Value of Audit Toronto in full

03 November 2014 Comments (0)

A full transcript of the economia/KPMG roundtable with our panel of experts in Toronto

Speakers

RC Richard Cree
LB Larry Bradley
MV Mark Vaessen
UM Unidentified Male
SL Scott Lawrence
SM Stan Magidson
IB Ian Bourne
CM Cameron McInnis
GF Glen Fagan
AT Axel Thesburg
KB Karyn Brooks
JG John Gordon

RC: Well, good morning, everybody, and welcome to this, the fourth in the series of value of audit
roundtables that weve been holding. My name is Richard Cree, Im the editor-in-chief of economia, a
magazine produced on behalf of the ICAEW out of London. Weve been pleased to work with KPMG on
this interesting project, where were exploring the global issues in terms of the state of the audit
profession and the audit market, but also, some local issues. Were seeing where there are
commonalities and where there are local differences and getting a sense of those issues. I guess, if I had
any observation of the three weve done so far, its that they have been pretty upbeat. The overall
assessment would be that the audit profession is doing an important job pretty well. Its not necessarily
an issue of all doom and gloom, which is sometimes how its portrayed.

Clearly, there are still challenges ahead, in terms of what the scope of the profession should be, and
what the role of audit is in the changing business landscape. And we can explore some of those issues

today and also the issues around the relationships between different stakeholders. I think Mark will talk
in a bit about some of the conversations weve had at the previous roundtables, and draw out some of
the key things. What well do is well just kick off with going round the table. First Ill hand over to Larry
Bradley in a minute, and he can set the scene from a KPMG perspective, in terms of what the value of
audit programme in its entirety, is about. Then Mark Vaessen can then talk a bit about the roundtables
weve had so far, what theyve delivered and the key things that have come up.

It would be good, as we go around the table after that, if you could introduce yourself and perhaps give
an opening comment or opening remarks. Well come round to John Gordon, whos last, but definitely
not least, and hell be able to set the context in a more local, Canadian frame.

LB: Thank you, Richard. Im Larry Bradley. Im the global head of audit for KPMG. And first of all, thank
you for coming and thank you to Richard for directing this roundtable. Although this is the fourth
roundtable that weve had globally, this is the first that Ive been to, so Im very interested in this. The
future of audit and the value of audit roundtables and everything that were doing along those lines is
the output of a decision we made at the global level, to be very proactive, about two years ago in
particular to reaching out to our stakeholders. We actually derived a mission statement for the first time
for KPMG and KPMG Audit, and there are two key points to that mission statement. One key point is
that we have a responsibility to society. And this is something thats come out of the global crisis, and
something that we gave long and deep thought to. And the second part of our mission statement is; our
responsibility includes providing assurance, but assurance over what matters and what matters to
stakeholders.

And we define stakeholders much more broadly now than I think we ever have. We include, in our
stakeholder set, governments, regulators, investors, audit committees and management. So were no
longer looking at the world strictly through the lens of our audit clients, or audit committees, or
management. Rather, were trying to look at the world through the lens of this wide group of
stakeholders. Again, were trying to be proactive in what were doing. That is, not waiting for a
regulation to be set, but proactively reaching out to this group of stakeholders to get views on what we
should be doing, and I think that is the purpose and the value of audit roundtables.

MV: Im Mark Vaessen. my with KPMG is as the Global Head of IFRS, based in London for the last 17
years, although Im a Dutch national. As Larry said, together with Larry, Ive been sponsoring the value of
audit programme, and I had the privilege of going to the other sessions weve done. Its been a very
interesting experience, so far. If I just recap, very briefly, what the key themes are. What we find, first of
all, is that in every jurisdiction we go, there are certain specific themes that come up. Although we saw
that there is a lot of commonality of themes, as well, there are also some specific flavours, and wed
expect that today, as well. So when we went to the London one, which was the first one that we did,
there was quite a bit of discussion about the new audit report. You may know that in the UK, they have
already introduced when they had before, that the International Auditing Standards had introduced as

a new audit report, with more than just a binary fail or pass and go into the key risks, going into what
youve done about the key risks, as an auditor. And in the UK, KPMG even went a step further, on a pilot
basis, for some clients and actual talk about some of the findings. That was quite a bit of a discussion
there, and an interesting discussion, also, to hear from investors how they perceived that audit report.
We had a good discussion about audit quality and, I think, the difficulty of assessing audit quality. That
is, actually, a theme that came back in all three roundtables that we did. And discussion about the
relationship between corporate governance and the key players of the CFO, audit committee, auditor,
investor and the relationship between them and how that should or may develop.

Then we went to South Africa, where you may know, they have introduced integrated reporting for all
listed companies. At the table we had Professor Mervyn King, who is the Chair of the Integrated
Reporting Council. Also, the debate there was around the corporate reporting model, the flaws, maybe,
in the current model, and what integrated reporting brings to the table. But that also led to a discussion
as to whether we, as auditors, could play a more useful role in also giving expanded assurance over
some of the elements that are not the financial statements, but cover more than non-financial KPIs, etc.
So that was the discussion in South Africa.

The most recent one, in Singapore, was a mix of all of these topics, I think. An interesting topic raised
there was audit quality. Very often, we see that independence and mandatory firm rotation is taken as
the only proxy for audit quality or to address audit quality. And there was, certainly, some sense that we
need to be developing some more specific indications of audit quality, because these may be very crude
measures, if you go down that path.

SL: Im Scott Lawrence. Im the head of relationship investments at the Canada Pension Plan Investment
Board. Im probably the least technically qualified to talk about any of the topics today, given that my
KPMG career was aborted after two summers, back in the 1990s. I am, however, a consumer of this
input, as both an investor Ive been in private equity for almost 15 years now and also as member of
audit committees for the boards that I currently serve on. So my familiarity is through that. The most
interesting question I thought, of the package of material that was sent out, was related to how relevant
is financial reporting to making investment decisions? I laughed at the suggestion that if audit was
irrelevant, we wouldnt need any of this. I thought; great, we dont need to talk. But its far from the
truth. The fact of the matter is that trust in the system, trust in the financial statements, is absolutely
essential for the activities that we do. One of the things that I try to train our most junior staff in, is the
fact that investment decisions shouldnt be made solely on forward looking information. Its very easy to
take the existence of a company and project all kinds of hockey stick like financials. But the fact of the
matter is that those who ignore history are doomed to repeat it. So if you dont look back and see how a
company generates its cash flow, or even has cash flow, if you dont have trust in the systems that a
company has, in order to manage the overall enterprise and manage those KPIs that you talk about, if it
doesnt hold together, you shouldnt invest. So, for me, audit is an absolutely integral part of the
financial system, so that we can have sets of financials that communicate the necessary information for
investors to know what they would contemplate investing in and what they already have invested in, to

make the critical decisions that we have to make all the time. So this is pretty important,
notwithstanding the fact that for the average purveyor of the information, it doesnt go beyond whether
or not an unqualified opinion was given.

