The U.S. accounting regulator has censured KPMG Canada LLP and fined it US$150,000 for filing inaccurate reports about which other affiliates of the firm did audit work for a Canadian client.
The Public Company Accounting Oversight Board, or PCAOB, which regulates firms that audit publicly traded companies, entered into the enforcement agreement with KPMG for violations in three countries, including Italy and the Netherlands.
It’s the latest stumble for one of the Big Four auditing firms with North American regulators, with each having entered into settlements in just over a year.
The KPMG discipline reflects the PCAOB’s desire, shared by other audit-firm regulators globally, to know about audit work performed internationally, then incorporated into another audit. That can happen when a multinational company uses accounting firms in other countries to audit its subsidiaries, or when a company is listed on one country’s stock exchange but has the bulk of its operations in another.
The PCAOB requires auditors to file a form to identify any other accounting firm on an audit when that other firm performs more than 5 per cent of the total work hours on the audit. That way, the PCAOB says, investors who are concerned with the quality and reputation of a company’s outside auditor can be aware of all the firms that performed significant work.
There is no Canadian equivalent of the U.S. form, says Susan Schutta, spokesperson for the Canadian Public Accountability Board, or CPAB.
Canada’s audit regulator cracks down on accounting firms
In KPMG Canada’s case, it misidentified which of its affiliate firms in Romania worked on audits for Toronto tech supply chain company Celestica Inc. in three audits from 2017 to 2019. While it used KPMG Audit SRL, a firm that performed international engagements pursuant to PCAOB standards, its forms said KPMG used KPMG Romania SRL. Neither is registered with the PCAOB, the regulator said.
“This administrative error had no impact on the client’s financial statements or the audit opinions of those statements,” Kevin Dove, a spokesperson for KPMG Canada, said in an e-mailed statement. “We respect the important role of our regulators in overseeing compliance with our professional rules and standards, and we remain strongly committed to delivering high-quality audits.”
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 the PCAOB 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 the PCAOB 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 enforcement orders called for public censure, the development of new internal procedures to prevent the problem from happening again and fines of $200,000 for PwC and $100,000 for Deloitte, designed to recoup CPAB’s investigation costs. CPAB cannot impose fines for economic damages or punitive reasons.
PwC’s Canadian unit settled over the same violations with the PCAOB for US$750,000. Deloitte’s Canadian unit settled with the PCAOB for US$350,000, for the same violations identified by CPAB.
The U.S. arm of E&Y entered into a US$100-million settlement with the U.S. Securities and Exchange Commission 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.
David Milstead