Canadian Requirements for Auditor Independence

Background
In December of 2003, the Canadian Institute of Chartered Accountants adopted new auditor independence requirements that hold auditors to higher professional and ethical standards, thereby further protecting the public interest.

The new standard is the result of a rigorous review, consultation and approval process lasting more than a year, and reflects the features of the updated global standard issued by the International Federation of Accountants, combined with the rigour of the Sarbanes-Oxley legislation and SEC requirements for public companies in the United States. The core principle of the new standard is that every effort must be made to eliminate all real or perceived threats to auditors’ independence.

Development of the new independence standard began in June 2001, after an Independence Forum of auditors, regulators, academics, analysts and financial statement preparers held by the Public Interest and Integrity Committee (PIIC) concluded that the PIIC should develop a uniquely Canadian independence standard that would be based on the international standard, and incorporate the SEC requirements for audits of public companies.

The new standard was first released for public comment in September, 2002, and became effective for engagements starting after December 31, 2003. The standard marks a shift to a more rigorous ‘principles-based’ approach, meaning its applicability goes beyond any specific situation and mandates a proactive approach, based on clearly articulated principles. It contains a framework that describes apparent and actual threats to auditor independence. The standard also recognizes that there are certain activities for which there are no adequate safeguards, so it prohibits specified activities and relationships.

Overview
The standard provides a framework for auditors to apply in