SM: Im Stan Magidson and Im CEO of the Institute of Corporate Directors. Im also, currently, the
Deputy Chair of the Global Network Director Institutes, and Ill actually be succeeding to chair that
organisation in December. So, I guess, I represent, perhaps, the voice of the director. My background is
not accounting. I certainly took accounting courses, but Im a lawyer by training, and I also did some
time at the Ontario Securities Commission. So I think I understand the regulatory perspective well. I
guess, in terms of opening comments, one of the things I think we do particularly well, here in Canada, is
there are diehards amongst different players in the capital markets. And I think thats, actually, given
rise, in this country, to a very healthy state of corporate governance, by global standards. And I really
give a lot of credit here to KPMG for this kind of initiative, where you actually convene groups to talk
about how to go forward. Im a firm believer that regulation for the sake of regulation is a result of
failure of the capital markets to otherwise work effectively. So I think that when you can come up with
collective solutions that are, actually, best practises, thats far superior to a regulatory response, which
can be a very crude kind of instrument. So, again, kudos to you for the initiative here. And I think that
they came up with a made in Canada type of approach to that problem, and I know that Axel can speak
a lot more to that. And I think thats, kind of, a model. If we could, kind of, continue to advance in
Canada, but also see it take hold internationally, I think that this would be a good outcome for the
world.

IB Im Ian Bourne. Im on a number of corporate boards. I chair SNC-Lavalin in Montreal, a global

engineering and construction firm, and Ill come back to that in a couple of minutes, that are, kind of,
germane here, I think. I chair the board at Ballard Power, which is a fuel cell company. I serve on the
Canada Pension Plan Investment Board. I serve on the Canadian Public Accountability Board. Im on
Wajax, which is a distributor of Montreal equipment and products. And Canadian Oil Sands, which in the
oil and gas business, quote, unquote, Oil Sands bitumen business. My background is in, and Ive chaired
audit committees or served on audit committees in all of those firms, at one stage or another. And my
background; Im a finance guy, but Im not a trained accountant. I went to the GE system at a university,
and went through the boot camp of internal audit and all of those kinds of things, and spent a little over
20 years in the GE system. I retired a few years ago as the CFO in TransAlta Power Generation Company
in Alberta, and now, as I say, I serve on a number of boards, and Ive been fairly active in an number of
these areas of interest.

And it probably shouldnt come as any surprise for those who know me, but my view on this stuff is
fairly traditional. And that is that I think the real value of the audit is in ensuring that the system, itself,
has got the integrity and that the people who are playing their parts in the whole process of financial
reporting, checks and balances, is functioning. And I think that the example that weve seen at SNC level,
which weve worked our way through for the last And my sense is that if the auditors start to get into
areas that theyre not necessarily skilled, capable or trained to do, theyre going to dilute what is the

real value of the system, which is integrity of the financial statements. And current disclosure about
issues that may or may not be of interest to investors, I think this idea of saying that heres where we
concentrated some effort, because thats how we assessed the risk profile of that company, I think that
makes tremendous sense. To get in and start disclosing stuff, I think, makes no sense. I think thats the
role of the Audit Committee, and I think that the whole key to success here is that the Audit Committee
needs to be an active participant in the whole check and balance system, the assessment of the quality
of the audit piece of that. I was chilled, a couple or three years ago, when I heard a comment from a
senior regulator in the US who, basically, dismissed the audit committees as they dont count, they
matter, we dont count on them to do anything. I was, quite frankly, appalled. And I thought; if this guys
a regulator, weve got a problem. So I think that part of this whole exercise of assessing the value of the
audit is that we need to make sure that were getting what we paid for, that were not getting a bunch
of stuff that we dont need, were not getting a bunch of stuff that we cant use. And the people who are
doing the work, actually know what that theyre doing. Its about that simple to me. And then a number
of other products and services that can get added on, you know, may or may not be the best person to
provide that service. But ultimately, the more you, sort of, move away from that core responsibility, the
more delivered it becomes, and quite frankly, the less clear it becomes to both the Audit Committee, the
Board, and the investors, that you can count on the financial statement.

CM: Im glad Ian was before me because thats a segway into my role, which is that Im the Chief
Accountant at the Ontario Securities Commission in Canada. Im a securities regulator, and of course, I
come at it from an investor protection standpoint. Making sure that the system is reliable, making sure
that investors can rely on the audit report. And thats the fundamental concern that I have, as a
securities regulator, is just that. And interesting comments that Ian made, I didnt quite expect that,
about how possible other activities of the auditors could detract or dilute the value or the true value of
the audit, as I see it, from an investor standpoint. Which is; investors rely on the auditor as an important
gatekeeper, to make sure that those financial statements are sound and that they can rely on that audit
report. The further away we get into other areas, I do worry a little bit about the detraction of the focus,
which is that key, fundamental piece, and I echo a lot of Scotts comments, too, about how that is such a
sound, fundamental piece of decision-making for investors. And I appreciate sometimes there is too
much focus on forward-looking information, which is important. But the forward-looking information is
based on the historical aspects of the business, and thats the fundamental basis of reliance, making
sure that that information is valid, and then you can build on that with forward-looking information, to
make sure that you know where the organisation is going. So, to me, its such a critical point in reporting
and in investor reliance, is the audit, and making sure that that theres level of professional scepticism.
Making sure that auditors are complying with a robust set of standards, and thats also another
important piece. Making sure those standards are sufficiently robust and clear, so that auditors can
execute on those without failure, and they know how to do their job. So thats where my mindset is at.
Other pieces in the roles of audit committees are very good and interesting, as well, and I think theres a
role to play. I dont have clarity on what that exact role should be, but Im excited about some of those
speeches and discussions, globally, about where the audit committee should go and what they should
do. So Im happy to be here, and again, my perspective is from the role of investor reliance.

GF: Im the vice president of inspections at CPAP, so the inspections group, basically, reports through
me. So Im encouraged that some of the comments youve got in here were, actually, ones that I wrote
last year. So somebody is reading them, and I think thats very good. Thank you. Just by way of
background, because, I guess, it can colour perspective, Ive come to this through a bit of a varied
career. I was in public practice with one of the, now big four firms, for 20 odd years. I was a partner for
13 years there, then I went into industry as either an entrepreneur, because we started our own
business and it didnt do so well, but thats entrepreneurial. Then I was a VP finance CFO of private and
public companies for about 12 years, prior to joining CPAB in 2010. So I can, sort of, I think I can see the
issues from both sides. Im not strictly coming at it from the profession, but I can see it from the
practical side. Im very encouraged by this type of initiative. Those of you who might have read CPABs
strategic plan for the three years that were in the middle of right now, will see were trying to take a bit
more of, what, I guess, you can call a holistic approach to regulation. And as part of the solution to that,
we see audit committees as having a big role to play. Certainly, getting the topic of audit quality going.
Its important that you have the audit committees on your side, with a good understanding of audit
quality and what that means, and why they should be concerned about it. And were seeing were
making some inroads on that. Its a little bit difficult for us because our primary regulatory role is over
the firms, so were trying to engage with other stakeholders. And that will include the audit committees,
it will include the securities commissions and other regulators, ASPE, as we, sort of, approach the
problem together, or the challenge together. I think that what were seeing is that some of the key
solutions, its probably getting back to basics. One thing I was somewhat surprised to see, having been
out of public practise for 12 years, is when I came back, a lot of the same issues that were talked about
in 1998 were still there in 2010. the degree of complexity has changed, but the fundamental root of the
issues is, pretty much, the same. And it comes down to really doing the basic block and tackle is, often,
where we see issues arise, and the fundamental scepticism thats necessary. And taking that scepticism
into my role, I look at some of the solutions that are being proposed, and Im highly sceptical as to
whether or not theyll actually work, and they wont morph in the boilerplate. And some of the
solutions, such as the mandatory tendering or mandatory rotation, strikes me as an academic solution
that doesnt get at the depth of the problem, which, as Stan said, kind of addresses the made in Canada
solution that we have, thats a bit more logical. So thats, sort of, where Im coming from. I appreciate
the opportunity to be here, and its very interesting and opportune to get the views of people who
approach this from a different direction.

