer has provided it with notice of permission and CPAB has requested access, a participating audit firm (PAF) will not be permitted to use the audit firm as a significant component auditor.
• Provided all necessary ministerial approvals are obtained, the Amendments will come into force on March 30, 2022.

Issues with accessing audit work

As a result of differing languages, laws and business practices, where a reporting issuer has operations in a foreign jurisdiction (differing from its head office), a PAF may require a component auditor in that jurisdiction to perform audit work in support of the PAF’s auditor’s report. CPAB has determined that it requires access to the audit work performed by a significant component auditor to assess whether sufficient audit evidence has been obtained to support the PAF’s audit opinion. The Amendments are in response to challenges CPAB has had in accessing audit work performed by audit firms in foreign jurisdictions in this regard.

Required Notices

Provision of access^[1]: Once the Amendments are in force, a reporting issuer will be required to give written notice to a significant component auditor permitting the provision of access to CPAB of the auditor’s records if:

1. an audit of an issuer’s financial statements involved audit work performed by a significant component auditor; and
2. CPAB requests access to the significant component auditor’s records relating to that audit work.

Failure to voluntarily provide access: If a significant component auditor has failed to provide CPAB with access to their audit records, the PAF will receive a “CPAB access-limitation notice”. The PAF will then be required to deliver a copy of the notice to the reporting issuer, its audit committee and the regulator or securities regulatory authority for that reporting issuer.

Once the reporting issuer receives a copy of the CPAB access-limitation notice from the PAF they will be required to give notice in writing to the significant component auditor providing permission to enter into a CPAB access agreement.^[2]

Failure to enter into a CPAB access agreement: If a significant component auditor fails to enter into a CPAB access agreement in the manner outlined above, the PAF will receive a “CPAB no-access notice”. Once the PAF receives this notice, they will be required to deliver a copy to each reporting issuer audited by the PAF if the firm identified in the notice was a significant component auditor for their most recently completed financial period, the audit committee for each reporting issuer and the regulator or securities regulatory authority for each reporting issuer.

CPAB no-access notice — restrictions

Once the Amendments are in force, if a PAF receives a CPAB no-access notice they must not:

1. use the referenced firm as a significant component auditor for a financial period ending more than 180 days after the date of the notice; or
2. for a period ending more than 180 days after the date of the notice, use any other public accounting firm as a significant component auditor if audit work in the current or preceding year was done by that firm (unless the firm satisfies certain criteria as outlined in the Amendments).

Note that paragraph (a) above will not apply to a PAF in respect of a financial period of a reporting issuer ending more than 180 days after the date of the notice if CPAB notifies the PAF that the significant component auditor has entered into a CPAB access agreement and has not withdrawn from the CPAB access agreement before the auditor’s report has been issued.

Content and delivery of notices to regulators

The changes to the Companion Policy (52-108CP) provide helpful guidance with respect to the application of the amendments to National Instrument 52-108 (NI 52-108). Among other things, 52-108CP explains that NI 52-108 does not prescribe the content to be included in a CPAB access agreement, and that the terms and conditions, including the manner and conditions for when access is to be provided, will be agreed to by CPAB and the significant component auditor. Similarly, NI 52-108 does not prescribe the content of a CPAB access-limitation notice or CPAB no-access notice.

In order to satisfy the requirements to the regulator or securities regulatory authority as outlined above, a copy of a CPAB access-limitation notice or CPAB no-access notice should be delivered by email. The communication should identify each regulator or securities regulatory authority that is to receive a copy of the notice, if such information is not specified in the notice.

Significant Component Auditor

The Amendments introduce the definition of a significant component auditor, which is defined as a component auditor that performs audit work involving financial information related to a component of the reporting issuer if the reporting issuer has the power to direct the component on its own or jointly with another person or company and if any of the following apply:

1. the component auditor spends 20% or more of the total hours spent on the audit of the financial statements;
2. the component auditor spends 20% or more of the total fees paid for the audit of the financial statements; and
3. the assets or revenues of the component are 20% or more of the reporting issuer’s consolidated assets at the end of the financial period or the consolidated revenues for that period and the number of hours spent by the component auditor exceeds 50% of the total hours spent on audit work relating to the component in connection with the audit of the reporting issuer’s financial statements relating to that period.

The changes to 52-108CP contain guidance to assist with making the determination of whether a component auditor meets the definition of a significant component auditor, such as what constitutes an “audit hour” or “audit fee”, how to determine percentage of audit hours, percentage of audit fees, number of audit hours and more.

For further information, please see CSA Notice of Publication Amendments to National Instrument 52-108 Auditor Oversight Changes to Companion Policy 52-108 Auditor Oversight (January 13, 2022).

[1] In Quebec this requirement will apply to a reporting issuer provided that an agreement referred to in section 9 of the Chartered Professional Accountants Act (chapter C-48.1) is entered into.

[2] In Quebec this requirement will apply to a reporting issuer provided that an agreement referred to in section 9 of the Chartered Professional Accountants Act (chapter C-48.1) is entered into.