Value of Audit Toronto in full.docx

8/10/2019 Value of Audit Toronto in full.docx

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today and also the issues around the relationships between different stakeholders. I think Mark will talkin a bit about some of the conversations weve had at the previous roundtables, and draw out some ofthe key things. What well do is well just kick off with going round the table. First Ill hand over to LarryBradley in a minute, and he can set the scene from a KPMG perspective, in terms of what the value ofaudit 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 com e up.

It would be good, as we go around the table after that, if you could introduce yourself and perhaps givean opening comment or opening remarks. Well come round to John Gordon, whos last, but definitelynot least, and hell be able to set the conte xt 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, thankyou for coming and thank you to Richard for directing this roundtable. Although this is the fourthroundtable th at weve had globally, this is the first that Ive been to, so Im very interested in this. Thefuture of audit and the value of audit roundtables and everything that were doing along those lines isthe output of a decision we made at the global level, to be very proactive, about two years ago inparticular to reaching out to our stakeholders. We actually derived a mission statement for the first timefor KPMG and KPMG Audit, and there are two key points to that mission statement. One key point isthat we have a responsibility to society. And this is something thats come out of the global crisis, andsomething that we gave long and deep thought to. And the second part of our mission statement is; ourresponsibility includes providing assurance, but assurance over what matters and what matters tostakeholders.

And we define stakeholders much more broadly now than I think we ever have. We include, in ourstakeholder set, governments, regulators, investors, audit committees and management. So were nolonger looking at the world strictly through the lens of our audit clients, or audit committees, ormanagement. Rather, were trying to look at the world through the lens of this wide group ofstakeholders. Again, were trying to be proactive in what were doing. That is, not waiting for aregulation to be set, but proactively reaching out to this group of stakeholders to get views on what weshould 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 ofaudit programme, and I had the privilege of going to the other sessions we ve done. Its been a veryinteresting experience, so far. If I just recap, very briefly, what the key themes are. What we find, first ofall, is that in every jurisdiction we go, there are certain specific themes that come up. Although we sawthat there i s a lot of commonality of themes, as well, there are also some specific flavours, and wedexpect 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 havealready introduced when they had before, that the International Auditing Standards had introduced as


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a new audit report, with more than just a binary fail or pass and go into the key risks, going into whatyouve done about the key risks, as an auditor. And in the UK, KPMG even went a step further, on a pilotbasis, for some clients and actual talk about some of the findings. That was quite a bit of a discussionthere, 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 therelationship 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 alllisted companies. At the table we had Professor Mervyn King, who is the Chair of the IntegratedReporting 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 discussionas to whether we, as auditors, could play a more useful role in also giving expanded assurance oversome 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 raisedthere was audit quality. Very often, we see that independence and mandatory firm rotation is taken asthe only proxy for audit quality or to address audit quality. And there was, certainly, some sense that weneed to be developing some more specific indications of audit quality, because these may be very crudemeasures, if you go down that path.

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


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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 informa tion, it doesnt go beyond whetheror not an unqualified opinion was given.

SM: Im Stan Magidson and Im CEO of the Institute of Corporate Directors. Im also, currently, theDeputy Chair of the Global Network Director Institutes, and Ill actually be s ucceeding to chair thatorganisation in December. So, I guess, I represent, perhaps, the voice of the director. My background isnot accounting. I certainly took accounting courses, but Im a lawyer by training, and I also did sometime at the Ontario Securities Commission. So I think I understand the regulatory perspective well. Iguess, in terms of opening comments, one of the things I think we do particularly well, here in Canada, isthere are diehards amongst different players in the capital markets. An d I think thats, actually, givenrise, in this country, to a very healthy state of corporate governance, by global standards. And I reallygive a lot of credit here to KPMG for this kind of initiative, where you actually convene groups to talkabout how t o go forward. Im a firm believer that regulation for the sake of regulation is a result offailure of the capital markets to otherwise work effectively. So I think that when you can come up withcollective solutions that are, actually, best practises, tha ts far superior to a regulatory response, whichcan be a very crude kind of instrument. So, again, kudos to you for the initiative here. And I think thatthey came up with a made in Canada type of approach to that problem, and I know that Axel can speaka lot more to that. And I think thats, kind of, a model. If we could, kind of, continue to advance inCanada, but also see it take hold internationally, I think that this would be a good outcome for theworld.

