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CGAs Win Round With CPAB
Published in the January 2008 issue of Litigation Notes - View Article
Synopsis: The Certified General Accountants Association of Canada brings an application for judicial review to the Divisional Court of Ontario, alleging that the Canadian Public Accountability Board (“CPAB”) favours the interests of Chartered Accountants over those of Certified General Accountants. CPAB’s motion to quash the application is unsuccessful.
The Certified General Accountants (“CGAs”) in Canada have had a long-standing dispute with the country’s Chartered Accountants (“CAs”), relating to whether CGAs should have the same practice rights as CAs, and specifically whether they should have the right to audit public companies. The CGAs apparently consider that the Canadian Public Accountability Board (“CPAB”) is another mechanism whereby the CAs maintain a stranglehold on access to public company audits. This led the Certified General Accountants Association of Canada (“CGA-Canada”) to bring an application for judicial review to the Ontario Divisional Court of Ontario, seeking the following declaratory relief as against CPAB:
"(a) A declaration that CPAB is subject to the rules of natural justice and procedural fairness,
(b) A declaration that CPAB’s structure does not meet the requirements of natural justice and procedural fairness in that it:
(i) lacks fair representation from CGAs, one of the professional accounting designations that CPAB purports to oversee,
(ii) has failed to provide meaningful or adequate representation within its governance structure for CGAs, as it has undertaken to do,
(iii) is not acting in the public interest because it is structurally biased and partial towards the interests of CAs to the exclusion of other accounting designations,
(iv) is unduly influenced by the CAs in its governance structure and activities while denying the CGAs any meaningful role or input, and
(v) is not institutionally independent of the CAs whose work CPAB oversees.”
CPAB made an application to quash the application for judicial review on the grounds that the Divisional Court does not have jurisdiction to hear the application, because CPAB exercises no statutory powers subject to judicial review and because CGA-Canada lacks both private interest and public interest standing to seek the declaratory relief. CPAB argued further that the declaratory relief sought by CGA-Canada would not resolve any existing legal dispute, but was brought merely for the political objective of seeking an expended role for CGAs in the auditing of public companies.
The Court’s jurisdiction to hear an application for judicial review is found in s. 2 of the Judicial Review Procedure Act which provides that the Court may grant relief in “proceedings by way of an action for a declaration or for an injunction or both in relation to the exercise, refusal to exercise or proposed or purported exercise of a statutory power [our emphasis]”.
CPAB however is not a creature of statute. CPAB was created in the wake of the accounting scandals and high –profile business failures such as Enron and Arthur Anderson, which took place at the beginning of the decade. The American government responded by passing the Sarbanes-Oxley Act of 2002, which created the Public Company Accounting Oversight Board. In Canada, CPAB was created. However, Canada does not have a national securities regulator or federal legislation pursuant to which CPAB could be created and endowed with statutory powers to supervise the audit of public companies across Canada. To have implemented legislative changes in each of the provinces in a reasonable time-frame would have been impractical. Consequently, CPAB was created as a not-for-profit corporation under the Canada Corporations Act.
CPAB does not have any statutory powers beyond its general corporate powers. It enters into “Participation Agreements” with accounting firms. These agreements require the accounting firm to audit in accordance with certain prescribed standards and to submit to inspections by CPAB. The Canadian Securities Administrators (“CSA”) is an umbrella organization consisting of the provincial and territorial securities regulators across Canada. The CSA has adopted a requirement that any reporting issuer that files financial statements accompanied by an Auditor’s Report, must have the Report prepared by a public accounting firm that has entered into a Participation Agreement with CPAB.
The test to be applied on a motion to quash an application for judicial review is that it is “plain and obvious that the judicial review application would fail”. In this case, the Divisional Court did not consider that it was plain and obvious that it could not take jurisdiction over CPAB. CPAB was created to restore investment confidence in the securities and investment field and was a response to a public need recognized by all levels of government in Canada. CPAB would certainly have been created by statute, had it not been for the constitutional division of powers in Canada which would have made it extremely difficult to incorporate and empower a body
like CPAB in the short period of time required The Court asked the Question: “Should an organization such as CPAB that has a public interest mandate and that has the approbation of both federal and provincial governments as well as regulatory bodies to control the gate to full public practicing rights of the auditing profession, by way of their Participation Agreements, be subject to the supervisory jurisdiction of this Court on questions of natural justice bias?”
The Court went on to say that the very public nature and mandate of CPAB required that the question be answered in the affirmative and the Court therefore found that it had the jurisdiction to hear the matter.
With respect to CGA-Canada’s standing, the Court considered caselaw involving other professional organizations and concluded that CGA-Canada, as a professional self-regulatory body, “…has and should have the standing to challenge matters affecting the profession that it regulates and for which it sets standards.”
With respect to whether or not the declaratory relief would serve a useful purpose, the Court rejected the argument that any judicial review application would serve merely political purposes. The caselaw does not support the conclusion that declaratory relief should be granted “..only in those cases in which the relief, if granted, would resolve a specific present or existing legal dispute. Rather, relief may be granted based upon serving a “useful purpose” or even a “preventative role”. The Court concluded that the question of the function and import of the declaratory relief on the facts of the case should be left to the argument of the matter on its merits.
Certified General Accountants Association of Canada v. Canadian Public Accountability Board, 2008 CanLII 1536