Two Of Big Four Accounting Firms Fail Canadian Audit Standards

Two of Canada’s prestigious Big Four accounting firms failed to meet regulators’ standards for quality audits last year, the Canadian Public Accountability Board (CPAB) reported.

The regulatory body, responsible for overseeing firms auditing publicly traded companies, disclosed in its annual report that one Big Four firm grappled with issues in 29% of the company audits CPAB examined. This figure mirrored the same proportion from the previous year.

Additionally, another Big Four firm, which had met standards in 2022, saw a decline in 2023, with issues identified in 14% of audits examined.

Despite the significance of these findings, CPAB refrains from disclosing specific inspection results for each firm due to confidentiality rules established two decades ago during its founding.

Efforts to enhance transparency have been ongoing. Initially, CPAB began by disclosing enforcement actions based on its inspections. Currently, it is actively seeking changes in provincial laws and regulations to enable the release of condensed versions of its inspection reports.

CPAB’s scrutiny extends to all public accounting firms auditing public companies, with firms auditing at least 100 public companies undergoing annual reviews. These 13 accounting firms collectively audit over 7,000 companies, representing 91% of the total market capitalization of Canadian public companies.

A key performance metric for CPAB is the identification of “significant findings,” where an audit firm falls short of accepted standards for a material part of a company’s financial statements. CPAB mandates that such findings not exceed 10% of a firm’s examined audits.

CPAB reported inspecting 130 audit files in 2023, with a higher rate of significant findings – 34% – compared to 2022 (33%) and 2021 (28%). The board’s report also revealed that among the Big Four, significant findings were identified in 16% of audits in 2023, up from just under 12% in 2022.

Moreover, CPAB expanded its list of annually inspected firms in 2023 to include Crowe MacKay LLP and De Visser Gray LLP, in addition to the existing roster. The inspection found significant findings in 39% of audits from these nine firms, compared to 32% in 2022.

CPAB further noted that enforcement actions were in place for six of these firms, citing “unacceptable levels of significant findings over consecutive years.” However, only three showed improved inspection results in 2023.

Combining the Big Four with the other nine annually inspected firms, CPAB identified a findings rate of nearly 25% in 2023, up from 19% in 2022.

In the realm of smaller, non-annually inspected firms, CPAB found significant findings in 66% of audits examined, an improvement from 81% in 2022, albeit with a changing composition of this group each year.

Information for this story was found via The Globe And Mail and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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