IB Im Ian Bourne. Im on a number of corpor ate boards. I chair SNC-Lavalin in Montreal, a globalengineering 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 theCanada Pension Plan Investment Board. I serve on the Canadian Public Accountability Board. Im onWajax, which is a distributor of Montreal equipment and products. And Canadian Oil Sands, which in theoil and gas business, quote, unquote, Oil Sands bitumen business. My background is in, and Ive chairedaudit committees or served on audit committees in all of those firms, at one stage or another. And mybackground; Im a finance guy, but Im not a trained accountant. I went to the GE system at a univ ersity,and went through the boot camp of internal audit and all of those kinds of things, and spent a little over20 years in the GE system. I retired a few years ago as the CFO in TransAlta Power Generation Companyin Alberta, and now, as I say, I serve on a number of boards, and Ive been fairly active in an number ofthese areas of interest.

And it probably shouldnt come as any surprise for those who know me, but my view on this stuff isfairly 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 financialreporting, checks and balances, is functioning. And I think that the example that weve seen at SNC lev el,which weve worked our way through for the last And my sense is that if the auditors start to get intoareas that theyre not necessarily skilled, capable or trained to do, theyre going to dilute what is the


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real value of the system, which is integrity of the financial statements. And current disclosure aboutissues that may or may not be of interest to investors, I think this idea of saying that heres where weconcentrated some effort, because thats how we assessed the risk profile of that company, I think thatmakes tremendous sense. To get in and start disclosing stuff, I think, makes no sense. I think thats therole 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 qualityof the audit piece of that. I was chilled, a couple or three years ago, when I heard a comment from asenior regulator in the US who, basically, dismissed the audit committees as they do nt count, theymatter, we dont count on them to do anything. I was, quite frankly, appalled. And I thought; if this guysa regulator, weve got a problem. So I think that part of this whole exercise of assessing the value of theaudit is that we need to make sure that were getting what we paid for, that were not getting a bunchof stuff that we dont need, were not getting a bunch of stuff that we cant use. And the people who aredoing the work, actually know what that theyre doing. Its about that simple to me. And then a numberof other products and services that can get added on, you know, may or may not be the best person toprovide that service. But ultimately, the more you, sort of, move away from that core responsibility, themore delivered it becomes, and quite frankly, the less clear it becomes to both the Audit Committee, theBoard, 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 Ch iefAccountant at the Ontario Securities Commission in Canada. Im a securities regulator, and of course, Icome at it from an investor protection standpoint. Making sure that the system is reliable, making surethat investors can rely on the audit report. And thats the fundamental concern that I have, as asecurities 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 ofthe 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 auditreport. 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 asound, fundamental piece of decision-making for investors. And I appreciate sometimes there is toomuch focus on forward-looking information, which is important. But the forward-looking information isbased on the historical aspects of the business, and thats the fundamental basis of reliance, makingsure that that information is valid, and then you can build on that with forward-looking information, tomake sure that you know where the organisation is going. So, to me, its such a critical point in reportingand in investor reliance, is the audit, and making sure that that there s level of professional scepticism.Making sure that auditors are complying with a robust set of standards, and thats also anotherimportant piece. Making sure those standards are sufficiently robust and clear, so that auditors canexecute on those witho ut 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 arole to play. I dont have clarity on what that exact role should be, but Im excited about some of thosespeeches and discussions, globally, about where the audit committee should go and what they shoulddo. So Im happy to be here, and again, my perspective is from the role of investor reliance.