AT: Im Axel Thesburg. Ive worked, for a number of years, with John and Larry and the people at KPMG.
Post retirement, which is now three and a half years ago, maybe a couple of things relevant to this and a
couple of observations. I am acting as a senior advisor to CPA Canada. CPA Canada, the newly formed
organisation that brings the previous three accounting bodies together, and really, in two broad areas,
providing advice to the Senior Leadership Team. One is exactly this topic; enhancing the value of audit.
And that gave rise to the project Stan referred to, the enhancing audit quality initiative here, which I
coordinated between the ICD, CPA Canada, and CPAB. So it consumed quite a lot of time in working on
that project and bringing all the parties together. We are going beyond that, enhancing audit quality, to
look at things, exactly like were talking about here. What can the profession do in Canada to enhance
the view of financial reporting, or of auditing? And that has led, then, to a discussion; can you really do
much about enhancing the value of auditing, unless you really ask the question about the value and

relevance of financial reporting. So the second broad area initiative Im leading for CPA Canada is what
can we do in Canada, in a Canadian context, to enhance the value of financial reporting? And that does
get into alternative forms of reporting, whether it is integrated reporting, all the non-gap measures you
now see in corporate reporting. And its broader than just financial reporting; it is all corporate
reporting. I think Canada is a bit of a unique environment. Were very close to the US. We have a lot of
our regulation, which is patterned off the US, but I think we do approach issues, questions,
opportunities, in a slightly different way. We can get the regulators, we can, and whether it be the
Securities Commission, CPAB, that profession, the firms together, and sit down and talk about some of
these questions. Depending upon what the question is, there may be different people the table, so I
think thats a real strength we have. An opportunity to play a bit of a leadership role on some of these
questions in Canada. I also think that audit committees do play a very important role in this. There are
lots of stakeholders, but audit committees are a key, if not, the key one, and we talk about this. So, to
me, thats a lens that we really need to look at these questions through. we cannot de-link the value of
audit from the value of what is audit and financial reporting. And so I think its essential that the audit
profession is in step with whats happening in evolving financial reporting. We need to figure out a way
to provide appropriate assurance that the information comes out or the systems themselves, as users,
investors, stakeholders tend to rely more and more on other measures, without undermining the core
element of the financial statements. In other words, this is not instead of that, this is evolving the
assurance to some of these other things, but keeping the core value of the financial statements and
audited intact, at least for a number of years. I dont think the two are necessarily in opposition to each.

Read and watch our complete coverage of the Value of Audit series here

KB: My background is, primarily, as a preparer of financial statements. I was, recently, retired as Senior
Vice President and Controller of BCE and Bell, so it would be difficult to not have comments that are
slanted to that perspective. My board involvement has been in the not for profit sector. Primarily, I was
Chair of the Audit Committee at Queens University for five years. And Ive chaired the board of FEI
Canada, which is, well, industry association is incorrect, lets say association for financial executives in
Canada. When you ask what audit quality is, it depends on who you are asking. Ive heard a number of
views around the table, and Ill put my prepared hat on for a moment. Audit quality, from my prepared
perspective is probably quite different from an Audit Committee perspective. Theres the compliance
piece of the audit, which is, obviously, critically important, because thats what gives everybody around
this table comfort that the financial statements are materially correct. I think its become difficult for
companies in thinking about value of audit, because it has become such a compliance exercise. And
when CPAB issues a new regulation, the fees go up commensurately. So I think it depends who you ask.
And because its become a compliance exercise, I think John Gordon would say that its become a bit of
a commodity. So its just not value to external partners, I think its what value does it bring to
management, as well. does the current reporting model serve the needs of investors and other
stakeholders? Ive also been involved in the standard setting process and I have to give a resounding no
to that, because its become too cluttered, for lack of a better term. So then when you think of the
proliferation of non-gap measures and other types of disclosures, is there some audit assurance of some
kind that should be extended on to those measures. When I had my preparers hat on, I was always

staunchly opposed to that, but as they become used more widely in the marketplace, and we have
investors and analysts, I think, when I was at BCE that didnt pay very much attention to the gap
information, but they paid a lot of attention to the non-gap information.

JG: Im John Gordon and Ive got the privilege of being the Canadian managing partner of audit in KPMG
in Canada. And by virtue of that, I participate in the management team of our firm, as a whole, and all
the parts of it, but also, part of the Global Audit Leadership Group that works with Larry. While there are
major trends or events that have led to discussions, like this, around the world, I dont think Canada was
at the epicentre of many them, you know, touch wood, but nor are we immune to them. And whether
thats the crisis in the financial industry or some of the responses around the world, like auditor reform
in EU, we are certainly hearing audit committees and management teams talk about that and what does
that mean? Is that best practice or not? And what is the role of auditors is that And can that be
broader, given the skills and experiences they have? The information they have access to. And are there
other things they can do, or should be doing, to meet the expectations of people we interact with, so
audit committees or the investors that were never going to get a chance to interact with, particularly
retail investors. And are there things that we can do that are additive, and not dilutive, to use your
word, Ian, is absolutely of interest to us to understand that.

And the other huge stakeholder group, and this is the time of year that its really real for us, is that we
go on campuses across the country and try to hire 400 to 500 of the best finance grads across the
country right now, and they have choices, and they ask pretty probing questions about the value of
what we do. Where will it be? Whats the future of this industry? So we need to continue to be able to
articulate to them. How, as a profession, were responding to whats going on. Because not only do we
need to recruit them into our organisation on day one, but to retain them. One of the conditions of a
successful organisation is retaining those people throughout, you know, as they advance in their careers.

RC: Thank you all. So, weve already heard a lot of different perspectives. And time is already running
away. So I guess, one of the questions that I have from whats already been said is that there was talk
about a back to basics approach and focusing on the fundamentals and the need to get those things
right. This seems to speak directly to the issue of audit quality. But how exactly are we measuring audit
quality? That seems to be right at the heart of this. Is there enough of a sense of how we actually
measure it? What does a good audit look like? Do we know enough about that?

