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Mystery solved: How foreign accounting firms won big in new audit client gains and losses

Among the many curiosities of the 2022 new audit client gains and losses data were the prevalence of foreign firms and the dearth of cannabis companies

Author: Canadian Accountant

TORONTO – In 2023, Canadian Accountant reported that foreign accounting firms had bested their Canadian audit rivals, gaining more new clients and earning higher audit fees from new engagements. Two American firms appeared at the top of our annual list of mid-sized firms for the first time since we began reporting new client gains and losses. 

While the annual data provided to Canadian Accountant by an American data analytics firm always contains a few fascinating odds and ends — and that year was no different — the most recent data available presented a mystery. 

How did one American firm gain 20 net new auditor engagements? And how did another American firm earn more than six million dollars in net new audit fees? It was a question we asked ourselves in a special report. Now that mystery has been solved. We were not the only ones who had taken notice. 

American auditors: Behind the audit engagement numbers

Each year, Ideagen Audit Analytics provides SEDAR analysis exclusively to Canadian Accountant prior to publication. Based on the data provided, we publish a Big Four report, a mid-tier firm report, and a report on interesting aspects and trends in the overall data. 

In 2022, BF Borgers CPA PC, which is based in Colorado, posted 21 new Canadian audit clients, earning the firm first place in net new audit clients (20). Several of its audit clients included cannabis companies and reverse takeovers. Just one of its new clients was trading on the Toronto Stock Exchange while the rest were trading on venture exchanges. 

The firm’s success coincided with an acquisition by homegrown national accounting firm MNP LLP. In August 2022, MNP added three partners from Harbourside LLP, which was based in Vancouver, and the firm permanently closed. Of the 21 clients acquired by BF Borgers, eight were former clients of Harbourside. 

In the same year, Marcum LLP, an American firm based in New York State, topped all mid-tier firms in net new audit fees in 2022. The firm made $6.3 million in net new audit fees, based largely on two companies, SNDL (formerly SunDial Growers) and TCPO Holding, both cannabis companies. 

But Marcum was not alone in its success. The top four accounting firms with the most in net new audit fees were all foreign. Macias Gini & O'Connell LLP (MGO), which has offices on both coasts of the US and three offices in India, came in second to Marcum. MGO made $2.6 million in its audit of cannabis company Verano Holdings. MGO was followed by BF Borgers and PKF, with auditors in the US and UK. 

Mystery solved: Regulators pounce on unlicensed American firms

Marcum was the first to be punished. In March 2023, Marcum became the first accounting firm to be censured publicly under new disclosure rules by Canada’s audit watchdog, the Canadian Public Accountability Board. CPAB banned the firm from accepting new “high risk” Canadian clients, which was ironic, given that the firm’s roster included crypto, cannabis, and special purpose acquisition companies. 

At the time, the public censure raised a few questions, but the blanks were filled in when Chartered Professional Accountants of Ontario confirmed that Marcum did not have a public accounting licence. The settlement this past fall between CPA Ontario and the firm cost Marcum $1.2 million. 

2023 closed with the public censure of BF Borgers by CPAB in December. The regulator closed 2023 as it had begun — with an enforcement action against an American public accounting firm — as BF Borgers had “failed to properly consider the Canadian provincial licensing requirements during the Firm’s client acceptance procedures.” The firm was also prohibited from assigning an unidentified “Partner A” to Canadian engagements, unless the accountant is “properly licensed to provide public accounting services” by one of the profession’s provincial regulators.  

At press time, there is no indication of similar regulatory action taken against other foreign firms listed in the 2022 data of client and fee gains and losses, either By CPA Ontario or CPAB. 

Other curiosities from the 2023 report on new audit clients

While the rise and fall of foreign accounting firms was the headline theme of the data on new client gains and losses, there were other curiosities and mysteries solved. 

For example, even though KPMG Canada lost George Weston Limited (GWL) — the parent company of Loblaw and Shoppers Drug Mart — to PwC Canada after more than 25 years with KPMG, the firm still placed first in net new audit clients gained in 2022. Its success helps in part to explain why KPMG is a surprising second to Deloitte in revenue among the Big Four in Canada. 

Another theme that emerged was the market power of MNP LLP. The homegrown national firm acquired 41 new clients in 2022 but that figure was obscured by 49 departures. In addition to the clients it gained from Harbourside, the firm picked up several clients from Manning Elliott and Davidson & Company, both of which were under the scrutiny of regulators in 2023. 

Finally, the overall collapse of the cannabis market — and its regulatory risk — has resulted in very few cannabis companies among new audit clients among the Big Four. Many of these firms have restructured and changed names in recent years. Avant Brands (a new EY Canada client), for example, was formerly known as GTEC Holdings. 

A company like Rubicon Organics, which switched from Deloitte to PwC, can still bring in lucrative audit fees, earning PwC $337k in 2022. But, in a sign that the gold rush is likely over, one of the biggest names in Canadian cannabis companies, Canopy Growth, changed its auditor in 2023 from KPMG Canada to PKF O'Connor Davies, another American firm registered with CPAB. 

By Canadian Accountant staff. Title image by Marcus Winkler on Unsplash. Data provided by Ideagen Audit Analytics.

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