Canada’s national audit-firm regulator has completed its first-ever investigations by issuing enforcement orders against two of the four biggest accounting firms in the country.
The Canadian Public Accountability Board (CPAB), which inspects the firms that audit public companies, has settled with PricewaterhouseCoopers LLP after more than 1,200 PwC professionals shared answers on tests in mandatory internal training courses from 2016 to 2020.
The CPAB says shared computer drives contained answers for 46 of PwC’s 55 mandatory audit tests, as well as tests containing content on professional integrity and independence. PwC employees also shared answers via e-mails, hard-copy documents, and discussing answers out loud during the tests. Participants in the answer-sharing included junior staff, managers, directors and partners at the firm, CPAB said.
CPAB has also settled with Deloitte LLP after its employees falsified the date and time stamps on audit work papers by changing the settings on their computers to a different date. The incidents occurred from November, 2016, through early March, 2018, on audits involving 29 different companies, CPAB said.
Deloitte implemented a system in 2016 that it believed eliminated employees’ abilities to manually change these “sign-off” dates, but when it realized they could manipulate their computer settings, they failed to issue guidance telling them not to. Often, CPAB says, a Deloitte audit staffer ran a Deloitte software program to detect work papers with missing sign-offs or inconsistencies, and then directed other Deloitte staffers, including partners, to insert missing sign-offs and backdate them.
The two firms self-reported the problems to CPAB after whistleblowers raised the issue internally. The enforcement orders from CPAB – the first in the agency’s 15-year history – call for public censure, the development of new internal procedures to prevent the problem from happening again and fines designed to recoup CPAB’s investigation costs – $200,000 for PwC and $100,000 for Deloitte. CPAB cannot assess fines for economic damages or punitive reasons.
While provinces regulate individual chartered public accountants, CPAB has a role in supervising any firm that performs audits of publicly traded companies. CPAB says Deloitte audited 800 Canadian public companies and PwC audited 550 during the periods covered by the settlements.
Canada created CPAB in the wake of multiple corporate scandals and audit failures at the turn of the century, just as the United States created the Public Company Accounting Oversight Board (PCAOB).
The PCAOB also fined PwC US$750,000 for the training matter and Deloitte US$350,000 for the backdating problems. The Canadian firms either audited U.S. companies or performed audit work relied on by accounting firms registered with the PCAOB.
In a written statement, PwC Canada chief executive officer Nicolas Marcoux said the firm became aware in early 2020 that employees, “primarily junior-level” audit staffers, shared online documents containing answers to some internal training assessments.
PwC has taken steps “including retraining, additional ethics training, financial penalties, written warnings and terminations where warranted,” Mr. Marcoux said. “While we are confident there has been no impact or compromise to the quality of our audits as evidenced by our current inspection results, we expect more from everybody in our firm.”
In a written statement, Deloitte spokeswoman Marilyne Plouffe said “This matter had no impact on any client’s financial statements or the audit opinions or review reports on those financial statements,” and the firm had taken steps to improve quality-control policies and procedures. The CPAB order notes Deloitte disciplined employees, but Ms. Plouffe declined to say whether the firm had terminated anyone.
“We share with our regulators a mutual interest in driving compliance with professional rules and standards, including quality-control standards, and we recognize their important role in our meeting that goal,” she wrote. “Compliance with applicable professional standards, including standards relating to documentation and systems of quality control, are integral elements of Deloitte’s continued commitment to performing quality audits.”
CPAB disclosed the PwC order last week and the Deloitte order in September, 2021.
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