Canadian Public Accountability Board highlights gaps in smaller audit firms’ annual quality management evaluations

The Canadian Public Accountability Board (CPAB) has published takeaways from its second annual Public Company Audit Summits, highlighting gaps in smaller audit firms’ annual evaluations of their systems of quality management. Building on the 2025 summits’ emphasis on risk assessment and firm quality management, the publication focuses on evidence supporting annual conclusions under Canadian Standard on Quality Management (CSQM) 1. Firm submissions and inspections identified missing evaluation frameworks, evaluation periods exceeding one year and significant completion delays. Monitoring often relied on inquiries and cyclical file inspections without considering other relevant information, such as restatements or external regulatory findings. Other gaps included incomplete identification of findings, inadequate assessment of whether they constituted deficiencies and conflicting responsibilities that could compromise monitoring objectivity. Monitoring should respond to firms’ quality risks throughout the year, supported by documented frameworks for assessing the severity and pervasiveness of deficiencies. Firms must retain evidence supporting their annual conclusions. Conclusions that the system provides reasonable assurance except for severe but not pervasive deficiencies, or does not provide reasonable assurance, require prompt action and appropriate communication. Audit scenarios also reinforced the need to reassess risks as new or contradictory evidence emerges and to scrutinize management’s judgments without assuming management responsibilities. A revenue recognition case illustrated insufficient evaluation of contractual terms, failure to identify completeness and cut-off risks, and unresolved inconsistencies in confirmation responses. These findings concerned the sufficiency of the auditor’s work, rather than a determination that management’s accounting was incorrect.