Audit regulator finds significant 'deficiencies' at undisclosed major firm
Canada’s audit regulator says its findings indicate that one of the industry’s biggest firms has significant “deficiencies” in its controls that should have been identified and corrected.
The Canadian Public Accountability Board said out of Canada’s top four audit firms — Deloitte LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers (PwC) LLP — one had “significant findings” that were higher than the watchdog’s target.
“The level of significant inspection findings at one firm indicates that certain controls at this firm may not be designed appropriately or operating effectively,” it said without identifying which firm due to confidentiality.
The regulator oversees firms that audit the annual financial statements of Canadian reporting issuers.
It said three out of four firms had less than 10 per cent, the target level, of files with deficiencies in regards to generally accepted auditing standards, while one firm had findings greater than 20 per cent.
It added that many non-annually inspected firms continue to have level of findings that are “unacceptably high.”
Examples of deficiencies mentioned were insufficient testing of data from an automated tool used to evaluate revenue, insufficient evidence obtained to support the fair value of amounts for significant business acquisitions and auditors not appropriately evaluating information obtained from third-party organizations.
“We continue to have significant findings related to the identification and evaluation of threats to independence due to non-audit services provided by the auditors to reporting issuers,” said the report, which aims to provide insight on firm culture and the results of reviews on climate, fraud and going concern.
The watchdog also said it imposed requirements on one of the four largest audit firms last year in response to the prior inspection’s findings. It said, however, that preliminary results indicate that firms have made progress to respond to deficiencies identified last year.
In response to most of the findings, it said firms are required to carry out additional audit procedures to determine if financial statements need to be restated due to material error.
The regulator said it expects firms to remediate file deficiencies before the reporting issuer’s next quarterly report.
The 2022 interim inspections results released Wednesday was just a snapshot of the watchdog’s yearly audit quality assessment, which it plans to publish in its finality in March 2023.
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