IB: I would observe that the level of audit committees ability to assess quality is pretty low. And I think
its partly because, in many cases, audit committees are really now starting to figure out what does an
audit firm actually do? Because theyve, kind of, never, and never meaning other than the last three or
four years. Theres not been a whole heck of a lot of real focus on what the audit is, what it does, what it
doesnt do and all those kinds of things. So I think, you know, you look at the fee structure, which is
usually negotiated with management. And it just all having been on the CFO side, that all worked pretty
well for me, but Im not so sure that that was the right model from a board standpoint. So now were at

a point where the audit committees have to satisfy themselves that theyre paying an appropriate
amount for what theyre getting, and that theyve got a basis for approving it. All, of which, comes back
to; is the plan properly structured in the first place? Does it display an understanding of the business by
the auditors, such as looking in the right places and not spend a bunch of time in the wrong places. Then
you can say; okay, if the plans okay, then did they follow the plan and did they react to any changes to
circumstances? Which is, quite frankly, no different than evaluating any other performance element
within the corporate sector. So getting audit committees, kind of, more able to do that, I think, is really
important. And they can do it, but need a bit of help, both, I think, from firms, from management teams,
and from places, like ICD and CPA, and so forth, who can provide a little more of an unbiased view of
stuff like that.

CM: the talk about the quality starts to give me a little bit of a headache, because its been discussed for
so long without with so many different perspectives. But, I guess, when I think about it now, and its an
evolving concept in my mind as to what the right answer is, but when I think about it now, at least, audit
quality, is that the same as a quality audit or is that something different? So, to me, a quality audit is
important. Its fundamental for investors to be able to rely on a set of financial statements that have
been executed in a way thats achieving the highest quality of the execution of the auditing standards.
And the output is a set of financial statements that can be relied upon. So execution of the ISAs in a
robust way, that, to me, is a quality audit. Does audit quality mean something beyond that? Does it
mean more value added to other perspectives of the Audit Committee to the entity itself? Is that where
you get into the value added, which, then, you talk about audit quality? Im not sure. To me, Im focused
on the core, the fundamental, similar to what youre saying, which is execution, appropriate execution, a
product that investors can rely upon. And the other stuff that sounds interesting and the other
interactions of the players to make this happen is great, but does audit quality mean more than just a
quality audit.

RC: But are we good enough at measuring it?

CM: I think were getting better at it, globally. I think the audit oversight bodies are doing a good job of
trying to figure that out more consistently, and its, sort of, early stages in trying to get consistent
assessments as to how you assess that product. But, again, to me, its back to the standard setting and
its back to execution. Are the standards clear enough, robust enough, so that our auditors, then, can
apply them appropriately? And then are they executing well enough? To me, you will have a quality
audit that is produced, and are there other features, that maybe others can talk about that Im probably
not as

SM: I really like Ians focus on getting the right plan for the issue and holding people accountable to
delivery of that, and were a lot less focused on that. And I say that because I concur that there, clearly,
is a real role here for the Audit Committee to get the right outcomes, and a very important role. And I
think one view I would have is that I dont think that audit committees should be expected to take on a

responsibility, if you like, of somehow ensuring that audit quality writ large is enhanced. I think that
directors really have a fulltime vocation looking at their issue, and this takes me to Cams point about
the quality of the audit, I think, is critical. And if you think about it, if each audit committee actually does
what it needs to do in the relationship with the audit firm to get that outcome, the macro effect of that
is cumulative. Its a multiplier effect. If everybody is doing the right thing, as an issuer, you dont have
the spill over problem. But I dont think we should look at audit committees as, somehow, a player in
ensuring writ large audit quality is enhanced. Thats not something you should expect an individual
director to take on. But clearly focusing on whats necessary for the issuer to give this appropriate
assurance, definitely is the way to go, I think.

KB: One obvious question, or obvious answer is what CPAB or PCAOB produces annually, in terms of
their reviews. The problem I see with using that as a measure of audit quality, well, probably more than
one issue, but one is it tends to focus on the negative, I think. So theres not once its issued, the
audience focuses on the negative. I should be careful what I say. Its not a particularly balanced view.
But I dont think there is a real measure, today, of audit quality. And again, I think you would get a
different answer, depending who you asked. If you asked the management or if you asked the board
chair, youre going to get a completely different answer about the quality of the audit and whos
accountable for that. To go back to Ians point, I mean, and the audit committees involvement in
assessing the auditors performance. That was my job when I was at BCE. I wrote the auditors
evaluation and the Audit Committee, largely, accepted it.

JG: I think one of the conditions for the ongoing strength and success of an organisation, like ours, is
understanding the expectations of those who choose to engage us or not. And we often feel like those
decisions on us versus our competitors are being made on criteria beyond the rigour of the audit theyre
looking at. Sometimes its costs, sometimes its value beyond the audit, like insights or something. And
while a quality audit is table stakes, but the decisions on us versus our competitors are being made on
other criteria.

GF: The whole issue of audit quality and what is audit quality is an interesting I havent seen a really
good definition of audit quality. I think it does vary, because, as John said, like, your table stakes or your
baseline is that if youve got a professional firm thats put an audit opinion on the report, that thats got
quality. And I think what we find is thats not necessarily the case, you know, its just a matter of it But
that is the baseline. And I think that people in the general population, and audit committees are
included in that, assume that its all equal. So how do you get, first of all, how do you get that
differentiation? Like, how much quality is enough? Well, enough quality at the baseline is that youre
meeting professional standards. In terms of a quality audit, I guess, as Karyn twisted it around, which is a
good way to look at it. Thats the additional thing that the board wants. Its like when you buy a car, if
you want to get from A to B and stay dry and, kind of, make it, you may pay $10,000. But people are out
there driving Mercedes and BMWs at substantially more than that, its because they want more than
that. And I think that what weve seen in the audit committee community is that there are groups, and I
dont know whether you draw the line at the top 100 or the top 500, but the top companies are much

more engaged than the ones that are at the bottom, like the junior resource companies that think; God,
I have to spend money on an audit. I really want to be spending money on getting product off the
ground, but I have to do it. There are huge expectation gaps there. And there should be a base level of
audit quality, though, if youre hitting your standard, that, at least, gets you And thats something that
were The whole issue of how much is enough audit quality is probably a variable question. And I think
the audit committees have a significant role in that because theyre a user of that and they engage with
them. And the amount of audit quality that you should want depends on your level of comfort. And it
shouldnt just be driven off the price, and oftentimes, it is. I think it goes back to the days when I was in
public practise and youd see a manager move over to a client and the first thing they did was get the
audit fee, because thats something they thought they understood. But thats not necessarily the way
they should be responding.

