Practice Inspection

As a self-regulating profession, CPA NL has a mandate to protect the public by maintaining and improving the knowledge, skills, and proficiency of its members. One of the ways it fulfills this mandate is through a mandatory program to inspect the practices of CPA firms that offer public accounting services. Together with the other CPA bodies across Canada, CPA NL has implemented a harmonized approach to the performance and evaluation of the practice inspection program.

Each year, the practice inspection committee summarizes areas where standards adherence might be improved. The resulting Focus on Practice Inspection Findings communication serves to encourage firms to assess their own practice to ensure they are meeting the standards of the profession.  The communication outlines resources that can be used by firms to help ensure compliance.

Program Objective and Scope

The objective of practice inspection is protection of the public by assessing compliance with professional standards of firms that perform assurance, compilation and other specified engagements and by taking appropriate follow-up or remedial action in instances of non-compliance. The public is further protected by practice inspection providing an educational experience to members.

Essentially through an assessment of quality controls and a review of current assurance and compilation engagement files, Practice Inspection identifies areas where a firm may require assistance in maintaining prescribed professional standards. Practice Inspection does not set standards.

Files Subject to Inspection

All engagements addressed by the standards in the CPA Canada Handbook – Assurance are subject to inspection.  Inspection can include, but is not limited to:

•    Audits and reviews of financial statements
•    Other assurance engagements
•    Specified auditing procedures engagements
•    Compilation engagements
•    Quality assurance standards (1)

Note 1 – The standard on quality control (CSQC-1) for firms that perform audits and reviews of financial statements, and other assurance engagements shall be subject to practice inspection.

Selection of Offices for Inspection

Practice inspections are conducted for each practicing office.  As partners within an office conduct their work on firm letterhead and share liability for the work issued by the office, all partners must be accountable for the work completed by their fellow partners.  As such, all partners in the office are inspected together.  Furthermore, senior individuals within the office who have been given the authority to sign or issue assurance reports or notice to reader communications are also included in the scope of the practice inspection.   The cumulative findings for all the files inspected drive the overall practice inspection result for the office.  

Practice Inspection Cycle

Firms are inspected on a 3-year risk-adjusted cycle and must be inspected a minimum of once every three years. Risk factors are considered and practice inspections may occur more frequently if considered necessary.  Factors which might indicate a more frequent inspection than every 3 years include:

•    A new firm or office
•    Firm is newly registered with the Canadian Public Accountability Board (“CPAB”) and/or the Public Company Accounting Oversight Board (“PCAOB”)
•    Significant increase in reporting issuer clients
•    Change in practice profile of the firm, such as taking on new types of engagements
•    Merger or a loss of a significant number of partners or a number of new partners
•    Discipline decisions
•    Weak history of practice inspection results
•    Other information coming to the attention of CPA NL

Scheduling the Practice Inspection  

To assist CPA NL in planning for the inspection, firms are requested to complete and submit relevant questionnaires prior to the date of the inspection.  These questionnaires will be sent to each practicing unit selected for inspection in a given cycle, together with a letter communicating the notice of practice inspection.

Approximately one week prior to the date of the inspection, CPA NL will contact the firm to reconfirm the date and time of the inspection and follow-up on any outstanding initial requests (questionnaires or client list).

Practice inspections are generally conducted at the practice office.  In certain circumstances, a desk inspection may be considered. For desk inspections, the following procedures take place:

•    A client listing must be provided by the date requested by CPA NL
•    Engagement files will be selected by CPA NL from the client listing and the practitioner will be notified of the selection
•    The practitioner will send engagement files (electronic files or hardcopy files) to CPA NL by the inspection date

The desk inspection will be completed within 3 weeks of the files arriving at CPA NL.  CPA NL will courier the files back post-inspection with draft findings.

The Practice Inspection  

The files subject to inspection will be selected from the client listing indicating engagement type and partner responsible which is provided by the firm prior to the inspection. The firm does not pre-select the files to be inspected, nor does the practice inspector pick files from a "short-list" prepared by the firm.

Firms are expected to provide:

•    Access to files (if stored electronically, access to a laptop with firm software to review the files)
•    Access to the firm’s Quality Assurance Manual
•    Opportunity to meet with the firm’s identified contact for practice inspection purposes

The time scheduled for an inspection is only an estimate. Factors which influence the duration of the inspection are firm size, client mix, engagement type and organization and consistency of engagement files. The availability of the practice leader coordinating the inspection is important. The coordinating practice leader is requested to be available for a meeting with the inspector at the beginning and end of the visit.

The following occurs post-inspection, regardless of whether the inspection occurs on-site or at CPA NL’s office:

•    A draft report will be emailed to the designated contact at the firm
•    If there is a difference in professional opinion related to the reportable deficiencies and non-reportable items that was not adequately addressed at the closing meeting the firm is asked to provide additional information to address this matter
•    The firm is asked to respond to the reportable deficiencies raised in the draft report
•    The Practice Inspection Committee meets to review the inspection results and decide the appropriate action.
•    A letter of determination and invoice, together with the final reports, will be mailed to the main contact at the firm.  A final report will be included regardless of whether there were any amendments to the draft reports.

Practice Inspection Committee Decisions

The Practice Inspection Committee makes all decisions on the outcome of a practice inspection, including one or more of the following:

•    No further action required
•    Submission of an appropriate correct action plan  from the firm
•    Shortened, risk adjusted inspection cycle
•    A partial or full re-inspection be completed within a specified time period set by the Practice Inspection Committee
•    Requirement to engage a monitor in one or more areas of practice
•    Restriction on candidate training rights

Regardless of the decision of the committee, it is the expectation of the practice inspection program that all reportable deficiencies should be addressed immediately and recommendations are expected to be acted upon in the time frame specified.  

 

Focus on Practice Inspection Findings - 2018

Focus on Practice Inspection Findings - 2017