Audit firm Deloitte LLP is paying $1.6 million in fines and costs to settle allegations from Ontario’s accounting regulator, CPA Ontario, that the firm’s auditors backdated audit papers.
CPA Ontario accepted a settlement with Deloitte that imposed a $900,000 fine and ordered $695,000 in costs against the firm, which admitted to breaches that stemmed from some of its auditors changing the time and date settings on their computers to backdate audit sign-offs.
In addition to the monetary sanctions, the firm also agreed to improve its controls to prevent similar violations.
The breaches occurred in the wake of regulatory action in the U.S. in 2016 to address backdating issues uncovered there. In response to that action, the firm removed the ability for auditors to set sign-off dates, and warned its auditors around the world, including in Ontario, against engaging in similar activity.
Yet, according to the settlement, management at the firm was aware that the restriction against setting sign-off dates could be evaded by manipulating computers’ clock settings.
After considering whether to specifically prohibit this conduct, the firm decided not to, fearing “that such communication could instead ‘socialize’ inappropriate conduct.”
Nevertheless, some of Deloitte’s auditors in Ontario figured out how to backdate their audit papers in late 2016, and continued to do this until early 2018, when an auditor blew the whistle to senior personnel at the firm.
In response, the firm removed the ability to alter clock settings and issued an alert against backdating.
Deloitte also launched an internal investigation, took disciplinary action against certain personnel and ultimately self-reported the misconduct to CPA Ontario, which launched its own investigation. That inquiry found that, between November 2016 and May 2018, the firm’s auditors in Ontario backdated more than 930 audit working papers in at least 39 audit engagements.
“Backdating obscures when and what work was performed and reviewed. It creates questions about the accuracy or timeliness of audit documentation and the quality of the audit,” said Janet Gillies, executive vice-president, regulatory and standards, at CPA Ontario, in a release.
As part of the settlement, Deloitte admitted it failed to have policies and procedures in place to ensure that its audits met industry standards, and to ensure ethical conduct by its auditors. It also admitted that it failed to take appropriate action after uncovering the deliberate backdating.
Specifically, the regulator found the internal investigation was inadequate, as it concluded that the backdating by its auditors was largely a policy breach, not an ethical violation, and that it didn’t compromise its audit work.
“In reaching these conclusions Deloitte should have applied greater skepticism to its analysis of the impact of backdating,” the settlement said.
CPA Ontario noted that, in 2021, Deloitte entered into settlement agreements with the Canadian Public Accountability Board and the U.S. Public Company Accounting Oversight Board (PCAOB) for backdating audits. In those actions, Deloitte neither admitted nor denied the findings of CPAB or the PCAOB. The CPAB required it to pay $100,000 in costs and the PCAOB imposed a US$350,000 penalty.