Canadian accounting firm Manning Elliott sanctioned by US audit watchdog for not disclosing CPAB censure
BC auditor was barred earlier this year by the Canadian Public Accountability Board from accepting new high- and medium-risk reporting issuer clients
TORONTO, December 3, 2023 – Vancouver accounting firm Manning Elliott, which was sanctioned earlier this year by the Canadian Public Accountability Board, has been fined by the Public Company Accounting Oversight Board. The PCAOB sanctioned Manning Elliott for failing to disclose in a timely manner nine reportable events concerning three disciplinary proceedings brought by CPAB against the Canadian firm.
The US audit watchdog imposed a $35,000 civil money penalty on Manning Elliott and has ordered it to undertake remedial actions. The enforcement decision refers to policy and procedure compliance, training, and the assignation of an individual with compliance knowledge, who will report to the PCAOB.
Manning Elliott was one of three accounting firms sanctioned by the US audit watchdog — the other two are based in China and Turkey respectively — and ordered to undertake remedial measures. Specifically, the firms did not properly disclose on PCAOB Form 3 (“certain events”), including the firms being the subject of certain administrative or disciplinary proceedings, and certain restrictions on one firm’s authorization to engage in the business of auditing or accounting.
“The Board is vigilantly monitoring registered firms’ compliance with Form 3 reporting, which provides important information for investors,” said PCAOB Chair Erica Y. Williams. “We take especially seriously repeat violations by firms that have already been required to address deficiencies in their PCAOB reporting process.”
Manning Elliott was barred earlier this year by the Canadian Public Accountability Board from accepting new high- and medium-risk reporting issuer clients. According to the PCAOB, Manning Elliott did not report on Form 3 the conclusion of an April 2021 CPAB limitation on the firm’s licence until August 28, 2023. PCAOB rules require firms to report such censures within 30 days.
“The public interest is best served by contemporaneous reporting of events covered by Form 3,” said Robert E. Rice, PCAOB Director of Enforcement and Investigations (DEI). “Clear and timely communication of reportable events is vital to the PCAOB’s mission of investor protection and oversight of registered firms.”
Manning Elliott one of three BC firms sanctioned by CPAB
Almost half of the seven mid-size firms that CPAB inspects annually, according to its Annual Inspection Results Report, have been sanctioned this year. In addition to Manning Elliott, the regulator has sanctioned Dale Matheson Carr-Hilton LaBonte LLP (DMCL), and Smythe LLP.
All three firms receive “enhanced oversight,” which includes measures such as an external professional to perform internal quality monitoring of quality management and individual completed audit engagements, plus professional education and training.
The sanction of Manning Elliott was imposed on June 19 as the result of “significant” findings in the inspection of four reporting issuer files. All four files had at least one significant inspection finding. In its enforcement action report, CPAB noted that the firm was already the subject of enforcement actions, due to significant findings in audits conducted in 2020 and 2021. CPAB’s concerns over audit quality “still have not been sufficiently addressed.”
Among the violations of Canadian audit standards by Manning Elliott was identifying and assessing the risks of material misstatement through understanding the entity and its environment. However, in its enforcement actions, CPAB does not name the entities audited, or provide any details as to business sectors or environment. Manning Elliott is prohibited from accepting new high and medium risk reporting issuer clients, which CPAB allows firms to define, but must be acceptable to the regulator.
The sanctions help explain why all three firms performed poorly in the annual rankings of new audit client engagements, as reported by Canadian Accountant, based on data provided by Audit Analytics. In 2019, DMCL had led all mid-tier firms with 31 new audit clients, but in 2022 the firm gained seven. Smythe and Manning Elliott gained six and zero respectively.
Failure to satisfy the conditions imposed by the PCAOB may constitute a violation of PCAOB Rule 5000 that could provide a basis for the imposition of additional sanctions in a subsequent disciplinary proceeding.
Colin Ellis is a contributing editor to Canadian Accountant.