Ontario Securities Commission launches inquiries into several audit firms

The doors of the Ontario Securities Commission hearing rooms in Toronto on December 12, 2019.Melissa Tate/The Globe and Mail

The Ontario Securities Commission says it has launched investigations into several accounting firms that have been caught committing ethical violations by other regulators.

The OSC did not explicitly mention the companies, but Canadian or US subsidiaries of three of the Big Four – Deloitte LLP, PricewaterhouseCoopers LLP and Ernst & Young LLP – have entered into agreements in the past 12 months with regulators to settle fees related to ethical lapses. The US arm of the fourth, KPMG LLP, entered into a settlement with the US Securities and Exchange Commission in 2019.

The OSC said the scope of the review “currently does not include individual reviews of the issuer’s financial statements that were reported and previously submitted to the OSC.”

Not all four companies on Friday commented on the OSC’s announcement, but each previously responded to the settlement revelations by saying they were committed to an ethical culture.

“We share our regulators’ unwavering dedication to compliance with the highest professional rules and standards,” Mike Nethercote, partner at Deloitte Canada, said in an emailed statement Friday.

PwC Canada spokeswoman Chiara Battaglia said her company is “aware of the announcement made by OSC this morning and is in the process of reviewing the application. We value the trust our customers and community have placed in us, and we remain committed to ensuring that we continue to earn that trust every day.”

All global accounting giants have separate legal structures in each country, so a settlement by a Canadian or American company may not reflect the problems in other countries.

The OSC said it has a role in looking to audit firms because they are “the guardians of Ontario’s capital markets” and “play an important role in protecting the investor by ensuring that audited financial statements can be reasonably relied upon when making investment decisions. Any actual or perceived integrity issues Financial reporting can undermine investor confidence.”

The OSC said Friday that it will “communicate with and consult with the Canadian Public Accounting Board (CPAB),” the national entity that regulates accounting firms that audit publicly traded companies. CPAB previously entered into settlements with PwC and Deloitte, and said it would consider E&Y.

CPAB confirmed cooperation with the OSC Friday in a statement, with spokeswoman Susan Schutta saying it would “continue to address ethical issues through inspections, enforcement and, where appropriate, through investigations.”

Canada created the CPAB in the wake of numerous 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 OSC said it would “seek information about the company’s policies regarding compliance with relevant ethical requirements and the operation of internal whistleblower programs” and “request details about rigorous procedures regarding the history of audits performed and the implementation of internal training sessions.”

The descriptions of the inquiries match recent allegations against the companies.

In June, the Securities and Exchange Commission announced a $100 million settlement with US firm E&Y after 49 of its audit professionals cheated on tests required to obtain and maintain CPA licenses, and deceived hundreds of E&Y employees in education courses. Continuous professional. The Securities and Exchange Commission said E&Y did not cooperate with the SEC investigation, resulting in a heavy fine.

CPAB was not part of the US investigation, but said in June that it would begin a check of E&Y’s Canadian operations to see if fraud occurred here.

In February, CPAB reached a settlement with Canada’s PwC after more than 1,200 PwC professionals shared answers to exams in mandatory in-house training courses from 2016 to 2020.

In September 2021, CPAB also disciplined Canadian company Deloitte after its employees falsified date and time stamps on worksheets for 29 different audits from 2016 to 2018 by changing the settings on their computers to a different date.

The execution orders called for public oversight, the development of new internal procedures to prevent the problem from happening again and fines of $200,000 to PwC and $100,000 to Deloitte, designed to offset the costs of the CPAB investigation. The CPAB cannot impose fines for economic damages or for punitive reasons.

Both companies reported the issues to the CPAB after the whistleblower raised the issue internally.

The Canadian unit of PwC settled the same violations with PCAOB for US$750,000. Canada’s Deloitte unit has settled with PCAOB for $350,000, for the same violations identified by CPAB.

In June 2019, the US Securities and Exchange Commission tasked US firm KPMG with amending its previous audits after receiving stolen information about upcoming PCAOB inspections. The Securities and Exchange Commission also found that KPMG audit professionals cheated on internal training exams. KPMG has agreed to settle the charges by paying a $50 million fine and other compliance measures.

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