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Controller Essay

5010 words - 21 pages

Canadian Requirements for Auditor Independence

Background
In December of 2003, the Canadian Institute of Chartered Accountants adopted new auditor independence requirements that hold auditors to higher professional and ethical standards, thereby further protecting the public interest.

The new standard is the result of a rigorous review, consultation and approval process lasting more than a year, and reflects the features of the updated global standard issued by the International Federation of Accountants, combined with the rigour of the Sarbanes-Oxley legislation and SEC requirements for public companies in the United States. The core principle of the new standard is that every effort ...view middle of the document...

The framework requires the auditor to identify threats to independence and apply safeguards to eliminate any threat or to reduce the threat to an acceptable level. If safeguards are not available, the auditor cannot perform the engagement.

More specifically, the new standard requires auditors to ensure that their independence is not impaired by threats that could arise from:
▪ providing assurance on their own work
▪ benefiting from a financial interest in a client
▪ promoting a client’s position or opinion
▪ becoming too sympathetic to a client’s interests
▪ being intimidated by a client

The following are some of the key features of the new Canadian standard.
• It applies to all audit and other assurance engagements.
• The new standard prohibits the firm and members of the engagement team and their immediate family from holding a financial interest in an assurance client.
• For audit and review engagements, it also prohibits partners who practice in the same office as the lead engagement partner from holding a financial interest in the client.

The new standard contains specific rules for auditors of listed entities. A listed entity is an entity whose shares or debt are quoted or listed on a recognized stock exchange and has either market capitalization[1] or total assets in excess of $10 million.
• It prohibits certain non-audit services (bookkeeping, valuations, actuarial services, internal audit outsourcing, IT system design or implementation, HR functions, corporate finance activities, legal services and certain expert services).
• It requires rotation of audit partners (lead and concurring partners must rotate after five years, with a five-year time out period; partners who provide more than 10 hours of audit services to the client and lead partners on significant subsidiaries must rotate after seven years, with a two-year time out period).
• It prohibits members of an engagement team from working for the client in a senior accounting capacity until one year has passed from the time when they were on the engagement team.
• It prohibits compensation of audit partners for cross-selling non-audit services to their audit clients.
• It requires audit committee prior approval for any service provided by the auditor.

Source: Adapted from the Canadian Institute of Chartered Accountants (CICA) at www.cica.ca.

Guide to the New Canadian Independence Standard

The following material has been adapted from the Guide to the New Canadian Independence Standard issued by the Canadian Institute of Chartered Accountants in October 2003. The full text is available through the Institute’s website at www.cica.ca.

It is a fundamental principle of the practice of Chartered Accountancy that a member who provides assurance services shall do so with unimpaired professional judgment and objectivity, and shall be seen to be doing so by a reasonable observer. This principle is the foundation for public confidence...

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