Another BC accounting firm punished by audit regulators

TORONTO, September 17, 2023 – The Public Company Accounting Oversight Board in the United States has censured Canadian audit firm K.R. Margetson, which is based in Vancouver, and its principal, Keith R. Margetson. The civil money penalty and revoking of registration is the latest in a series of punishments meted out on both sides of the border against BC accounting firms by audit regulators. 

The trend began when the US audit watchdog published more Canadian public accounting firm inspection reports in 2022 than it had in five years. The inspection reports laid bare significant deficiencies in the work of Canadian firms, and the PCAOB would go on to fine censure several mid-size firms, as well as members of the Big Four. 

The Canadian Public Accountability Board, which changed its disclosure rules at the start of the year, has censured four BC firms since the year began and banned them accepting certain new audit clients. The PCAOB censure of K.R. Margetson marks the fifth BC firm to be sanctioned this year. CPAB has not announced a similar sanction of K.R. Margetson. 

Margetson banned from US audits for at least one year

The PCAOB revoked the registration and imposed upon K.R. Margetson Ltd. and Keith R. Margetson a fine of $30,000, barring Margetson from being associated with a registered public accounting firm, and limiting Margetson’s activities for an additional period of one year following the termination of the bar. 

The PCAOB unlike CPAB is explicit in the details of its enforcement actions. Margetson’s censure stems from its audit of a company called Madison Technologies, which makes women’s shaving products, and is incorporated in Nevada but based in Vancouver. The PCAOB inspected Margetson on numerous occasions and the firm failed to improve its system of quality control. 

“When confronted with a complex transaction during the 2020 Madison Audit — Madison’s acquisition of a license in exchange for certain convertible preferred stock — Respondents failed to perform adequate audit procedures to obtain sufficient audit evidence. In particular, Respondents failed to appropriately evaluate the reasonableness of a discount rate used in developing the valuation estimate, in violation of PCAOB standards.” 

The PCAOB action is notable for its censure of Mr. Margetson, who “directly and substantially contributed to KRM’s violations of PCAOB rules and quality control standards. As a sole practitioner and KRM’s sole partner, Margetson was responsible for developing and maintaining quality control policies and procedures applicable to KRM’s public auditing practice. in particular. 

“At the time of the 2020 Madison Audit, Margetson knew or was reckless in not knowing that the Firm’s system of quality control was inadequate.” 

A higher level of enforcement and disclosure by audit regulators?

The PCAOB enforcement action repeatedly mentions violations cited in four inspection reports over the course of a decade. It also mentioned the failure of K.R. Margetson to address its failings and improve its processes despite repeated warnings. 

A weakened PCAOB has been revitalized under the leadership of PCAOB Chair Erica Y. Williams who was appointed in November 2021. The US audit watchdog has warned firms repeatedly of its renewed vigilance and sunk its teeth into multiple firms. In Canada, the national audit regulator is publishing its enforcement actions for the first time, with the promise of more disclosure to come. This change in regulatory oversight was first reported in 2022 by Canadian Accountant in Is Canada’s audit watchdog ready to bare its teeth? 

Colin Ellis is a contributing editor to Canadian Accountant.