Practice Inspection

As a self-regulating profession, CPA MB has a mandate to protect the public by maintaining and improving the knowledge, skills, and proficiency of its members. One of the ways in which it fulfills this mandate is through a mandatory program to inspect the practices of CPA firms that offer public accounting services to the public. Recent initiatives by the provincial bodies have resulted in the implementation of a harmonized approach to the performance of practice inspections and the evaluation of inspection results by decision makers (provincial body practice inspection committees).

Each year, the practice inspection function summarizes areas where standards adherence might be improved. The resulting Focus on Practice Inspection communication serves to encourage firms to assess their own standards to ensure that the problems set out in the communication do not apply to their practices. 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 the 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 CPAMB

Scheduling the Practice Inspection  

The scheduling process begins with an e-mail notification from CPAMB advising that the firm is scheduled for a practice inspection, with a pre-determined date of inspection.  Notification is given approximately six weeks prior to the proposed inspection date. The firm is given fifteen days from the date of the notification to request an alternate date.

To assist CPAMB in planning for the inspection, firms are requested to complete and submit relevant questionnaires at least two weeks prior to the date of the inspection.  Firms need only complete the questionnaires that are applicable to their practice. The questionnaires are located below and can be completed and submitted online. Questionnaires, including a client list by engagement type and partner, must be submitted to CPAMB at least two weeks prior to the inspection date.

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

Practice inspections are conducted at the practice office, unless the firm only performs compilation engagements or the firm is based out of a home, in which case, 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 CPAMB
  • Engagement files will be selected by CPAMB 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 CPAMB by the inspection date
The desk inspection will be completed within 3 weeks of the files arriving at CPAMB.  CPAMB 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 two weeks 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. 

Prior to the file selection, the practice inspector will review the firm’s quality assurance manual as it will be a factor in determining the number of files selected. 

The file inspection occurs on the date(s) of the inspection and a close meeting will occur to review the reportable deficiencies and non-reportable items, if any. All reports are confidential. 

Interviews with students and counseling members may also be completed during the inspection.

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
  • Access to CPA candidates for interview purposes
  • 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. This discussion expedites scheduling the availability of other practice leaders, coordinates the close meeting and ensures that the inspection time is used efficiently.

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

  • A draft report will be mailed and/or emailed to the designated contact at the firm within 15 days of the inspection
  • The firm has 15 days to respond if there is a difference in professional opinion related to the reportable deficiencies and non-reportable items
  • A final report will be mailed and/or emailed to the designated contact at the firm regardless of whether there were amendments
  • The Practice Inspection Committee meets to review the reports. Any perceived conflicts with a Practice Inspection Committee member are reviewed prior to the meeting and distribution of report packages
  • A letter of determination and invoice will be mailed and/or emailed to the main contact at the firm within 15 days of the Practice Inspection meeting

‚Äč

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
  • An appropriate corrective action plan be received from the firm within a specified time period set by the Practice Inspection Committee
  • A partial or full re-inspection be completed within a specified time period set by the Practice Inspection Committee
  • Continuance, reduction or loss of the firm’s ability to train candidates
All reportable deficiencies should be addressed immediately and recommendations are expected to be acted upon in the time frame specified.  

Practice Inspection Questionnaires   

Firms that conduct audit engagements and/or review engagements should complete and submit the Practice Inspection Planning Questionnaire.

Firms that train CPA candidates or students and/or legacy CA, CGA and/or CMA students should complete and submit the Student Training Questionnaire.

Firms that conduct only compilation engagements should complete and submit the Compilation Only Planning Questionnaire.

Firms that do not conduct assurance engagements or compilation engagements should complete and submit the Declaration of Exemption.

 

© 2015 CPA Manitoba