Deloitte LLP has agreed to pay $1.59-million to settle charges brought by CPA Ontario that its employees falsified date and time stamps on audit work papers over a 17 month period.
CPA Ontario, the provincial regulator of chartered professional accountants and firms, said Deloitte implemented a system in November, 2016, that it believed eliminated employees’ abilities to manually change its audit “sign-off” dates. When Deloitte realized employees could manipulate their computer settings, it failed to issue guidance telling them not to, the regulator said Tuesday.
Between November, 2016, and May, 2018, CPA Ontario said, at least 35 Deloitte CPA Ontario members engaged in backdating – and in some cases instructed others to do so – in more than 930 audit working papers in 39 audit engagements. After an internal investigation that took more than a year, Deloitte self-reported the problem in September, 2019, to CPA Ontario.
CPA Ontario then conducted its own investigation before getting Deloitte to admit it breached the Ontario code for accountants. Deloitte agreed with the facts and conclusions in the CPA Ontario settlement “for the purpose of this proceeding only,” their agreement says.
“Backdating obscures when and what work was performed and reviewed,” said Janet Gillies, CPA Ontario’s executive vice-president, regulatory and standards in a statement announcing the enforcement action. “It creates questions about the accuracy or timeliness of audit documentation and the quality of the audit.”
Deloitte will pay a fine of $900,000 and costs of $695,000 to CPA Ontario.
“It is important to underscore that five years ago, Deloitte Canada took proactive steps and self-reported and notified regulators in Canada and the United States of this issue, including CPA Ontario, as we first brought it to their attention at that time,” Deloitte spokesperson Lama Nicolas said in an e-mailed statement Tuesday.
“Deloitte conducted a lengthy internal investigation which did not find any evidence suggesting that this matter has affected the quality of Deloitte’s audits and we have since enhanced our internal quality control processes.”
The action follows a similar settlement by Deloitte in September, 2021, with the Canadian Public Accountability Board, which inspects the firms that audit public companies. CPAB, which cannot assess fines for economic damages or punitive reasons, charged Deloitte $100,000 to cover its costs.
The U.S. PCAOB also disciplined Deloitte in September, 2021, over the same matter, fining it US$350,000.
The CPA Ontario settlement order said a 2016 PCAOB disclosure of an audit-documentation incident prompted Deloitte to order all its global member firms, including Canada, to conduct a mandatory conference call focused on audit quality and integrity with all audit partners.
Prior to November, 2016, Deloitte’s Engagement Management System permitted a user to manually select a sign-off date for an audit working paper. Deloitte changed the software system so that the sign-off date would automatically be set to the date of the user’s computer clock.
Employees in Deloitte’s national office realized the change could be bypassed if an accountant simply changed the time on the computer clock. CPA Ontario said Deloitte staff decided not to explicitly tell employees that doing so was prohibited because it might “socialize” inappropriate conduct if employees found out there was still a way to backdate.
In February, 2018, a Deloitte audit partner became a whistle-blower, alerting senior firm leaders that their auditors were altering the dates on their computers to backdate work paper sign-offs.
Deloitte’s internal investigation ultimately concluded the backdating “was not done with malicious or fraudulent intent but rather with the intent to more accurately reflect the date the work was actually performed,” according to CPA Ontario. Deloitte also concluded “the conduct was contrary to firm guidance and thus warranted discipline by the firm, but did not constitute a contravention of the code or a breach of professional standards.”
Deloitte disciplined 12 partners and 12 employees, with the outcomes ranging from written reprimand to “significant career and compensation penalties,” CPA Ontario said. Deloitte has previously declined to say whether anyone was fired for backdating.
Deloitte determined its discipline on the premise the employees “were attempting to document when work was actually done and therefore ‘tried to do the right thing but in the wrong way,’” CPA Ontario said, adding that “Deloitte should have employed a higher level of skepticism in the circumstances.”