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GF: Im the vice presi dent of inspections at CPAP, so the inspections group, basically, reports throughme. So Im encouraged that some of the comments youve got in here were, actually, ones that I wrotelast year. So somebody is reading them, and I think thats very good. Tha nk you. Just by way ofbackground, because, I guess, it can colour perspective, Ive come to this through a bit of a variedcareer. 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 ownbusiness and it didnt do so well, but thats entrepreneurial. Then I was a VP finance CFO of private andpublic companies for about 12 years, prior to joining CPAB in 2010. So I can, sort of, I think I can see theissues from both sides. Im not strictly coming at it from the profession, but I can see it from thepractical side. Im very encouraged by this type of initiative. Those of you who might have read CPABsstrategic plan for t he three years that were in the middle of right now, will see were trying to take a bitmore 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 auditquality and what that means, and why they should be concerned about it. And were seeing weremaking some inroads on that. Its a little bit difficult for us because our primary regulatory role is overthe 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 theproblem together, or the challenge together. I think that what were seeing is that some of the keysolutions, its probably getting back to basics. One thing I was somewhat surprised to see, having beenout of public practise for 12 years, is when I came back, a lot of the same issues that were talked aboutin 1998 were still there in 2010. the degree of complexity has changed, but the fundamental root of theissues 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 scepticisminto my role, I look at some of the solutions that are being proposed, and Im highly sceptical as towhether 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 solutionthat doesnt get at the depth of the problem, which, as Stan said, kind of addresses the made in Canadasolution that we have, thats a bit more logical. So thats, sort of, where Im coming from. I appreciatethe opportunity to be here, and its very interesting and opportune to get the views of people whoapproach 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 acouple of observations. I am acting as a senior advisor to CPA Canada. CPA Canada, the newly formedorganisation 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 Icoordinated between the ICD, CPA Canada, and CPAB. So it consumed quite a lot of time in working onthat project and bringing all the parties together. We are going beyond that, enhancing audit quality, tolook at things, exactly like were talking about here. What can the profession do in Canada to enhancethe view of financial reporting, or of auditing? And that has led, then, to a discussion; can you really domuch about enhancing the value of auditing, unless you really ask the question about the value and


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relevance of financial reporting. So the second broad area initiative Im leading for CPA Canada is whatcan we do in Canada, in a Canadian context, to enhance the value of financial reporting? And that doesget into alternative forms of reporting, whether it is integrated reporting, all the non-gap measures younow see in corporate reporting. And its b roader than just financial reporting; it is all corporatereporting. 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 theSecurities Commission, CPAB, that profession, the firms together, and sit down and talk about some ofthese questions. Depending upon what the question is, there may be different people the table, so Ithink thats a real strength we have. An opportunity to play a bit of a leadership role on some of thesequestions in Canada. I also think that audit committees do play a very important role in this. There arelots of stakeholders, but audit committees are a key, if not, the key one, and we talk about this. So, tome, thats a lens that we really need to look at these questions through. we cannot de -link the value ofaudit from the value of what is audit and fi nancial reporting. And so I think its essential that the auditprofession is in step with whats happening in evolving financial reporting. We need to figure out a wayto 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 coreelement of the financial statements. In other words, this is not instead of that, this is evolving theassurance to some of these other things, but keeping the core value of the financial statements andaudited 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 areslanted to that perspective. My board involvement has been in the not for profit sector. Primarily, I wasChair of the Audit Committee at Queens University for five years. And Ive chaired the board of FEICanada, which is, well, industry association is incorrect, lets say association for financial executives inCanada. When you ask what audit quality is, it depends on who you are asking. Ive heard a number ofviews around the table, and Ill put my prepared hat on for a moment. Audit quality, from my preparedperspective is probably quite different from an Audit Committee perspective. Theres the compliancepiece of the audit, which is, obviously, critically important, because thats what gives everybody aroundthis table comfort that the financial statements are materially correct. I think its become difficult f orcompanies in thinking about value of audit, because it has become such a compliance exercise. Andwhen 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 ofa commodity. So its just not value to external partners, I think its what value does it bring tomanagement, as well. does the current reporting model serve the needs of investors and otherstakeholders? I ve also been involved in the standard setting process and I have to give a resounding noto that, because its become too cluttered, for lack of a better term. So then when you think of theproliferation of non-gap measures and other types of disclosures, is there some audit assurance of somekind that should be extended on to those measures. When I had my preparers hat on, I was always


