Auditor Independence Peter Mills

Mandatory Comprehensive Review of the Auditor

• The Audit Committee Working Group is now evaluating the concept and related requirements
• Support the mandatory comprehensive review concept
• Working on operationalizing, guidance and tools
• Preliminary draft completed, with a discussion paper anticipated late December 2012 or early January 2013

Non-audit services

• Global proposals address further changes to non-audit services
• Consensus – Continue the Canadian principles-based/prohibition approach to non-audit services
• Recommends consideration of additional independence prohibitions for two of the three differences* between the Canadian and SEC/PCAOB prohibitions
• Recommends further study on the third item

* Differences are providing personal tax services for individuals in a financial reporting oversight role, aggressive and confidential tax transactions and providing non-audit services on a contingency fee basis.

Audit-only Firms

• EC is the only body proposing audit-only firms
• Based on percentage of market share by firms in the audit services of larger public interest entities
• Consensus – Audit-only firms were not supported

Other Audit Structures - Joint audits

• Consensus – The IWG recommends the rejection of joint audits
• Discussion on this topic is limited in global proposals
• Canada previously had joint audits, and this requirement was removed. Reasons for the change included:
• The potential division of responsibility associated with the approach
• Concern that some issues would fail to get addressed
• The potential to create incentives for management to choose the opinion of the auditor that yields the most favourable result
• Concern that there could be less accountability, less auditor oversight, and diminished quality of the financial statements