IB: Karyn, can I just challenge a little bit on the CPAB report, because we, actually, Glens, kind of the
author, but he gets a bit of help. We actually say that the standard of auditing in Canada is okay. I mean,
thats actually a very important statement, and that was not said lightly. I mean, there were the
negatives that were picked out, but the core message was; you can count on the audit function. But, I
mean, there are lot of people who dont understand the nuance around it. And so one of the things that,
I must say, Ive experienced, having been involved in CPAB now for a while, is the numbers of audit
committees who really arent particularly knowledgeable on some of those things. So a nuance, like the
report saying; you can count on it, gets lost on a lot of people, and its, actually, sort of, scary. So, Glen,
thats a little thing weve got to put up in lights next time.

Can I also come back and connect another little dot here about this value of audit thing? It gets back to
this whole concept of partner rotation and firm rotation. Calgary is an interesting little microcosm of the
problem, and youve got the second largest concentration of corporate offices in Canada in Calgary.
Youve got oil and gas firms that partner with each other on all sorts of things, compete with each other
on all sorts of things. Youve got, basically, the big four, plus a couple of others who are out there. Each
of those firms has a few people who know what theyre doing in the oil and gas business. You start
moving all these guys around because youre mandated every X number of years, the ability to maintain
a quality audit for any given entity, because at Canadian Oil Sands, for example, we only can operate out
of, maybe, one or two of those firms because the people partner with [inaudible]. So all of a sudden,
were saying; youre going to force us to change firms? Youre going to force us to change partners? And,
all of a sudden, weve got to go to a new partner whos never done an institution, like this? Those kinds
of things really contribute to quality, and I think, you know, its not like Calgary is a backwater, in terms
of the concentration of wealth and activity. So if youve got those kinds of problems in a place, like
Calgary, think about whats going to happen elsewhere. Were going through a rotation, partner
rotation, at SNC, and the $64,000 question is; who, in Canada, is able to be the senior partner on that?
And you start to work your way down from Canada being this wide to maybe it makes sense to do it out
of Montreal. So now youre dealing in this So this, sort of, forced rotation of firms and partners, I think,
is managed badly, is actually a big, big impediment to ensuring value.

SL: Aan investor, I would say its a nice academic and theoretical idea to rotate firms. But, look, we
understand the practicality that youre starting from scratch, youre overturning it, youre forcing more
work on the company itself, and taxing the finance group, the accounting group, etc. And at the end of
the day, to the extent that theres a perception that the audit firms, at least the big four, have a high
degree of independence anyway, staying with the same firm, but changing partners, can get you more
than half way there. There are alternative solutions to changing firms. Additional review, professional
standards and training and increasing the sophistication by which systems are reviewed, there are a
whole lot of other things that I think investors worry about more, in terms of quality of audit, than
independence quite frankly. I think its a bit of a red herring. Its easy to talk about changing auditors, its
easily fixed, but I dont think it it addresses the core, the root of what investors worry about. I mean, the
more important thing is that, and I think what youve been touching on, is the tension between trying to
minimise fees, minimise footprint on the organisation, minimise the amount of work that the auditors
do, but still maintain a high degree of confidence that their representation is accurate. And at the end of
the day, the biggest problem, from an investor standpoint, is that the fundamental nature of quality is
binary, and you only learn about it after the fact, when something has gone horribly wrong and you say
what did they miss? How did they miss it? Why wasnt it right? What shortcuts did they take? How were
they duped by management? And investors have a big, gaping hole in their portfolio, as a result. But
quality, and I think Karyn made a good point, is measured by the various stakeholders, and there are a
lot of different pressures on the accounting firms.

GF: Just to pick up on it, I think I agree with Scott. What Im concerned about is simplistic solutions being
proposed to complex problems. You see things, like the bigger the company, the effort of rotating firms
and the cost thats involved in it, and the hole thats left as the new firm comes in and tries to figure
things out, its only a matter of time before there is going to be a failure thats going to result in that
frame, just because youve changed, and then thats going to send people scuttering around. Its just like
audit quality is supposed to be improved because the partners name is listed in the report. I think those
are relatively easy things to do, but the people who count know who the partner was on these thoughts.
So its, like, the solution doesnt fit the problem, but yet, theres a lot of talk about it. And then youll see
it in the press, like, I dont think the media and the public, in general, still understands what an audit is
because its a reasonable assurance, what does that mean? Well, you read about stuff, theyre out by a
dollar, that should be material, therefore, the auditors should have caught it, and theres a whole bunch
of misunderstanding there. I dont think that helps anybody understand and appreciate what audit
quality is, and it leads to wrong actions.

RC: Is that the fault of the media or is that the fault of the profession? Where does the blame lie on that
lack of understanding?

GF: Well, it probably falls to the profession really because the profession has a role to educate the
media. How they do that, I mean, its certainly going to be easy, I dont think its an exciting topic, unless
something fails, and then it becomes exciting.

MV: Its interesting. In the UK, because they do the new audit report, they also include a disclosure of
materiality that has been applied in the audit, so you have seen that, actually, on the back of that, you
get a shock reaction from people. Vodafone, 500 million, as the materiality threshold. No, but you do
get into a dialogue, then, that leads to, maybe, a better understanding of the audit, because all of a
sudden, people say; hey, how can that be? So you get into a dialogue, and I thought that was an
interesting dynamic. Maybe the expanded audit reporting is one way in which we can communicate
more about what we do, but I dont know.

GF: My only caution on that is dont turn it into boilerplate, and that becomes a Because then you end
up, instead of having, perhaps, a shorter document that actually means something because what its
saying is different, you end up with everything in there and then the key message just gets lost.

RC: So that point around extending the report, certainly from the approach KPMG took to the Rolls
Royce audit report, is around reporting on the findings, as well as where they looked.

MV: Just to refresh everyone, the requirement in the UK standard is that you, as an auditor, have to talk
about what are the significant risk areas that you see for your audit, and how you have addressed them,
in terms of your procedures, and are you aware of all the details? Thats the requirement, but within
KPMG, we thought, we tried, to go further on a number of clients, as a pilot, and Rolls Royce was one of
them, where you would, then, also go and say the provisioning was one of the areas, and we have a
view and we say whether we actually found that the provision was maybe a bit optimistic or maybe a bit
cautious. There is a lot of debate, still, in the UK about it, whether thats the way to go, yes or no. But its
a seven page long audit report now, so its no longer the one page, its seven pages of And the investor
community in the UK has responded quite positively to it, because as they

IB: I think putting out the areas that you concentrate on, is a real plus. I think the transparency of what
went into the audit was really important, on the liability side and the cost side. And were talking about
more than that, all of a sudden, the burden on the company becomes significant, the burden on
yourselves becomes significant. And being in the middle of a series of class action suits right now, you
guys are well experienced too. But the liability side of this thing, quite frankly, most of us underestimate
until were in the middle, myself included. So for you to start talking about some stuff that, all of a
sudden, some guy decides hes going to sue on because if something happened a year later and you
didnt do something two years ago, thats the kind of area where I just think you are asking for trouble
with a capital T, and Im just not sure that its productive.

SL: But to the extent, you know, if the transparency steps up and theres increased disclosure and
companies can differentiate themselves from others by presenting additional information for the public
to digest.

