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One of Canada’s Big Four auditing firms continues to have a significant number of problems in its work, the national industry regulator has found.

For now, the Canadian Public Accountability Board, which oversees the firms that audit publicly traded companies, is not revealing the name of the firm, citing the confidentiality provisions of the law that established it in 2006.

That could change, however.

CPAB says in its midyear report of inspection results that one of the Big Four – Deloitte LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP – had “significant findings” in more than 20 per cent of its audits. The other three had similarly significant findings in less than 10 per cent of audits.

A significant finding means an accounting firm has fallen short of accepted auditing standards for a material part of a company’s financial statements and has to go back and do additional work to support its audit opinion.

“The level of significant inspection findings at one firm indicates that certain controls at this firm may not be designed appropriately or operating effectively,” CPAB says in its report.

It also said it has completed inspections of audits at 12 smaller audit firms and found significant findings in 11, a level that “continues to be unacceptably high.”

Two companies have needed to restate their financial results since CPAB’s 2021 annual report – one a client of a Big Four firm and one a client of a smaller firm, CPAB said. It did not identify the companies.

CPAB reports group statistics, with firms categorized by size, but it does not disclose inspection findings by individual firm. However, it released a proposal in September, after a lengthy public consultation, to begin revealing firm-specific results.

To do so, though, it must navigate a combination of its own rules, provincial law – including securities legislation – and rules applicable to professional accountants and other professions. Some regulations and laws may need to be changed, CPAB says.

Quebec audit professionals and their regulator, specifically, have said that the disclosure of audit-firm inspection results by firm name may conflict with the province’s Professional Code, the Quebec Chartered Professional Accountants Act and the protection of professional secrecy in the Quebec Charter of Human Rights and Freedoms.

“We are working to resolve this matter through discussions, legal analysis and considerations of alternative approaches,” CPAB wrote in its recommendations document. “CPAB’s objective is to have a uniform approach across all of the provinces and territories in Canada. However, differences in provincial legal frameworks may result in some differences in our approach across Canada.”

All public accounting firms that audit public companies must register with CPAB, and any firm that audits at least 100 public companies gets reviewed annually. CPAB picks some of each firm’s audits for review based on its assessment of high-risk factors, including complex or emerging companies in sectors, such as cryptocurrency or cannabis, or areas in which the audit firm may lack some expertise.

It has been a rocky couple of years for the Big Four.

Canada’s Deloitte LLP and PricewaterhouseCoopers LLP entered agreements in the past 13 months with Canadian and U.S. regulators to settle charges related to ethical lapses.

In February, CPAB and U.S. regulators reached a settlement with PwC Canada after more than 1,200 PwC professionals shared answers on tests in mandatory internal training courses from 2016 to 2020.

In September, 2021, CPAB and U.S. regulators also disciplined Deloitte’s Canadian firm after its employees falsified the date and time stamps on work papers for 29 different audits from 2016 to 2018 by changing the settings on their computers.

The U.S. arm of E&Y entered into a US$100-million settlement with the U.S. Securities and Exchange Commission (SEC) in June after its audit professionals and other employees cheated on exams or continuing professional education courses. After the announcement, CPAB said it would follow up with E&Y.

The Ontario Securities Commission says it has started inquiries at multiple accounting firms that have been caught committing ethical violations by other regulators. The OSC did not explicitly name the firms.

In June, 2019, the SEC obtained a US$50-million settlement with KPMG’s U.S. firm after it was tipped off about coming inspections and altered past audit work.

All the Big Four firms have previously responded to the disclosure of the settlements by saying they are committed to developing an ethical culture.

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