CPA Ontario fines Deloitte Canada partners over backdating of audit working papers

TORONTO, March 24, 2024 – Chartered Professional Accountants of Ontario has disciplined five current and former partners of Deloitte Canada over the backdating of audit working papers. The five decisions, which were all concluded on the same date, require that each partner pay $20,000 in fines and $20,000 in costs to CPA Ontario. 

In October 2023, Deloitte agreed to pay CPA Ontario $1.59M in fines and costs to settle a discipline order, in which the firm admitted breaches of the Code of Professional Conduct over the backdating of audit papers. The settlement followed similar censures of Deloitte by the US Public Company Accounting Oversight Board and the Canadian Public Accountability Board. 

While the decisions against the partners — all of whom held the legacy chartered accountant designation and audit leadership positions — are similar in wording, they provide further detail as to how the backdating occurred. 

Why would anyone backdate audit working papers?

The practice of backdating can occur across a wide variety of business and financial practices. There are some circumstances, such as effective dating, in which the practice is allowed. Generally speaking, however, the practice of backdating is considered improper when it re-characterizes a transaction or “rewrites history.” 

Accounting standards require auditors to sign-off on working papers to signify the completion of each step in the audit process. They are expected to accurately record the date of the sign-off. According to CPA Ontario, “Backdating creates questions about the accuracy or timeliness of audit documentation.” 

As Geoff Dingle of Johnson Global Advisory writes, “Engagement teams should not be performing any audit procedures after the opinion has already been issued, as this would imply that the engagement team had no basis to assert it had done sufficient audit work as of the date of the opinion.” 

If reviews are happening in real time, states Dingle, “there should be limited need to document any procedures after the opinion date and perform clean-up.” One of the discipline decisions, however, does indicate that a partner backdated working papers “as a mechanism to manage time constraints and volume of work.” 

How the backdating occurred at Deloitte

In most instances of backdating at Deloitte, working paper sign-off dates were backdated to dates prior to the physical sign-off date. What seems clear is that the backdating occurred due to circumstances initiated by the Public Company Accounting Oversight Board in the United States. In 2016, the PCAOB issued a release warning auditors against backdating, and de-registered a firm due to backdating. 

In response to the PCAOB alert, Deloitte Canada conducted a mandatory conference call with partners, and made changes to its audit software program. In November 2016, Deloitte disabled mechanisms that allowed users to manually select a sign-off date for an audit working paper, when using the audit software program. The partners, however, manually changed the clock function on their computers instead, thereby allowing the backdating of working papers. Many working papers were backdated, according to the discipline orders, before Deloitte implemented a change to the clocks on the computers of employees. 

In 2021, the PCAOB fined Deloitte Canada US$350,000, stating the penalty would have been higher if not for the “extraordinary cooperation” of the firm. Although Deloitte reported the issue to regulators, the firm was fined for not implementing the kind of controls and guidance that would have stopped employees from circumventing the disabling of sign-offs in the audit software program. 

Internal discipline costly to Deloitte partners

In addition to the penalties imposed by CPA Ontario, the partners faced internal discipline at Deloitte, which required mandatory training and financial losses. Deloitte reduced the “quality rating” of the partners from “Meets Expectations” to “Improvement Required” resulting lower salary and compensation. 

CPA Ontario’s investigators found that 35 members (partners and professional staff) of Deloitte engaged in the backdating of  930 audit working papers in 39 audit engagements. Some of the partners instructed others within their engagement teams to backdate. CPA Ontario has not disclosed due to confidentiality provisions whether other Deloitte members will be similarly disciplined. 

By Canadian Accountant staff with files from CPA Ontario’s cases database (see settlements). Title image: iStock.