IB: Thats up to the company.

SL: Thats what I mean, up to the company, perhaps. And then its creeping standard youre saying
make it mandatory

IB: No, no, no. But that came out of KPMG; that didnt come out of the company. Its, kind of, you know,
at one point, there was conversation about the auditors should, sort of, evaluate, other than the going
concern concept, they should be in a position to comment on the future prospects of the company. You
can do that and run the company, you know. Thats not what youre paid to do. And I dont want to pay
for that, quite frankly. I want to pay as little as I can for as much as I can, the same as Im doing with
anything else. How do I make sure that I get top quality for the dollars that I pay? And I can guarantee,
the last think Im going to do is try to nickel and dime you on the audit paper, but I want to get what I
pay for and I dont want to pay for a bunch more than Ive got.

SM: I might just make one observation, maybe this is the legal background coming in, as well, here. But I
would be careful about seeking an expansion of this role, in terms of reporting by auditors, precisely for
the liability reason. The way the securities regulators encouraged issuers to do that, of course, is with a
safe harbour and a disclaimer. So if youre going to even want to move into this area, it seems to me
that you, too, will want the benefit of disclaimers and safe harbours, and then to the extent you seek all
of that, to my mind, it all becomes quite circular about what actually is the value add. If its so qualified,
in terms of where youre heading, and your lawyers will tell you; dont stick your neck out. I just think
that the whole things a big make work project thats not going to result in real value translation, and
create complexities. So Id say; be careful what you ask for here, because I think that once you go down
that route of trying to get more out there, in terms of comfort that youre providing, youre going to
want the requisite protection, and thats where the rubs going to come in, I think, in terms of whats
the value here.

AT: there are a couple of competing objectives here that we need to be careful about. The point that I
think that better explaining what an audit does or what assurance does and its value, is important, but
thats been around for ever and we can keep trying at it, and the media always focuses on the negative
things, and thats just part of what media does. But it is important to do that. I think this question of
using the auditor to communicate something about the company is really indicative of the companies
not communicating what investors want. You fundamentally start from its the job of the company to
explain to their investors, to the stakeholders, the results of operations, their financial position, their
risks, their key And whether thats through, you know, risk analysis, whether thats through sensitivity

information and things like that. And to try to use the auditor as the surrogate for information that
youre failing to get about the company, I think, is a bit misguided. But part of the reason for that, I
think, stems from the fact that the information that companies are providing is, maybe, not as complete
or transparent as some would like. And maybe there is uncertainty about how reliable it is. So that leads
to the point of finding a way, rather than auditors giving the information, like in Rolls Royce, about risks
and so on, from their perspective. Its finding ways for auditors to give some sort of assurance, and this
is not a make work project. But when the company talks about the risks, that, in fact, are not boilerplate,
it is meaningful, it is unique to them, and in some way, investors can rely on the fact that it is a unique
discussion about the risks of that company. So I dont think investors, users, stakeholders really want to
find out more about the audit, they want to find out more about the company, because thats who they
invest in and who theyre doing business work and are employed by. But this idea of using the auditors
as a communication tool is indicative. I think that they should probably move it into financial reporting
or corporate reporting, both whether its the liability of it or what the information itself is. So if we can
fix that and fix the assurance relationship, I think its misguided for the auditors to provide that
information.

IB: Thats another interesting, kind of, point. There are three or four points here that, sort of, connect,
and actually run through, as Im thinking now, through SNC experience. Over the last two and a half
years, weve had to communicate what is the state of play, with respect to these allegations. Part of
which, is the legal liability side, part of which, is the financial disclosure side. And the real trick is; how do
we make sure that we dont say something that screws up the police investigations, inadvertently. So
weve been exceptionally careful about how we word these things. To the casual observer, they think
were playing with words, but were actually not. And unless you really understand a lot of whats gone
on in the background, Im not sure you would actually read those words the way theyre intended to be
written because theyre intended to be written in a way that, depending on what happens, weve been,
you know, point to this and point to that. So to think about this in a business as usual sense, perhaps, is
quite different from dealing with some company specific situations, be they tricky, like the ones Im
involved with now, or be they a state of a company, you know, thats in financial difficulties or whatever
it be. So I think that we have to be very careful about getting ahead of ourselves on some of these
things, because its not as simple as just keeping the public quote, unquote, informed. Its very, very
complex.

CM: I wouldnt mind offering a comment, and these are my own personal views, and certainly, not the
views of anybody in my organisation. But I think when the expanded audit report topic started to be
discussed when the concept paper was issued, early days, I was fairly sceptical of what this would
produce. Im probably more open minded, now that were in the final stages of execution of the
standard in getting that completed and into the marketplace in the future. Im probably more open
minded about what it will accomplish. And my scepticism was whether this was just going to produce
more information that investors will have to sift through and add to the whole concern about too much
information. Disclosure overload, weve talked about that, globally, in many circles. And is this just going
to be more information and investors are going to have to be distracted with? Does anyone really need
to know this information about these areas of the audit? I dont know. Im going to be open minded and

look for the outcomes of how stakeholders react to this information, but I did start with a sceptical
mindset and I havent fully drunk the Kool-Aid, but Im open to where were at. But I do worry about this
information in many companies, especially a lot of smaller companies that have just got a plain vanilla
audit, theres nothing exciting in it, exploration companies in Canada. Many smaller ones, they drill
some holes in the ground and they spend money doing that, and thats it. Yet, theres a suggestion that
there always must be a key audit matter to discuss, and is that just going to be a useful exercise for the
capital markets in those situations?

LB: This debate is just beginning and I encourage you to get involved in the debate, just as you have
now. Because the US has a proposal out there in the International Standard Board, clearly, whats done
in the UK. Let me just give you one anecdote that may bring out some of the points that have been
discussed. In the last couple of weeks, there was a serious financial statement misstatement of a
company in Europe, of a retailer. And, of course, one of the items that the media and individuals went to
was the former audit, to the audit report. And they looked at the audit report and the reports that came
out were the auditors warned you about this, and then they took management to task. In reality, when
you read the audit report, it was just merely a key audit matter and a description of the fact that the
auditors focused on this area. But at the end of the day, it was a clean opinion. However, what was
reported widely was that the auditors warned about the situation. So in that situation, it was actually,
clearly, misinterpreted, so words are important. This debate is just beginning.

IB: It all has a nasty habit of coming together in a law court.

GF: Just on the Rolls Royce, and its been a little while since I read the report, which was interesting. But
theyre a good company that the firm didnt have huge exceptions with what they were doing. What
questions me is the first time you come up with someone where, my God, theyre on the right side
where youre going to have to really take on management and say; youre incredibly aggressive in the
way youve provided for this, or youre too conservative in the way youve provided for that. And youre
going to be starting to point that finger. Like, in order for this to have real value, thats what, I think, the
users will be looking for, is actually doing that when it will put that relationship at risk. And it may lead
to, like, the firm having the conviction to go ahead and do that, when the first time you do that is going
to be tough.

