Canada’s national audit regulator has banned Vancouver-based accounting firm Manning Elliott LLP from taking on risky public company clients after it found problems in the firm’s work.
Manning Elliott is the third Canadian accounting firm that the Canadian Public Accountability Board, which oversees the firms that audit Canadian publicly traded companies, has censured this year.
In May, CPAB barred Vancouver-based Smythe LLP from taking on any new public-company clients. And earlier in June, it barred Vancouver-based Dale Matheson Carr-Hilton LLP, or DMCL, from taking on high-risk clients. Such companies include those whose businesses make their audits more complicated, and are therefore more likely to produce accounting errors.
The Manning Elliott action means CPAB has now censured three of the seven mid-size accounting firms that it inspects annually. Over the past three years, the board has consistently found more audit shortcomings in firms in this segment of the accounting sector than in the industry’s Big Four.
The audit regulator, formed in 2003 after a number of global accounting scandals, operated for nearly two decades with a policy of not disclosing actions it took after firm inspections.
However, CPAB has been attempting to provide more disclosure, subject to federal and provincial statutes. Since Jan. 1, CPAB has been announcing enforcement actions that arise from its annual inspections.
The board says it found three “significant inspection findings” in two of the four Manning Elliott audits from 2022 that it examined. CPAB records a significant finding when a firm falls short of accepted auditing standards for a material part of a company’s financial statements and has to go back and do additional work to support its audit opinion.
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CPAB said Manning Elliott also had “elevated significant inspection findings” that prompted enforcement actions in 2020 and 2021. “The results of the 2022 inspection, while an improvement over previous inspections, indicate that concerns over audit quality still have not been sufficiently addressed,” CPAB wrote in the enforcement action.
CPAB did not release the names of the companies whose audits triggered the Manning Elliott discipline.
At the time of CPAB’s inspection, it says, Manning Elliott audited about 126 public companies.
In addition to the public censure, CPAB prohibited Manning Elliott from accepting new medium- and high-risk public-company clients. The ban will end when Manning Elliott “has demonstrated a sustained improvement in audit quality,” CPAB said.
Alden Aumann, Manning Elliott’s managing partner, said in an interview the action is part of the normal interaction audit firms have had with CPAB over nearly two decades of annual inspections, and his firm has been improving its systems and processes constantly in that time. The only difference, he said, is that now CPAB is disclosing its actions.
“We do what we always do, and then it’s a question of degree – keeping up with the changes and the intensity of the change ... depending on the type of industries that might be considered more risky and depending on the type of issues that sometimes CPAB will consider more risky,” he said.
In the action against DMCL, announced June 13, CPAB said that in 2022 it inspected six audit files and identified significant findings in two of them.
DMCL has also been received enforcement actions for three years in a row. The regulator imposed enforcement actions in 2020 and 2021 after identifying significant findings. DMCL has so far failed to implement one of the conditions of the 2021 action, CPAB said.
In addition to the public censure, CPAB prohibited DMCL from accepting new “elevated or high-risk” public-company clients until it “has demonstrated a sustained improvement in audit quality.” At the time of its 2022 inspection, the regulator said DMCL audited about 268 public companies.
“DMCL is committed to being a successful and dependable auditor serving public companies in Canada,” managing partner Fraser Ross said in an e-mailed statement. “In light of evolving accounting and assurance standards, we continue to invest significantly to enhance and maintain audit quality.”