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staunchly opposed to that, but as they become used more widely in the marketplace, and we haveinvestors and analysts, I think, when I was at BCE that didnt pay very much attention to the gapinformation, 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 KPMGin Canada. And by virtue of that, I participate in the management team of our firm, as a whole, and allthe parts of it, but also, part of the Global Audit Leadership Group that works with Larry. While there aremajor trends or events that have led to discussi ons, like this, around the world, I dont think Canada wasat the epicentre of many them, you know, touch wood, but nor are we immune to them. And whetherthats the crisis in the financial industry or some of the responses around the world, like auditor r eformin EU, we are certainly hearing audit committees and management teams talk about that and what doesthat mean? Is that best practice or not? And what is the role of auditors is that And can that bebroader, given the skills and experiences they have? The information they have access to. And are thereother things they can do, or should be doing, to meet the expectations of people we interact with, soaudit committees or the investors that were never going to get a chance to interact with, particular lyretail investors. And are there things that we can do that are additive, and not dilutive, to use yourword, 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 re al for us, is that wego on campuses across the country and try to hire 400 to 500 of the best finance grads across thecountry right now, and they have choices, and they ask pretty probing questions about the value ofwhat we do. Where will it be? Whats the future of this industry? So we need to continue to be able toarticulate to them. How, as a profession, were responding to whats going on. Because not only do weneed 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 runningaway. So I guess, one of the questions that I have from whats already been said is that there was talkabout a back to basics approach and focusing on the fundamentals and the need to get those thingsright. This seems to speak directly to the issue of audit quality. But how exactly are we measuring auditquality? That seems to be right at the heart of this. Is there enough of a sense of how we actuallymeasure 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 thinkits partly because, in many cases, audit committees are really now s tarting to figure out what does anaudit firm actually do? Because theyve, kind of, never, and never meaning other than the last three orfour years. Theres not been a whole heck of a lot of real focus on what the audit is, what it does, what itdoesnt do and all those kinds of things. So I think, you know, you look at the fee structure, which isusually negotiated with management. And it just all having been on the CFO side, that all worked prettywell for me, but Im not so sure that that was the right model from a board standpoint. So now were at


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a point where the audit committees have to satisfy themselves that theyre paying an appropriateamount for what theyre getting, and that theyve got a basis for approving it. All, of which, comes backto; is the plan properly structured in the first place? Does it display an understanding of the business bythe auditors, such as looking in the right places and not spend a bunch of time in the wrong places. Thenyou 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 elementwithin the corporate sector. So getting audit committees, kind of, more able to do that, I think, is reallyimportant. 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 ofstuff like that.

CM: the talk about t he quality starts to give me a little bit of a headache, because its been discussed forso long without with so many different perspectives. But, I guess, when I think about it now, and its anevolving concept in my mind as to what the right answer is, but when I think about it now, at least, auditquality, is that the same as a quality audit or is that something different? So, to me, a quality audit isimportant. Its fundamental for investors to be able to rely on a set of financial statements that hav ebeen 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 arobust way, that, to me, is a quality audit. Does audit quality mean something beyond that? Does itmean more value added to other perspectives of the Audit Committee to the entity itself? Is that whereyou get into the value added, which, then, you talk about audit quality? Im not sure. To me, Im fo cusedon the core, the fundamental, similar to what youre saying, which is execution, appropriate execution, aproduct that investors can rely upon. And the other stuff that sounds interesting and the otherinteractions of the players to make this happen is great, but does audit quality mean more than just aquality 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 oftrying to figure that out mor e consistently, and its, sort of, early stages in trying to get consistentassessments as to how you assess that product. But, again, to me, its back to the standard setting andits back to execution. Are the standards clear enough, robust enough, so th at our auditors, then, canapply them appropriately? And then are they executing well enough? To me, you will have a qualityaudit that is produced, and are there other features, that maybe others can talk about that Im probablynot as

SM: I really like Ians focus on getting the right plan for the issue and holding people accountable todelivery 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 Ithink one view I would have is that I dont think that audit committees should be expected to take on a


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responsibility, if you like, of somehow ensuring that audit quality writ large is enhanced. I think thatdirectors really have a fulltime vocation looking at their issue, and this takes me to Cams point aboutthe quality of the audit, I think, is critical. And if you think about it, if each audit committee actually doeswhat it needs to do in the relationship with the audit firm to get that outcome, the macro effect of thatis 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 inensuring writ large audit quality is enhanced. Thats not something you should expect an individualdirector to take on. But clearly focusing on whats necessary for the issuer to give this appropriateassurance, definitely is the way to go, I think.

KB: One obvious question, or obvious answer is what CPAB or PCAOB produces annually, in terms oftheir reviews. The problem I see with using that as a measure of audit quality, well, probably more thanone issue, but one is it tends to fo cus on the negative, I think. So theres not once its issued, theaudience 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 th ink you would get adifferent answer, depending who you asked. If you asked the management or if you asked the boardchair, youre going to get a completely different answer about the quality of the audit and whosaccountable for that. To go back to Ians point, I mean, and the audit committees involvement inassessing the auditors performance. That was my job when I was at BCE. I wrote the auditorsevaluation 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, isunderstanding the expectations of those who choose to engage us or not. And we often feel like thosedecisions on us versus our competitors are being made on criteria beyond the rigour of the audi t theyre

looking at. Sometimes its costs, sometimes its value beyond the audit, like insights or something. Andwhile a quality audit is table stakes, but the decisions on us versus our competitors are being made onother criteria.

