PCAOB publishes three Canadian accounting firm inspection reports

TORONTO, July 9, 2022 – The Public Company Accounting Oversight Board has published inspection reports of three Canadian accounting and audit firms. The three Canadian firms inspected by the PCAOB are Hay & Watson, WDM Chartered Professional Accountants, and SRCO Professional Corporation. Hay & Watson and WDM are both based in Vancouver. SRCO is based in Richmond Hill, Ontario. 

Under the Sarbanes-Oxley Act, registered firms outside the US are subject to PCAOB inspections in the same manner as US firms. Since the inception of the PCAOB's international inspection program in 2004, the PCAOB has conducted inspections of one or more registered firms located in 54 non-U.S. jurisdictions, including Canada. 

The PCAOB’s Canadian counterpart, the Canadian Public Accountability Board, does not provide inspection reports to the public. The PCAOB publishes its inspection reports online and identifies the accounting firm. The three inspection reports were completed on the same date (March 10, 2022) but were not uploaded until June 28, 2022. 

Audits with multiple deficiencies

Of the audits inspected by the PCAOB, none of the three Canadian firms had deficiencies related to an incorrect opinion on the financial statements or internal control over financial reporting (ICFR). SRCO also had no audits with multiple deficiencies. Hay & Watson had deficiencies in the financial statement audit related to Reclamation and Restoration Provisions and Oil and Gas Properties, while WDM had deficiencies in the financial statement audit related to Derivatives and an Asset Acquisition. 

Of the three firms, SRCO had one audit with a single deficiency related to equity and equity-related transactions. The firm did not evaluate whether an issuer’s accounting for the issuance of the shares was in conformity with GAAP, including whether the shares were appropriately measured at fair value on the correct date and whether the expense was recorded in the appropriate period. 

Other instances of non-compliance with PCAOB standards or rules

Some commonalities emerge in the inspection reports of the three firms. For example, all three firms were non-compliants in some regard with AS 1301, Communications with Audit Committees, though the manner in which they failed to comply differed. Two of the three firms did not file their audit participants (AP) forms by the relevant deadlines. 

In the WDM audit reviewed by the PCAOB, the firm was non-compliant with AS 2415, Consideration of an Entity's Ability to Continue as a Going Concern; AS 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion; and AS 3105, Departures from Unqualified Opinions and Other Reporting Circumstances. 

The PCAOB did not publish any quality control observations related to the three firms. As a rule, the PCAOB does not publish quality control deficiencies if it has reasonable assurance that the issues can be addressed. “If a firm does not address to the Board’s satisfaction any criticism of, or potential defect in, the firm’s system of quality control within 12 months after the issuance of our report, we will make public any such deficiency.” 

The PCAOB provided the three Canadian firms with an opportunity to review and comment on draft of their respective reports. The firms did not provide written responses. WDM was the subject of PCAOB enforcement actions including penalties in 2019 and 2021. 

By Canadian Accountant staff.