Stakeholders have been invited to provide feedback on the desirability and feasibility of oversight requirements for work conducted by foreign audit firms for Canadian issuers, as described in a CSA Consultation Paper published on April 25, 2017. Responding to a proposal by the Canadian Public Accountability Board (CPAB), the CSA is exploring amendments to National Instrument 52-108 Auditor Oversight which would require foreign audit firms involved in the audit of a reporting issuer’s financial statements (Component Auditors) to register as a participating audit firm (a PAF).
The Need for Oversight
The Consultation Paper stems from CPAB’s request that the CSA amend NI 52-108 to require that Component Auditors register as PAFs providing CPAB with a legal basis to inspect their audit work in most foreign jurisdictions. Currently, a PAF who engages the work of a Component Auditor must comply with Canadian auditing standards which provide that the PAF is responsible for the direction, supervision and performance of the overall audit but a Component Auditor is not required to register as a PAF. As described in the Consultation Paper, CPAB has not always been granted access to audit evidence in instances where Component Auditors have performed a substantial portion of the audit work for a reporting issuer. According to CPAB, 597 reporting issuer audits in 95 foreign jurisdictions involved a Component Auditor in 2016.
The United States Example
Currently, the United States is the only jurisdiction that requires Component Auditors who play a substantial role in an audit of a public company to register with Public Company Accounting Oversight Board (PCAOB), the auditor oversight regulator. This requirement does not ensure access to audit work in all jurisdictions and instances of denied access are published by PCAOB on its website.
Public Disclosure of Restricted Access
To increase awareness of when the potential benefits of a CPAB inspection were denied, the CSA is also considering whether to require disclosure of CPAB being denied access to the work of a PAF or Component Auditor. Currently disclosure of how an issuer’s foreign operations impact the audit of financial statements or CPAB’s ability to inspect foreign audit work is not required. If adopted, disclosure would be limited to instances where CPAB has access restricted as part of an inspection, with such disclosure referring to the reporting issuer audit that CPAB inspected and not a different reporting issuer that used the same Component Auditor.
The CSA is soliciting comments until June 24, 2017, with specific questions being posed by the CSA for consideration. For further information, please see CSA Consultation Paper 52-403 Auditor Oversight Issues in Foreign Jurisdictions (April 24, 2017).