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CPAB Consultation on Regulatory Disclosures
Letter Summary:
The Canadian Public Accountability Board is seeking comments on potential amendments to the type of information it discloses about the results of its assessments of accountants that audit Canadian reporting issuers. Currently, the rules governing CPAB restrict the sharing of inspection findings to limited circumstances. CPAB is considering certain disclosure principles, including improvements in audit quality, timeliness of CPAB reporting of audit deficiencies, public accountability and cost vs benefit considerations. The consultation seeks input on whether communication of findings to an issuer’s audit committee should be mandatory, how much information should be included in CPAB’s public reports and whether CPAB should publicly report on its enforcement actions.
Overview of the Council’s Comments:
The CAC is generally supportive of CPAB’s consultation and agrees that there are investor protection and capital markets integrity benefits that could be achieved through consideration of changes to the information that CPAB discloses about the results of its regulatory assessments, including both inspection findings and enforcement actions. The principle of public accountability particularly resonates with the CAC as regulatory transparency is paramount to capital markets integrity and systemic trust, and to the extent that CPAB’s assessment of a participating audit firm or an enforcement finding relates to a systemic issue or a matter of clear public interest, instances of disclosure should increase.
With respect to the type of information that could be disclosed to the public in future for individual audit firm reviews, we are of the view that information that would be most useful to external stakeholders (such as analysts and other end users of financial statements) includes anything that identifies material and systemic audit issues, including relating to conflicts of interest. Any issue that would cause an objective end user to question the integrity, independence, or validity of the audit results that are within the audit firm’s control should be strongly considered for public disclosure.
The CAC supports the efforts to increase regulatory transparency with respect to systemic issues found in CPAB’s review of audit work of participating audit firms. The audit of reporting issuer financial statements contributes in an important fashion to the integrity of and confidence in our Canadian capital markets and is a matter of interest to the governance bodies of reporting issuers and more widely to all stakeholders in Canadian capital markets.