CPAB censures Davidson & Company LLP for ‘numerous’ violations of independence rules

TORONTO, December 15, 2024 – The Canadian Public Accountability Board has censured Vancouver-based accounting firm Davidson & Company LLP following the disclosure of information in an inspection by the Public Company Accounting Oversight Board in the United States. According to its enforcement action, CPAB found numerous violations by the firm of independence rules, related to the length of time an engagement partner and quality control reviewer continued to act on engagements. 

Davidson & Company is currently the auditor for over 400 reporting issuers. During the time period when the violations occurred, the firm had between 347 and 400 reporting issuer clients. In May of 2023, the firm notified CPAB that, during an investigation “by a foreign regulator,” the firm had identified multiple violations of partner and engagement quality control reviewer rotation requirements related to two Canadian reporting issuers between the years of 2020 and 2022. 

In July 2023, CPAB commenced an investigation to determine if similar conduct had impacted additional Canadian reporting issuer audits. The Canadian regulator’s investigation identified an additional 29 violations of Independence Rules, all of which occurred between 2013 and 2023 in relation to 14 Canadian reporting issuers.

According to the PCAOB online database, Davidson & Company LLP has never been the subject of censure by the US audit watchdog, and its most recent inspection report, which was published in 2022, had a 33% deficiency rate out of three audits inspected, which standard for accounting firms. The inspection report did not flag any violations of independence rules.

In 2023, the PCAOB unveiled a new section in its inspection reports, focusing on auditor independence and transparency, under the stewardship of PCAOB Chair Erica Y. Williams. “We are committed to making our inspection reports as valuable as possible for investors, audit committees, and others, and today we take another significant step in advancing that goal by shining a greater light on independence violations and more,” said Williams. “These enhancements will provide relevant information that investors have asked for and support improvements in overall audit quality.”

In addition to its public censure, Davidson & Company LLP must pay $100,000 to CPAB for the regulator to recoup its investigation costs, and the firm must take remedial actions to ensure independence, including the appointment of personnel, reporting obligations, and the training of staff on independence standards. Unlike in recent enforcement actions, CPA is not prohibiting the firm for accepting new audit engagement clients. The firm notified the Canadian regulator of independence issues reported by the American watchdog's inspection.

Colin Ellis is a contributing editor to Canadian Accountant.