Each year, provincial lawmakers gather in Victoria with the organization that regulates ÎÚÑ»´«Ã½ accountants and last April was no different, with a breakfast hosted by then-newly appointed Minister of Post-Secondary Education and Future Skills Lisa Beare.
Beare’s ministry is tasked with overseeing the Chartered Professional Accountants of British Columbia (CPABC)—the training, licensing and regulatory body for the province’s 40,000 CPAs and 6,000 CPA candidates and students.
In March, CPABC had proposed an amendment to the Chartered Professional Accountants Act, the profession’s enabling legislation, to add “protection of the public interest” to its legislated objectives.
The amendment was not only to align the act with other professional regulatory bodies—it was in response to the 10 recommendations money laundering inquiry commissioner Austin Cullen directed at the CPABC in June 2022.
“These are changes that the chartered professional accountants are very excited about because they believe they are already doing this work,” said Beare in committee last April.
“The expectation is for CPABC and the ministry to continue the fantastic work that they do together already.”
However, not mentioned anywhere in the public record is how, while Beare was lauding CPABC for its “fantastic” regulatory record, Canadian and U.S. regulators were busy unleashing an unprecedented wave of enforcement actions against Vancouver accounting firms that audit the books of ÎÚÑ»´«Ã½ public companies.
Since March 2021, the U.S. Public Company Accounting Oversight Board (PCAOB) had levied hundreds of thousands of dollars’ worth of fines and numerous practice restrictions against eight ÎÚÑ»´«Ã½ firms that are responsible for the lion’s share of audits of ÎÚÑ»´«Ã½ public companies.
In June, the PCAOB—the U.S. regulator for audits of U.S.-listed public companies—sanctioned a ninth Vancouver firm.
The PCAOB censured, restricted or in some cases banned these firms from operating in the United States under settlements in which they did not admit nor deny the violations alleged by board investigators.
No other jurisdiction outside of the United States has come close to meeting that level of scrutiny and enforcement by the PCAOB for serious violations that it asserts—if left unchecked—would imperil the integrity of U.S. investment and capital markets.
“No matter where they are located, PCAOB-registered firms must follow PCAOB rules and standards,” said PCAOB chair Erica Y. Williams on June 18, following findings against the ninth ÎÚÑ»´«Ã½ firm. “Failing to do so puts the investing public at risk and will not be tolerated.”
When Glacier Media inquired about this unprecedented confluence of regulatory actions against Vancouver accounting firms, CPABC CEO Lori Mathison declined an interview.
Ministry staff cancelled a scheduled interview with Beare, who also declined an opportunity to speak to Glacier Media about the amendment and CPABC’s record of protecting the public from errant accountants.
“National and international regulators have lifted the lid off a serious systemic problem,” said David Baines, who for more than three decades monitored accountant regulations in ÎÚÑ»´«Ã½, particularly in relation to the public markets, as a business columnist for The Vancouver Sun.
“Nearly every accounting firm that audits ÎÚÑ»´«Ã½ junior companies has come under regulatory fire. Equally worrisome is that the reaction of CPABC officials and their political overseers seems to be: ‘No problem here.’”
U.S. regulator hands out bans, US$445,000 in fines to ÎÚÑ»´«Ã½ firms
The first of the nine ÎÚÑ»´«Ã½ firms penalized by the PCAOB since the spring of 2021 was Morgan and Company LLP, which was censured and fined US$25,000 in March 2021 for careless auditing of two public companies, including partnering with an unregistered Mexican accountant to audit a Canadian mining company.
In September 2021 the regulator revoked the registration of WDM Chartered Professional Accountants and barred its sole managing partner Mike Kao from being associated with a registered public accounting firm after failing to improve quality control standards following multiple warnings from inspectors. A US$10,000 was also imposed.
Months later, in December 2021, the board fined Dale Matheson Carr-Hilton LaBonte LLP US$50,000 and censured it for deficient audits on two Canadian companies. Specifically, when the U.S. Securities and Exchange Commission told the firm its audits needed to meet PCAOB standards, the firm simply amended the same audits to say they had, when in fact nothing changed.
The same month, Harbourside CPA LLP was fined US$10,000 and censured for filing errors.
In September 2022, the board revoked the registration of Hay & Watson and its principal Essop Mia. The authorities also barred Mia from becoming or remaining “associated with any issuer, broker or dealer in an accountancy or a financial management capacity” in the U.S. and jointly fined them US$50,000 for altering and backdating documents for an audit of an Ontario-registered oil and gas company, among other accounting violations. Mia did not cooperate with the board’s investigation, according to the PCAOB.
A year later, in September 2023, the board revoked the registration of North Vancouver accounting firm K.R. Margetson Ltd. and its sole director Keith Margetson. They were censured and the firm was fined US$30,000 after inspectors found multiple violations of accounting rules deemed to be “reckless” if not purposeful.
A month later, in October 2023, Smythe LLP faced the biggest fine yet—a US$175,000 penalty for poor standards in auditing four public companies, including two operating in ÎÚÑ»´«Ã½. In particular, Smythe LLP accepted the audits of unregistered auditors of client subsidiaries from Mexico and Argentina. The board also censured the firm and ordered it to complete remedial actions.
