PCAOB finds deficiencies two of three BDO Canada audits, including one non-principal engagement

TORONTO, January 19, 2025 – BDO Canada had deficiencies in two out of three audits inspected by the Public Company Accounting Oversight Board in the United States in 2023. The accounting firm, which recently sold 21 of its offices to another national firm, MNP LLP, also self-identified two instances across two engagements in which the firm appeared to have impaired its independence. 

Under the Sarbanes-Oxley Act, registered firms outside the US are subject to PCAOB inspections in the same manner as US firms. According to its inspection report, the US audit watchdog inspected three BDO Canada audits conducted in 2023, and found deficiencies in two out of three engagements. (The same number as the last BDO inspection in 2020.) 

Single deficiencies in audits of two issuers

The inspection report highlights two companies described as Issuer A and Issuer B. For Issuer A, a company in the health-care sector, the PCAOB found a single deficiency related to non-current assets, in which the firm used an “auditor-employed specialist to assist it in testing the fair value of certain non-current assets.” According to the PCAOB, the firm did not sufficiently evaluate the work of the professional it used. 

BDO Canada was not the principal auditor of Issuer B, but the PCAOB found a deficiency “in connection with the firm’s role in the financial statement audit related to Journal Entries, for which the firm identified a fraud risk.” According to the report, the firm was instructed by the principal auditor to perform procedures to address certain risks of material misstatement identified by the principal auditor, including a fraud risk related to management override of controls. 

“The firm reported to the principal auditor that it responded to the identified fraud risk by performing procedures to test journal entries, among other procedures. The firm did not perform procedures to select and test journal entries for certain fraud criteria identified by the firm.” 

Self-Identified instances of independence non-compliance

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. This new reporting obligation has since led to the censure of one accounting firm by the Canadian Public Accountability Board. 

BDO Canada reported two instances of potential non-compliance with rules related to independence regarding audit committee pre-approval. The firm evaluated these instances and determined in all instances that its objectivity and impartiality were not impaired and communicated the issue with the respective audit committees. 

In its response to the inspection report, the firm acknowledged that “considerable value is derived from the inspection process,” and emphasized the “seriousness” with which it viewed the inspection comments. 

BDO Canada limited role in public audits

Mid-sized accounting firms — even national ones such as BDO Canada — do not audit many companies that traded on stock exchanges. The Big Four global brands (Deloitte, Ernst & Young, KPMG, and PwC) audit 90 per cent of public companies by market capitalization in Canada. These are typically corporations listed on the Toronto Stock Exchange — names familiar to many Canadians — leaving national and regional firms to compete for small cap companies on the TSE and secondary markets. 

According to the PCAOB’s inspection report, BDO Canada audited only five companies on US exchanges in 2023, down from nine in 2020. Of the five engagements, BDO was the principal auditor in three, and had a total of four engagement partners working on issuer audits. 

More than 40 BDO partners and 420 BDO team members joined MNP as of 2025, as the homegrown national accounting firm acquired 21 BDO offices in select locations across four provinces in Canada. 

Colin Ellis is a contributing editor to Canadian Accountant.