The Ontario Securities Commission (OSC) has announced that it will be conducting a targeted review of the work of accounting firms that conduct audits of Ontario companies, following a series of "ethical violations" identified by regulators domestically and in jurisdictions including the United States and United Kingdom.
Background on the Issue
In February, PwC Canada was fined over $1 million — US$750,000 by the U.S. Public Company Accounting Oversight Board (PCAOB) and $200,000 by the Canadian Public Accountability Board (CPAB) — after 1,200 employees were found to have cheated on internal tests, including improperly sharing answers.
Regulatory Response
In a statement, the OSC said that it will be scrutinizing information about internal policies and procedures at the audit firms, including policies related to compliance with ethical requirements and the operation of internal whistleblower programs. The regulator stated that auditors play a critical role in investor protection by ensuring that audited financial statements can be reasonably relied upon when making investment decisions.
Recent High-Profile Cases
In June, the U.S. Securities and Exchange Commission imposed its largest ever fine on an accounting firm, Deloitte & Touche LLP, for failing to detect a multibillion-dollar accounting scandal at failed energy company Nacchio’s Qwest Communications International Inc.
Additionally, in 2020, The Financial Reporting Council (FRC) imposed a fine of £3 million— discounted to £1.95 million — on Grant Thornton LLP over a series of ethical and independence failures in connection with an audit of troubled alcohol wholesaler and retail group Conviviality Retail PLC.
Impact on Canadian Firms
The OSC said it will be consulting with the Canadian Public Accountability Board (CPAB), which oversees public accounting firms, during its targeted review. CPAB has already taken enforcement actions against two of the four largest firms in response to self-reported breaches of professional standards.
In September 2021, Deloitte Canada LLP was fined $100,000 by the CPAB for backdating numerous work paper sign-offs.
Previous Enforcement Actions
The OSC has a history of taking enforcement action against audit firms. In 2012, the provincial securities regulator accused Ernst & Young of failing to meet industry standards through its audits of Sino-Forest and another China-based company, Zungui Haixi Corp., and failing to perform sufficient work to verify the existence and ownership of Sino’s most significant assets.
Ernst & Young neither admitted nor denied any wrongdoing, but made a payment of $8 million in 2014, with $2.1 million of that amount directed toward the cost of OSC staff’s "extensive" investigation.
Conclusion
The OSC’s targeted review is a response to the growing concern about ethical violations in the audit industry. The regulator aims to ensure that accounting firms are meeting their obligations to provide high-quality audits and maintain investor confidence in the financial markets.
As the regulatory landscape continues to evolve, it is essential for accounting firms to prioritize ethics and independence in their work to maintain public trust and avoid reputational damage.
Related Articles
- Canadian watchdogs join probe of Celsius’ multi-billion-dollar collapse, sources say
- Canadian crypto firm CoinSmart hunts for deals amid industry turmoil
- OSC metes out penalties, market ban in pair of crypto trading cases
- OSC alleges fraud, misappropriation of funds at Bridging Finance
Follow Us
Stay up-to-date on the latest news and analysis from our team of experts. Follow us on social media for the latest updates:
- Twitter: @NP_Post
- LinkedIn: /np-post
- Facebook: @nationalpost
Subscribe to Our Newsletter
Get the latest news, insights, and analysis delivered straight to your inbox. Subscribe to our newsletter today!
[Insert link to subscribe]
This article is for informational purposes only and should not be considered as investment advice. Always consult with a financial advisor before making any investment decisions.
Disclaimer:
The information provided in this article is for general knowledge purposes only and should not be taken as investment advice or professional guidance.