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


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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 theground, but I have to do it. There are huge expectation gaps there. And there should be a base level ofaudit quality, though, if youre hitting your standard, that, at least, gets you And thats something thatwere The whole issue of how much is enou gh 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 withthem. And the amount of audit quality that you should want depends on your level of comfort. And itshouldnt just be driven off the price, and oftentimes, it is. I think it goes back to the days when I was inpublic practise and youd see a manager move over to a client and the first thing they did was get theaudit fee, because thats something they thought they understood. But thats not necessarily the waythey should be responding.

IB: Karyn, can I just challenge a little bit on the CPAB report, because we, actually, Glens, kind of theauthor, 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 thenegatives that were picked out, but the core message was; you can count on the audit function. But, Imean, 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 auditcommittees who really arent particularly knowledgea ble on some of those things. So a nuance, like thereport 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 tothis 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 o ffices in Canada in Calgary.Youve got oil and gas firms that partner with each other on all sorts of things, compete with each otheron all sorts of things. Youve got, basically, the big four, plus a couple of others who are out there. Eachof those fir ms has a few people who know what theyre doing in the oil and gas business. You startmoving all these guys around because youre mandated every X number of years, the ability to maintaina quality audit for any given entity, because at Canadian Oil Sands, for example, we only can operate outof, 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 kindsof things really contribute to quality, and I think, you know, its not like Calgary is a backwater, in termsof the concentration of wealth and activity. So i f youve got those kinds of problems in a place, likeCalgary, think about whats going to happen elsewhere. Were going through a rotation, partnerrotation, 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 outof 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.


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SL: Aan investor, I would say its a nice academic and theoretical idea to rotate firms. But, look, weunderstand the practicality that youre starting from scratch, youre overturning it, youre forcing morework on the company itself, and taxing the finance group, the accounting group, etc. And at the end ofthe day, to the extent that theres a perception that the audit firms, at least the big four, have a highdegree 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, professionalstandards and training and increasing the sophistication by which systems are reviewed, there are awhole lot of other things that I think investors worry about more, in terms of quality of audit, thanindependence quite frankly. I think its a bit of a red herring. Its easy to talk about changing auditors, itseasily fixed, but I dont think it it addresses the core, the root of what investors worry about. I mean, themore important thing is that, and I think what youve been touching on, is the tension between trying tominimise fees, minimise footprint on the organisation, minimise the amount of work that the auditorsdo, but still maintain a high degree of confidence that their representation is accurate. And at the end ofthe day, the biggest problem, from an investor standpoint, is that the fundamental nature of quality isbinary, and you only learn about it after the fact, when something has gone horribly wrong and you saywhat did they miss? How did they miss it? Why wasnt it right? What shortcuts did they take? How werethey duped by management? And investors have a big, gaping hole in their portfolio, as a result. Butquality, and I think Karyn made a good point, is measured by the various stakeholders, and there are alot 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 s olutions beingproposed to complex problems. You see things, like the bigger the company, the effort of rotating firmsand the cost thats involved in it, and the hole thats left as the new firm comes in and tries to figurethings out, its only a matter of time before there is going to be a failure thats going to result in thatframe, 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 l isted in the report. I think thoseare 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 seeit in the press, like, I dont think the media and the public, in general, still understands what an audit isbecause its a reasonable assurance, what does that mean? Well, you read about stuff, theyre out by adollar, that should be material, therefore, the auditors should have caught it, and theres a whole bunchof misunderstanding there. I dont think that helps anybody understand and appreciate what auditquality 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 thatlack of understanding?

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


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MV: Its interesting. In the UK, because they do the new audit report, they also include a disclosure ofmateriality that has been applied in the audit, so you have seen that, actually, on the back of that, youget a shock reaction from people. Vodafone, 500 million, as the materiality threshold. No, but you doget into a dialogue, then, that leads to, maybe, a better understanding of the audit, because all of asudden, people say; hey, how can that be? So you get into a dialogue, and I thought that was aninteresting dynamic. Maybe the expanded audit reporting is one way in which we can communicatemore 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 endup, instead of having, perhaps, a shorter document that actually means something because what itssaying 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 RollsRoyce 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 talkabout 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 withinKPMG, we thought, we tried, to go further on a number of clients, as a pilot, and Rolls Royce was one ofthem, where you would, then, also go and say the provisioning was one of the areas, and we have aview 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 debat e, still, in the UK about it, whether thats the way to go, yes or no. But itsa seven page long audit report now, so its no longer the one page, its seven pages of And the investorcommunity in the UK has responded quite positively to it, because as t hey

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


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

IB: Thats up to the company.