AT: I think, just adding on to that, if you talk about key audit matters or you talk about audit disclosing
one of the primary areas youre focused on, from a risk perspective. If the areas you focus on and
disclose as being risks in some way differ, or arent the risks that the company talks about, and are really
quite different, then either youve got a misguided audit or the information that the company has
provided and discussed about its risks is not complete or not accurate. So when those two collide, as
you aid, that would be an interesting time. And at the end, really, what investors want is information
about the risks of the company.

KB: And that, Axel, is my concern with this. Because I know that, in the BCE audit, for example, there is
one risk, audit risk, thats identified that, in my mind, was never a risk. So you have this mismatch. And
then how do the auditors and management resolve that and get to a place where something useful can
go in the audit report. Or, heaven forbid, disclose it as a difference of opinion between management
and auditor. I dont know what the answer to that is, but it would create very bad feelings between the
firms and their clients, when there already is seen to be, I think, a sort of compliance mindset around
the audit points.

AT: The only point I would make, Karyn, is that is what the auditors job is to do. Is if, in their perception,
clients description, whether its been a financial position or financial results, or maybe the risk is not
consistent with their view on it. So the fact that they are different is something is what auditing is all
about. Its a question of who communicates it.

LB: I think on the Rolls Royce report, it will be fascinating for us in the next few months. Weve publicly
announced in the UK, I think in the last couple of weeks, that any of the companies we audit can chose
to have the Rolls Royce version of reporting, or the standards [overtalking] to give it a label, yes. But I
think the one condition is you have to pick what you want off the menu before you start and then stick
with it. You dont need to change your mind after youve read our draft. So it will be interesting to see
what because people will make choices.

IB: Surely, the purpose of the exercise is for the auditors to say if the financial statements are fair or not,
right? Or not quite in the vernacular, but in investment side. The statements are either okay or theyre
not. To then say; well, we think that, but the management thinks that. All that youre basically doing is
outsourcing the decision making to the investors. Why would you want to do that?

UM: You have to pick a side.

IB: The auditors always have the ability to walk away from the audit. And the companies always have the
ability to fire the auditor. So, I mean, you cant, sort of

UM: Which, by the way, we look at as a signal as to something going on, which is another thing about
changing auditors.

IB: Exactly. If you cant sort those things out within the company, then thats indicative, I think, of some
other issues and I think its what it says. I mean, if youve got a rocky relationship with your auditors,
then that is a red flag.

SM: Yes. Im curious, and maybe this is for you, Larry, about how this has been currently received in the
US. I notice that maybe you havent yet had your US roundtable, but my understanding of the lay of the
land in the US is that if theres a drop in the stock price thats precipitous, the 10b-5 bar immediately
launches claims in the most favourable jurisdictions, and they dont even know what the cause of action
is, at that point. Its a programme. Its a computer programme, stocks, [unclear] X dollars, youre into
core. And then, clearly, it seems to me that if auditors are more engaged in commenting on the
situation, your exposure will increase, absent some safe harbour disclaimer. So how is this being
reviewed in the US currently? Because we have some litigation here, and some of us around the table
will know about that, but not to the same extent as the US, where, I would have thought, there would
be some concern in the auditing profession.

LB: It is and its very well described. And its been met with, I guess, some trepidation in the US and a
significant amount of caution, for the reasons that you just described. And, frankly, weve commented,
publicly, on the PCAOB release on should we move to an enhanced auditor report? And bear in mind
that the PCAOB release is talking about a description of the key audit matters and our audit procedures,
not moving into a detailed description of the findings. But even under those circumstances, one of our
concerns, quite frankly, I think, was well articulated by Axel, is; to what extent are we articulating
something that should be articulated by management and managements reporting? And is that
indicative of, perhaps, a deficiency in reporting? Now, in the US, the Securities and Exchange
Commission has a requirement that in the annual report, management has a responsibility to describe
their risk. And our proposal is; well, perhaps we should be reporting on managements report, then, and
providing our assurance or an attestation on what managements reporting, as opposed to articulating
our own separate view, which people could, then, try and drive holes through and look for
discrepancies, and try and understand, you know, why do we have a different view on the business risk,
and is that really what the auditors should be doing?

AT: But, Larry, a lot of this does come back to understanding, I mean, a good audit does start with
understanding the business risks, and if theyre not in synch with what management thinks, theres an
issue. But if investors understood that that is a key part of the audit, and what the responsibilities are,
whether its just a consistency, responsibility or some sort of a direct assurance responsibility for
managements description of the risks, I think were in a place we want to be. So part of it is not
understanding that auditors really do start, very much, in trying to understand the companys risks.

CM: But arent we going in a direction that could satisfy some of that, with the requirements for
auditors to assess information, other than just the audited financial statements? Looking at those other

disclosures and making sure theyre consistent with what they found in the audit. Is that model going to
achieve, perhaps, what youre talking about?

LB: In fact, thats what weve proposed, thats exactly what weve proposed.

IB: How would the auditor assess that, because the technology doesnt work. This fuel cell technology,
we think it works. I mean, were moving it along a fair distance, but ultimately, it may or may not work
and it may or may not get adapted. And its taken us 25 years to get it from, you know, some guy with a
bit of a, you know, brainstorm in a lab some place, to where were actually selling stuff. But this is far
from assured. Its a whole different business risk than the fact that we might be paying somebody off in
Libya, in SNC-Lavalin. And the SNC-Lavalin, I think, thats an internal control process. Technology as a
risk, how do you propose to get the auditors up to curve on their ability to assess whether our
technology is going to work?

CM: I dont think that its the role of the auditor to make business decisions on behalf of them.

MV: I would agree with that.

IB: Its really important, back to my point at the beginning, dont get deluded away from saying the
financial statements are what they purport to be. When you start to go beyond that, youre really
getting into

GF: I dont want to try to get technical, but I think a good audit does start with understanding of
business risks. Certain of those business risks, depending upon the time, do result in financial reporting
risks. There may be something wrong with the numbers, or there may be something wrong with the
disclosure around risks and uncertainties and contingencies. The auditor doesnt audit all the business
risks, but they start with that. But where the disconnect possibly is, is if theyre understanding of the
business risks is not the business risks that are disclosed. So in other words, if theres nothing in Ballards
corporate disclosure about that IT risk, then you get the auditor, albeit, theyre not responsible for the
MBNA. They see that not listed there.

IB: I dont know, but they are responsible for the financial statements. And in the financial statements,
we talk clearly about the liquidity issue and [overtalking]. So, Im not the least bit concerned that were
not describing it properly, all Im suggesting is to get the auditors to, then, express their own views on
that, as opposed to saying; were satisfied with the way they [overtalking]. So thats what Im saying, go
back to the [overtalking], can you say that the financial statements fairly describe whats happening? Yes
or no? And if yes, then thats all were asking. And if no, then, you know, deal with that accordingly.

GF: Including the description of risks and uncertainties.

CM: But there might be valuation of IT that could be in existence that auditor will have to engage with. Is
that valued appropriately?

