Pcb Case Study Summary

1- There are many challenges in current audit environment from reading of PCAB 2013 public report, and three challenges are

• Globalization:

The need for expansion in global business is a necessity for big companies, and many Canadian companies are expanding their operation into overseas markets. This is a new challenge to the performance of high quality auditing, because new transaction will be made in these markets which are not necessarily follow Canadian GAAP standards for purpose of reporting. The auditors must ensure they understand business standards and regulatory that is applicable to entities that now form a part of consolidated financial statement. The auditors need to understand business structures which exist in foreign countries.

This will make it more challenging to ensure the accuracy of consolidated financial statement and disclosure of notes in the financial statement.

Summary results of the big four results from inspection

• Lack of professional skepticism

It is not a good practice for auditor to just accept management’s views without any arguments or appropriate challenges. Auditors should always challenge management for what they tell them against what they already have.

CPAB believes firms need to enhance the professional skepticism of their staff by:-

 Senior members of engagement team are rotated frequently to avoid complacency or threat of familiarity.

 Increase the visibility and effectiveness of senior engagement team members during all audits.

 Engagement team to be less accepting and more challenging in their approach to an audit.

 Training of professionals in exercising skepticism.

• Audit work of internal controls

It is important to test internal controls, in many cases audit fails due to lack of identifying the key control that must be tested by engagement team. Also the audit fails if wrong control was

Firms need to make sure they have sufficient access to working papers of component auditors. Also they need to have adequate knowledge of the customs and business practices in foreign countries.

• Impairment testing

Firms must always audit fair value for the purpose of determining possible impairment of assets. This is determined by analyzing cash flow.

CPAB Has noticed that firms do not sufficiently analyze if these projections are based on reasonable assumption.

• Reliance of internal controls

Firms must not rely on internal controls when they have smaller reporting issues. When assessing effectiveness internal controls firms usually fail to identify and test controls that mitigate audit risk at assertion level.

2- 3 current and emerging issues

• Changes to auditor reporting

CPAB believes that more transparency with auditor reporting is needed. Auditors need to share information in order to provide bigger value to their audit of financial statement.

Listed below are areas that need improvement:

1- Key/Critical audit