Enhancing Audit Quality: Canadian Perspectives - Auditor Independence

The discussion paper Enhancing Audit Quality: Canadian Perspectives - Auditor Independence was issued in September 2012. It is the result of a collaborative initiative by the Canadian Institute of Chartered Accountants (CICA) and the Canadian Public Accountability Board (CPAB). The initiative focuses on three interrelated key areas in enhancing audit quality – the independence of auditors, the role of audit committees and auditor reporting. This 31-page paper was prepared by the Independence Working Group (IWG) in response to global proposals to modify auditor independence rules.

As discussed in the August 2012 publication Enhancing Audit Quality: Canadian Perspectives - Initiative Overview (see Appendix A thereof), audit quality is affected by many factors other than auditor independence. Indeed, many of the factors affecting audit quality involve parties other than auditors, their firms or the audit committees of companies they audit. Accordingly, considerations of the broader issues are outside the scope of this paper.

Following introductory and background chapters, this paper considers the meaning of “independence” (Chapter 3), and describes the current Canadian independence framework (Chapter 4) and the role of professional skepticism (Chapter 5). Next, the paper identifies and describes those global proposals in response to the financial crisis that are relevant to independence (Chapter 6). Guiding principles for evaluation of these global proposals adopted by the IWG are noted (Chapter 7). The paper concludes with an evaluation of the relevant global proposals and the consensus reached by the IWG on each of the proposals (Chapter 8).

To learn more about this joint CICA-CPAB initiative, see “Enhancing Audit Quality: Canadian Perspectives.”

Towards a global Code of Ethics for a global internal auditing profession

A recent article notes that the rapid pace of globalization requires internal audit professionals to possess a more sophisticated global mindset. This mindset includes not only the traditional technical dimensions of internal audit practice, but also its ethical foundations which can vary from country to country, from culture to culture and from language to language. Furthermore, language, culture and local laws and regulations can significantly impact how the ethical behavior of internal auditing professionals is analyzed, understood and, when necessary, investigated for propriety.

In this regard, the cultural anthropology concepts of emics (the insider’s perspective) and etics (the outsider’s perspective) of a culture influencing an individual’s ethical stance, and corresponding behavior, are discussed in detail. The article suggests that internal auditors working in global contexts might usefully adopt the “participant-observer” technique. Utilizing the constructs of the “three levels of culture” could be extremely useful in appreciating the surface features and deeper, unconscious bases where basic assumptions and values reside, and are correspondingly quite difficult to discern.

While appealing in theory, applying the participant-observer technique in practice could present a serious challenge to internal audit practitioners. In the 21st century, the Institute of Internal Auditors (IIA) constitutes one of the truly global professional organizations featuring representation from all major continents. So, there is an opportunity to evaluate the existing IIA Code of Ethics from different angles using the perspectives mentioned in this article, as well as others. The task seems endless, and the complexity is immense, but there is every promise that the efforts of many dedicated professionals around the world will make this evolving process exciting and worthwhile for future generations.

For more information, read the article “Towards a global Code of Ethics for a global internal auditing profession” by SridharRamamoorti, PhD, Associate Professor of Accounting and Director, Center for Corporate Governance, Kennesaw State University, Kennesaw , Georgia, USA.

Using a conceptual framework in setting accounting standards

A current research paper examines the nature and role of a conceptual framework for financial reporting. Although much has been written about such frameworks and their purported role, there are still questions about what it is and how it is used in setting accounting standards. It is noteworthy that the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are currently revising and converging their frameworks.

Using insights from the philosophical literature, this paper considers the nature of the statements that appear in the chapters of the conceptual framework on objectives and qualitative characteristics. It then considers how these statements are used by standard setters in reasoning towards accounting standards. The kind of reasoning involved and the type of statements that are used in such reasoning is examined.

The idea that some of the statements in the conceptual framework express desires that are to be fulfilled by financial reporting, regulated by accounting standards, is explored. These should be conceived as expressing general desires that are used in practical or instrumental reasoning towards accounting standards, rather than as universal desires that enable the deduction of such standards. The need for the exercise of judgment in such reasoning is explored.

The nature of the other statements in the conceptual framework is ambiguous. They are sometimes taken to be empirical statements about how the desires are to be fulfilled and sometimes taken as statements about the meaning of expressions used to express these desires. The paper suggests that the development of the conceptual framework would be easier and the final product would have more credibility if its nature and role was more clearly understood.


Dr Ian Dennis

This paper makes reference to the research study Professional Judgment in Financial Reporting by Michael Gibbins, PhD, FCA and Alister K. Mason, PhD, FCA, published in 1988 by the Canadian Institute of Chartered Accountants (CICA). It also makes reference to the Ross Skinner article Judgment in Jeopardy, first published in CA Magazine in November 1995 and reprinted in Canadian Accounting Perspectives in 2005. For more information, read the 33-page article “Using a conceptual framework in setting accounting standards” by Dr Ian Dennis, Senior Lecturer in Accounting and Finance, Oxford Brookes University Business School.