IB: Exactly. So then the risk and the stuff that youve got to focus on is what are the auditors doing to
satisfy themselves that the financial statement is [inaudible]? Well, you know, the biggest asset on the
balance sheet at Ballard is the goodwill and the IP and all that kind of stuff. So, as an audit risk, thats
number one. As a business risk, is that number one? I dont know. Not the valuation but whether or not
the stuffs going to work, but from an audit risk, and thats where, I think, youve got to differentiate
between what are the risks to doing a good audit, versus what are business risks and they are two quite
different questions.

KB: One thing I heard that struck me as a little bit astonishing is that 40 years later from when I started
in the profession, were still talking about the expectation gap when it comes to audit. So, I mean, thats
fundamental to this issue because if you dont solve that, all these other things are just going to
theyre not going to solve it. Like, expanding the audit report, I dont think, is going to solve the
expectation gap. So I dont know, maybe if we havent figured it out in 40 years, its insolvable. But it
really is quite astonishing that thats still as big an issue as it is.

AT: To me, the discussion that weve just been having the last while is key, its where I started from. The
linkage between the assurance, audit assurance, and the information that a company provides. That the
assurance profession needs to work with those who are providing information to stakeholders and
figure whats the appropriate assurance model for that. And I think that that is evolving. I recognise the
liability concerns when you get into difficult situations, like you talked about, Ian, and what you can and
cant say. But it is what investor stakeholders are looking for. Its more information about risks,
uncertainties, measurement uncertainties and those sorts of things. And we need to find a way to build
assurance into that, and then make sure that people understand whats assured, and whats not
assured, and what level of assurance is, without adding a lot of cost. We start from a very strong
foundation, I think, and a respected foundation of auditing the financial statements, but the information
has evolved and we need to keep pace with that.

GF: This is a topic that we, obviously, discuss at CPAB on a daily basis, so its very interesting for me to
get some different perspectives on it because its I mean, its a little bit like the how long is a piece of
string, sort of, question, in terms of describing audit quality, and coming to grips with that. Its all a
matter of perspective. And I go back to what I said earlier, its a complex problem and there isnt a

simple solution. When you start believing that youve got a simple solution, then I get concerned about
that. Its just helpful to get these different perspectives, I appreciate that.

CM: Two points, from my perspective. I think whats interesting is the debate now is not as much about
the expectation gap. Thats a problem that still exists; it will continue to exist. The debate more now is
about the information gap and investors wanting more information, and thats something that
happened pre financial crisis, and it became a focus post financial crisis. So thats really what is
interesting, what do investors need to know about the audit? Theres been a lot of movement in that
direction, well have to see what the outcome is and how the capital markets respond to this
information that will be provided about the audit. The second comment that I would make is just, again,
on audit quality, and this is something that is a tremendous focus globally. Not just with the audit
oversight bodies, but also the securities regulators, were trying to figure out what our role should be, in
terms of contributing to audit quality. And these discussions have helped me to think about that from
different perspectives, which is very important, from my view.

IB: I think this is a very important component of the whole capital market structure, and I commend
KPMG for taking the initiative to get a number of us around the table in various locations. I think its
incumbent on us, as practitioners, as directors, as executives in our various roles, to really do our part to
put some of these issues out for broader discussion and dissemination, so that there is a better
fundamental understanding of some of these things, than, perhaps, has been the case in years gone by.
So well done.

SM: I share a lot of views around the table. I think that this kind of dialogue is critical to developing
solutions, as compared to having solutions imposed on oneself. If theres one key takeaway that I have
from this discussion, its I wouldnt encourage people to really focus on the basics, and doing those
exceptionally well. And I think that all of these other things will go away. For me, its a little bit like
instead of thinking about how can we add a new facing on the building, or adding a new floor or
swimming pool, make sure that the foundation is extremely strong and solid, and I think that all of these
other things go away, quite frankly, is a thought.

SL: Ill be the third classicist in a row, restating that our primary concern, as investors, is to make sure
that that confidence in the primary audit function, which is testifying to the quality of the financials, is
paramount. And that you should make sure that you invest all of those resources to make sure that that
promise has been delivered against, and not watered down by other things. Additional information, to
Cams point, is useful for investors. The more the better, we cant get enough. We, at CPPIB, pay money
to KPMG for transaction services, to help give us additional insights in the companies that we invest in,
so the point is that we like to go beyond whats out in the public domain. Whether or not that should be
mandated for all companies to provide, I dont think is a simple question; we didnt raise it today. I
wouldnt suggest that that be as much of a focus as in dealing with the complexities and sophistications

of global businesses today, and I think it should be of paramount importance to stay focused on the core
of what were asking auditors to do.

MV: I thought this was, again, a tremendously useful and interesting debate today. I certainly picked up
the message of getting the basics right, and I think there is an ongoing commitment to the quality of
audit and the quality in audit, and quality as a top priority, I get that. I do agree with Axels point,
though, that I think that we do need to look at the reporting model, thats something close to my heart.
I think that may have driven us too much into a compliance mindset, and Karyn made that point. So I do
think that there are improvements in the reporting model that could be quite helpful to investors, and
also, therefore, to the profession, as a whole, and maybe that comes back to your information gap on
both sides. So I think that is one that still needs work, whether its the disclosure initiative of the ISB to
get rid of the clutter. And integrated reporting, I dont think, is an end in itself. It is a dot on the horizon,
actually, to drive some change and some improvement in corporate reporting, that I think we should
have further debate about. I heard quite a bit of support for that today.

LB: For me, its been tremendous, so thank you for coming, thank you for your comments, thank you for
being open and frank with us, quite frankly. I think that we are at a bit of an inflection point, with
respect to the audit profession and the future of audit, which is why we wanted this. I think we have an
increase in sophistication and rigour of our international regulators coming together. We have a raging
debate, quite frankly, with respect to enhanced audit reports, that is not going to go away. And we have
the advent of mandatory rotation in the European Union, which, quite frankly, is a global phenomenon,
not just simply within the EU. All of these events coming together within just a few years period mean
that there will be changes and there will be significant changes. Our job is to listen, is to absorb, and to
make sure that we do the reach out, like we did today. The last thing that Ill close with is a comment on
quality. Sometimes, when we talk about quality, at KPMG, we say; quality underpins everything that we
do. It sounds like a tag line that can be easily used as a throwaway line, almost, but quite frankly, thats
my view of the future. And the reason I say that is Id much rather compete on quality. If were
competing on quality, that means were not competing solely on cost. And if were competing solely on
cost, as a profession, then, Im afraid, thats a race to the bottom. And that means that, somehow, weve
commoditised the profession, and thats the last place that I want to go in leading global audit practice.
So thank you for coming and taking part.

RC: Let me echo Larrys thanks. That was very interesting. Some of the key words that I have down here
are trust, between the major players and also in financial statements, and increased dialogue. This type
of event seems to be generally well received, in terms of helping to increase that dialogue and that may,
ultimately, lead to increased trust and a better understanding. So thank you all very much for taking
part.

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