SL: Thats what I mean, up to the company, perhaps. And then its creeping standard youre sayingmake 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 goingconcern 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 payfor that, quite frankly. I want to pay as little as I can for as much as I can, the same as Im doing withanything 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 Ipay 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 Iwould be careful about seeking an expansion of this role, in terms of reporting by auditors, precisely forthe liability reason. The way the securities regulators encouraged issuers to do that, of course, is with asafe 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 allof 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 thinkthat t he whole things a big make work project thats not going to result in real value translation, andcreate complexities. So Id say; be careful what you ask for here, because I think that once you go downthat route of trying to get more out there, in terms of comfort that youre providing, youre going towant the requisite protection, and thats where the rubs going to come in, I think, in terms of whatsthe value here.

AT: there are a couple of competing objectives here that we need to be careful about. The point that Ithink that better explaining what an audit does or what assurance does and its value, is important, butthats been around for ever and we can keep trying at it, and the media always focuses on the negativethings, and thats just part of what media does. But it is important to do that. I think this question ofusing the auditor to communicate something about the company is really indicative of the companiesnot communicating what investors want. You fundamentally start from its the job of the company toexplain to their investors, to the stakeholders, the results of operations, their financial position, theirrisks, their key And whether thats through, you know, risk analysis, whether thats through sensitivity


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information and things like that. And to try to use the auditor as the surrogate for information thatyoure failing to get about the company, I think, is a bit misguided. But part of the reason for that, Ithink, stems from the fact that the information that companies are providing is, maybe, not as completeor transparent as some would like. And maybe there is uncertainty about how reliable it is. So that leadsto 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 thisis 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 uniquediscussion about the risks of that company. So I dont think investors, users, stakeholders really want tofind out more about the audit, they want to find out more about the company, because thats who theyinvest in and who theyre doing business work and are employed by. But this idea of using the auditorsas a communication tool is indicative. I think that they should probably move it into financial reportingor corporate reporting, both whether its the liability of it or what the information itself is. So if we canfix that and fix the assurance relationship, I think its misguided for the auditors to provide thatinformation.

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 halfyears, weve had to communicate what is the state of play, with respect to these allegations. Part ofwhich, is the legal liability side, part of which, is the financial disclosure side. And the real trick is; how dowe make sure that we dont say something that screws up the police investigations, inadvertently. Soweve been exceptionally careful about how we word th ese things. To the casual observer, they thinkwere playing with words, but were actually not. And unless you really understand a lot of whats goneon in the background, Im not sure you would actually read those words the way theyre intended to bewritten 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, isquite different from dealing with some company spe cific situations, be they tricky, like the ones Iminvolved with now, or be they a state of a company, you know, thats in financial difficulties or whateverit be. So I think that we have to be very careful about getting ahead of ourselves on some of thesethings, because its not as simple as just keeping the public quote, unquote, informed. Its very, verycomplex.

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


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look for the outcomes of how stakeholders react to this information, but I did start with a scepticalmindset and I havent fully drunk the Kool -Aid, but I m open to where were at. But I do worry about thisinformation in many companies, especially a lot of smaller companies that have just got a plain vanillaaudit, theres nothing exciting in it, exploration companies in Canada. Many smaller ones, they dri llsome 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 thecapital markets in those situations?

LB: This debate is just beginning and I encourage you to get involved in the debate, just as you havenow. Because the US has a proposal out there in the International Standard Board, clearly, whats donein the UK. Let me just give you one anecdote that may bring out some of the points that have beendiscussed. In the last couple of weeks, there was a serious financial statement misstatement of acompany in Europe, of a retailer. And, of course, one of the items that the media and individuals went towas the former audit, to the audit report. And they looked at the audit report and the reports that cameout were the auditors warned you about this, and then they took management to task. In reality, whenyou read the audit report, it was just merely a key audit matter and a description of the fact that theauditors focused on this area. But at the end of the day, it was a clean opinion. However, what wasreported 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. Whatquestions me is the first time you come up with s omeone where, my God, theyre on the right sidewhere youre going to have to really take on management and say; youre incredibly aggressive in theway youve provided for this, or youre too conservative in the way youve provided for that. And youregoing to be starting to point that finger. Like, in order for this to have real value, thats what, I think, theusers will be looking for, is actually doing that when it will put that relationship at risk. And it may leadto, like, the firm having the conviction to go ahead and do that, when the first time you do that is goingto be tough.

