PCAOB fines Deloitte Canada $350K for quality control failures

The PCAOB further required the Canadian branch of the Big Four firm to establish or revise its quality control policies and procedures and provide additional training to employees involved in any audit.

According to the PCAOB’s order, from November 2016 through early March 2018, Deloitte Canada failed to “establish, implement, and communicate appropriate quality control policies and procedures to provide … reasonable assurance that the work performed by engagement personnel complied with applicable professional standards, regulatory requirements, and the firm’s standards of quality.”

The alleged violations were the product of an update to Deloitte Canada’s electronic work paper system. The new version automatically generated the current date when an auditor entered a sign-off, though the PCAOB noted individuals “could override the new system by changing their computer date settings to backdate work paper sign-offs.” Personnel from Deloitte’s national office were aware of this vulnerability but did not take sufficient steps to address it, according to the regulator.

Consequently, for 16 months following adoption of the new system, “firm personnel … backdated their work paper sign-offs in at least six issuer audits and two quarterly reviews subject to PCAOB standards,” according to the order. “This conduct occurred while teams were assembling a complete and final set of work papers for retention, or earlier, in these engagements.

“Additionally, some auditors on these engagements deleted and replaced sign-offs in order to ensure that reviewer sign-offs were dated after preparer sign-offs. Collectively, this conduct obscured the dates on which work had actually been completed and reviewed.”

The conduct resulted in Deloitte Canada violating PCAOB quality control and audit documentation standards.

The regulator said it considered the firm’s “extraordinary cooperation” in determining the sanctions in the case. Deloitte Canada self-reported the conduct, conducted an internal investigation, and disciplined personnel it identified as taking part in the backdating. The firm has since “implemented enhancements to its quality control policies and procedures in relevant areas, including by providing training to its personnel concerning PCAOB documentation standards.”

“Absent that extraordinary cooperation, the civil money penalty imposed would have been significantly larger, and the Board may have charged the firm with additional violations of PCAOB rules and standards,” the order stated.