Audit industry regulator to begin identifying accounting firms in its annual reviews

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The country’s top audit regulator is going to start naming names.

Until now, the Canadian Public Accountability Board (CPAB), which oversees the accounting firms that audit publicly traded companies, has been prohibited from reporting which firms have the best and worst records in their annual inspections. In its 2023 report, CPAB said two of Canada’s four biggest audit firms fell below its standards, but did not name them.

However, CPAB says it has now secured changes to provincial regulations and laws across Canada that will allow it to release individual firm inspection reports.

CPAB chief executive officer Carol Paradine said in a statement that it is “a final step in our initiative to enhance the information we disclose and will allow us to provide greater transparency for the investing public, audit committee chairs and other stakeholders across Canada.”

CPAB expects to publish the first firm-specific inspection reports in the first quarter of 2026. It will publish its final anonymized annual report, for 2024 inspections, in the coming days.

The change lines CPAB up with the U.S. regulator, the Public Company Accounting Oversight Board (PCAOB), which identifies firms by name in its publicly released inspection reports. The PCAOB also examines Canadian accounting firms that do audit work for public companies in the United States.

For example, in late 2024, the PCAOB released its inspection report on Canada’s KPMG LLP, saying the firm had deficiencies in five of the 10 audits it inspected. (In a March 12 statement to The Globe and Mail, KPMG spokesperson Kevin Dove said the firm “remains fully committed to delivering audits that meet the highest standards, grounded in integrity and supported by a strong values-based culture across our firm.”)

CPAB’s new policies also include providing mandatory disclosure of significant inspection findings to the audit committee of the board of any audited company. While most audit firms registered with CPAB already do that voluntarily, there are examples of companies never learning that CPAB had flagged their audit as problematic.

All public accounting firms that audit public companies must register with CPAB, and any firm that audits at least 100 public companies gets reviewed annually. Those 13 accounting firms audit more than 7,000 companies, representing 91 per cent of the total market capitalization of Canadian public companies.

CPAB picks some of each accounting firm’s audits for review based on its assessment of high-risk factors. These include complex or emerging companies, such as cryptocurrency or cannabis firms, or areas in which the audit firm may lack some expertise.

CPAB’s key performance metric is what it calls a “significant finding” – where an accounting firm falls short of accepted auditing standards for a material part of a company’s financial statements and has to go back and do additional work to support its audit opinion. CPAB requires companies to have significant findings in no more than 10 per cent of a firm’s examined audits.

An audit firm that repeatedly has significant findings it cannot or will not fix is subject to enforcement actions, which include penalties such as a prohibition on working with a specific client, a ban on taking on new clients or termination of its registration with CPAB.

CPAB said it inspected 130 audit files in 2023 and found “the results were mixed, with inconsistency across all categories of firms.” The rate of significant findings – in 34 per cent of audits – was higher than the 33 per cent in 2022 and the 28 per cent in 2021.

CPAB said a Big Four firm had issues in 29 per cent of the company audits it examined, the same proportion the firm had in 2022. Another Big Four firm, which met standards in 2022, fell below that level in 2023, with issues in 14 per cent of audits examined.

The Big Four accounting firms are Deloitte LLP, Ernst & Young LLP, KPMG and PricewaterhouseCoopers LLP.