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


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KB: And that, Axel, is my concern with this. Because I know that, in the BCE audit, for example, there isone risk, audit risk, thats identified that, in my mind, was never a risk. So you have this mismatch. Andthen how do the auditors and management resolve that and get to a place where something useful cango in the audit report. Or, heaven forbid, disclose it as a difference of opinion between managementand auditor. I dont know what the answer to that is, but it would create very bad feelings between thefirms and their clients, when there already is seen to be, I think, a sort of compliance mindset aroundthe 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 notconsistent with their view on it. So the fact that they are different is something is what auditing is allabout. Its a question of who communicates it.

LB: I think on the Rolls Royce re port, it will be fascinating for us in the next few months. Weve publiclyannounced in the UK, I think in the last couple of weeks, that any of the companies we audit can choseto have the Rolls Royce version of reporting, or the standards [overtalking] to give it a label, yes. But Ithink the one condition is you have to pick what you want off the menu before you start and then stickwith it. You dont need to change your mind after youve read our draft. So it will be interesting to seewhat because peo ple 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 theyrenot. To then s ay; well, we think that, but the management thinks that. All that youre basically doing isoutsourcing 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 theability 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 aboutchanging auditors.


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IB: Exactly. If you cant sort those things out within the company, then thats indicative, I think, of someother 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 mayb e this is for you, Larry, about how this has been currently received in theUS. I notice that maybe you havent yet had your US roundtable, but my understanding of the lay of theland in the US is that if theres a drop in the stock price thats precipitou s, the 10b-5 bar immediatelylaunches claims in the most favourable jurisdictions, and they dont even know what the cause of actionis, at that point. Its a programme. Its a computer programme, stocks, [unclear] X dollars, youre intocore. And then, clearly, it seems to me that if auditors are more engaged in commenting on thesituation, your exposure will increase, absent some safe harbour disclaimer. So how is this beingreviewed in the US currently? Because we have some litigation here, and some of us around the tablewill know about that, but not to the same extent as the US, where, I would have thought, there wouldbe 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 asignificant 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 mindthat 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 ourconcerns, quite frankly, I think, was well articulated by Axel, is; to what extent are we articulatingsomething that should be articulated by management and managements reporting? And is thatindicative of, perhaps, a deficiency in reporting? Now, in the US, the Securities and ExchangeCommission 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, andproviding our assurance or an attestation on what managements reporting, as opposed to articulatingour own separate view, which people could, then, try and drive holes through and look fordiscrepancies, 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 withunderstanding the business risks, and if theyre not in synch with what management thinks, theres anissue. 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 formanagements description of the risks, I think were in a place we want to be. So part of it is notunderstanding 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 forauditors to assess information, other than just the audited financial statements? Looking at those other


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disclosures and making sure theyre consistent with what they found in the audit. Is that model going toachieve, 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 ulti mately, it may or may not workand it may or may not get adapted. And its taken us 25 years to get it from, you know, some guy with abit of a, you know, brainstorm in a lab some place, to where were actually selling stuff. But this is farfrom assured. Its a whole different business risk than the fact that we might be paying somebody off inLibya, in SNC-Lavalin. And the SNC-Lavalin, I think, thats an internal control process. Technology as arisk, how do you propose to get the auditors up to curve on their ability to assess whether ourtechnology 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 thefinancial statements are what they purport to be. When you start to go beyond that, youre reallygetting 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 reportingrisks. There may be something wrong with the numbers, or there may be something wrong with thedisclosure around risks and uncertainties and conting encies. The auditor doesnt audit all the businessrisks, but they start with that. But where the disconnect possibly is, is if theyre understanding of thebusiness risks is not the business risks that are disclosed. So in other words, if theres nothing in Ballardscorporate disclosure about that IT risk, then you get the auditor, albeit, theyre not responsible for theMBNA. They see that not listed there.

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


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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. Isthat valued appropriately?

IB: Exactly. So then the r isk and the stuff that youve got to focus on is what are the auditors doing tosatisfy themselves that the financial statement is [inaudible]? Well, you know, the biggest asset on thebalance sheet at Ballard is the goodwill and the IP and all that kind o f stuff. So, as an audit risk, thatsnumber one. As a business risk, is that number one? I dont know. Not the valuation but whether or notthe stuffs going to work, but from an audit risk, and thats where, I think, youve got to differentiatebetween what are the risks to doing a good audit, versus what are business risks and they are two quitedifferent questions.

