Public company scandals lead to creation of new auditor rules

Canada’s public companies and their auditors will be under increased scrutiny with the creation of the Canadian Public Accountability Board (CPAB), announced by the Canadian Securities Administrators (CSA), the Office of the Superintendent of Financial Institutions (OSFI) and the Canadian Association of Chartered Accountants (CACA).
The new system will oversee public company auditors and enforce new regulations, including more rigorous inspection of auditors and public companies, new rules on auditor independence and new quality control requirements for auditors.
Among the changes will be limits of the kinds of consulting services auditors can provide to their clients, rotation of lead partners on audits and having a second partner review all audits.
There will be an annual review for major firms that audit public companies. “Failure to remedy significant deficiencies identified by the CPAB will result in sanctions and will also be communicated to the appropriate regulators who may take action,” states a joint press release.
In the wake of the Enron, WorldCom and other public company scandals, the new body is intended to restore public confidence in auditing and public company financials.
Canada’s major accountancy firms have agreed to proceed with the new system in October 2002, with smaller firms to follow within three years. The CPAB board will be made up of 11 individuals, of which at seven will be from outside the accounting profession.
“This new oversight body is not controlled by the CA profession. The new system is based on independent, public oversight, tougher practice inspection and more rigorous quality control mechanisms,” says Ontario Securities Commission (OSC) chair David Brown, also chair of the group appointing CPAB members. “We intend to expose for public comment new rules that will require auditors of Canadian publicly listed companies to be members in good standing of the CPAB.”
The new system is expected to cost at least $6 million annually, doubled the amount currently spent on industry self-inspection through provincial CA Institutes.