In November 2023, the board imposed a US$35,000 fine on Manning Elliot LLP, which was also censured and ordered to take corrective policy measures. The firm had failed to disclose nine reportable events concerning three disciplinary proceedings brought by the Canadian Public Accountability Board (CPAB)—the Canadian counterpart of the PCAOB that specifically regulates auditors for Canadian-listed public companies.
The lastest firm to face penalties was De Visser Gray LLP, which was fined US$60,000 and censured for poor quality control standards, failing to correct “significant deficiencies in its system” and conducting non-compliant audit methodologies that were first flagged in 2019 and continued in 2022, when investigators checked back in with the firm.
CPAB also took disciplinary action last year against several of the ÎÚÑ»´«Ã½ firms that have been penalized by the PCAOB.
Smythe LLP is prohibited from accepting any new audits, and both Manning Elliot LLP and Dale Matheson Carr-Hilton LaBonte LLP are each prohibited from accepting new high-risk files. WDM Chartered Professional Accountants is prohibited from accepting new medium- and high-risk files.
CPAB did not administer fines.
CPAB terminated Hay & Watson’s public company audit registration and directed the company to cease all ongoing audits of ÎÚÑ»´«Ã½ public companies on June 23, 2023.
Hay & Watson became just the second ÎÚÑ»´«Ã½ firm to be terminated by CPAB following the April 15, 2019 termination of Jackson & Company, whose principal Anthony Jackson has since been suspended from the investment markets for participating in a consulting scheme deemed abusive to the capital markets.
No accounting of U.S. enforcement by CPABC
All of the above ÎÚÑ»´«Ã½ accounting firms are licensed by CPABC in order to offer other services to the general public, such as business audits, financial assessments and personal income tax filings.
However, anybody checking the CPABC website for the regulatory record of any of these firms would find no mention of the enforcement actions taken by the U.S. regulator, and although CPABC has taken some minor enforcement action against some of those firms, it has withheld their identities from public view.
For example, the undated CPABC disciplinary notice “2022 - #15 - A Member and Firm,” states the respondents failed to comply with U.S. auditing standards and, recognizing that they had already incurred significant penalties, CPABC only issued a reprimand and $1,500 fine.
The respondents are not named, but the information in the notice aligns precisely with the US disciplinary action against WDM and its sole managing partner, Kao.
Also in 2022, CPABC announced reprimands against two other firms whose identities are not disclosed, but whose violations align precisely with Habourside CPA and Dale Matheson Carr-Hilton LaBonte.
Similarily, notice “2023 - #19 - A Member” does not identify the respondent, but cites violations that align exactly with Hay & Watson and its principal, Mia. CPABC issued a reprimand and fined the firm an additional $1,000.
This sort of non-disclosure has potentially negative implications for consumers, said Baines.
For example, Mia is barred from conducting public audits in the U.S. and ÎÚÑ»´«Ã½, but he remains free to provide other accounting services to ÎÚÑ»´«Ã½ clients. Anybody checking the CPABC website for his regulatory record would have no indication that he has been in any regulatory trouble.
The anonymization of CPABC’s enforcement proceedings is a practice that is not in line with other ÎÚÑ»´«Ã½ professional regulatory bodies, and not in line with its new legislated public interest objective, according to Baines.
Self-regulatory organizations, such as the Mutual Fund Dealers Association of ÎÚÑ»´«Ã½ and the Investment Industry Regulatory Organization of ÎÚÑ»´«Ã½ (which have since merged to form the Canadian Investment Regulatory Organization), routinely disclose the identifies of respondents.
So does the Insurance Council of BC and the Law Society of BC (except in exceptional circumstances). The same is true for various government regulators, including the BC Securities Commission.
Spokesperson Kerri Brkich wrote to Glacier Media that “CPABC’s primary mandate is to protect the public.”
Brkich stated that most enforcement actions from its investigation committee are resolved via an agreed settlement wherein the committee “considers if named publication is in the public interest.”
The CPABC states that these rules are dictated by the act.
And, according to Brkich, “decisions against named publication must be supported by a majority of the public representatives on the investigation committee.”
Glacier Media asked to speak to the CPABC public representatives but was told it could not due to “privacy reasons.”
The CPABC also contends it can’t speak to any specific case, even those that have concluded, again for privacy reasons.
“CPABC is required to comply with the confidentiality provisions in Section 69 of the CPA Act, so we are unable to comment on any specific matters related to individual members or firms above what is in the public domain,” stated Brkich.
Baines characterized this response as “nonsense.”
“CPABC decides what should be put in the public domain, not the legislation, and most CPABC enforcement actions are characterized by a dearth of information, anonymization of respondents, and ultra-light sanctions. The dominant impression I get is that that CPABC’s enforcement policies and practices are keyed to protecting members, not consumers. The idea that Victoria exercises any real oversight is an illusion, and a delusion.”
on July 23 about how anonymizing disciplinary actions against ÎÚÑ»´«Ã½ accountants and firms raises accountability and consumer protection concerns.