KB: One thing I heard that struck me as a little bit astonishing is that 40 years later from when I startedin the profession, were still talking about the expectation gap when it comes to audit. So, I mean, thatsfundamental to this issue because if you dont solve that, all these other things are just going totheyre not going to solve it. Like, expanding the audit report, I dont thin k, is going to solve theexpectation gap. So I dont know, maybe if we havent figured it out in 40 years, its insolvable. But itreally 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. Thelinkage between the assurance, audit assurance, and the information that a company provides. That theassurance profession needs to work with those who are providing information to stakeholders andf igure whats the appropriate assurance model for that. And I think that that is evolving. I recognise theliability concerns when you get into difficult situations, like you talked about, Ian, and what you can andcant 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 buildassurance into that, and then make sure that people understand whats assured, and whats notassured, and what level of assurance is, without adding a lot of cost. We start from a very strongfoundation, I think, and a respected foundation of auditing the financial statements, but the informationhas 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 toget some different perspectives on it because its I mean, its a little bit like the how long is a piece ofstring, sort of, question, in terms of describing audit quality, and coming to grips with that. Its all amatter of perspective. And I go back to what I said earlier, its a complex problem and there isnt a


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simple solution. When you start believing that youve got a simple solution, then I ge t concerned aboutthat. 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 exis ts; it will continue to exist. The debate more now isabout the information gap and investors wanting more information, and thats something thathappened pre financial crisis, and it became a focus post financial crisis. So thats really what isinteresti ng, what do investors need to know about the audit? Theres been a lot of movement in thatdirection, well have to see what the outcome is and how the capital markets respond to thisinformation 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 auditoversight bodies, but also the securities regulators, were trying to figure out what our role should be, interms of contributing to audit quality. And these discussions have helped me to think about that fromdifferent 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 commendKPMG for taking the initiative to get a number of us around the table in various locations. I think itsincumbent on us, as practitioners, as directors, as executives in our various roles, to really do our part toput some of these issues out for broader discussion and dissemination, so that there is a betterfundamental 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 havefrom this discussion, its I wouldnt encourage people to really focus on the basics, and doing thoseexceptionally well. And I think that all of these other things will go away. For me, its a little bit likeinstead of thinking about how can we add a new facing on the building, or adding a new floor orswimming pool, make sure that the foundation is extremely strong and solid, and I think that all of theseother things go away, quite frankly, is a thought.

SL: Ill be the third classicist in a row, restating that our primary conc ern, as investors, is to make surethat 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 thatpromise has been delivered against, and not watered down by other things. Additional information, toCams point, is useful for investors. The more the better, we cant get enough. We, at CPPIB, pay moneyto 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 bemandated for all companies to provide, I dont think is a simple question; we didnt raise it today. Iwouldnt suggest that that be as much of a focus as in dealing with the complexities and sophistications


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of global businesses today, and I think it should be of paramount importance to stay focused on the coreof 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 ofaudit and the quality in audit, and quality as a top prior ity, 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 dothink that there are improvements in the reporting model that could be quite helpful to investors, andalso, therefore, to the profession, as a whole, and maybe that comes back to your information gap onboth sides. So I think that is one that still needs w ork, whether its the disclosure initiative of the ISB toget 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 shouldhave 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 forbeing open and frank with us, quite frankly. I think that we are at a bit of an inflection point, withrespect to the audit profession and the future of audit, which is why we wanted this. I think we have anincrease in sophistication and rigour of our international regulators coming together. We have a ragingdebate, quite frankly, with respect to enhanced audit reports, that is not going to go away. And we havethe 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 meanthat there will be changes and there will be significant changes. Our job is to listen, is to absorb, and tomake sure that we do the reach out, like we did today. The last thing that Ill close with is a comm ent on

quality. Sometimes, when we talk about quality, at KPMG, we say; quality underpins everything that wedo. It sounds like a tag line that can be easily used as a throwaway line, almost, but quite frankly, thatsmy view of the future. And the reason I say that is Id much rather compete on quality. If werecompeting on quality, that means were not competing solely on cost. And if were competing solely oncost, as a profession, then, Im afraid, thats a race to the bottom. And that means that, somehow, wevecommoditised 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 do wn hereare trust, between the major players and also in financial statements, and increased dialogue. This typeof 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 takingpart.

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