In detailed report, PCAOB finds deficiencies in half of KPMG Canada audits inspected

TORONTO, February 9, 2025 – KPMG Canada had multiple deficiencies in five out of 10 audits inspected by the Public Company Accounting Oversight Board in the United States. In a highly detailed inspection report, consisting of 21 pages, the US audit watchdog also flagged 10 instances across three audit engagements in which the firm’s independence may have been impaired. 

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 report, the US audit watchdog reviewed 10 KPMG Canada audits conducted in 2023, and 50 per cent of its audits had deficiencies. The score is worse than the last time the PCAOB. In 2021 the US Audit watchdog inspected nine KPMG audits, and found a 44 per cent defiency rate. 

Multiple deficiencies in audits of five issuers

As one of the Big Four accounting firms, KPMG Canada is one of the largest auditors of companies that are traded on public stock exchanges in Canada and the United States. According to the PCAOB inspection report, 71 KPMG Canada engagement partners worked with 87 audit clients that fell under PCAOB jurisdiction in 2023. The accounting firm was the principal auditor in nine of the 10 audit engagement inspected by the US audit watchdog. 

The inspection report highlights five companies, described as “issuers,” in diverse sectors including health care, financials, materials, and information technology. The US audit watchdog focused its attention largely on the audit area of revenue and related accounts, but also inspected long-lived assets, business combinations and more. One similarity across all issuers that emerged was the firm did not adequately review the work of specialists either employed by the companies or 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. 

KPMG Canada self-identified 32 instances across 14 issuers in which the firm or its personnel appeared to have impaired the firm’s independence. In ten audits reviewed and in two other audits, the PCAOB further identified 10 instances across three issuers of potential non-compliance: 

“Of these instances, nine related to investments in audit clients and one related to an other financial relationship with an audit client. Four of these financial relationships were instances where a partner in the firm’s chain of command had a financial relationship with an audit client, and three of these financial relationships were instances where a partner in the same office as the engagement partner for an issuer had a financial relationship with that issuer. Three of these instances related to a member of an engagement team.”

In 2023, Canadian Accountant reported that KPMG, the fourth largest of the Big Four worldwide, was the second largest firm in terms of revenue in Canada. This followed several years in which KPMG outperformed other members of the Big Four in terms of acquiring new audit clients. In its response to the inspection report, KPMG affirmed that it had taken appropriate actions to address engagement-specific findings and stated that “consistently executing high-quality audits is our top priority.” 

Colin Ellis is a contributing editor to Canadian Accountant.