In the wake of high-profile incidents of misconduct at some of the world’s leading audit firms, the Ontario Securities Commission (OSC) is launching an inquiry into firms’ internal policies and procedures.
Back in June, the U.S. Securities and Exchange Commission issued a record penalty against an audit firm — a US$100-million fine for Ernst & Young LLP — in connection with a scandal that involved auditors cheating on the ethics portion of their accounting exams.
Earlier in the year, the Canadian Public Accountability Board (CPAB) — which oversees audit firms — also brought its own enforcement actions against a couple of big accounting firms involving allegations of cheating on internal training exams in one case, and backdating audit papers in another.
Citing these kinds of “ethical violations” at audit firms in Canada and elsewhere, the OSC announced that it will be “making targeted inquiries” of firms that carry out issuer audits in Ontario.
“Among other things, the OSC will seek information about firm policies related to compliance with relevant ethical requirements and the operation of internal whistleblower programs,” the regulator said in a release announcing the inquiries.
It will also be looking at the firms’ procedures for dating their audit work, and their implementation of internal training programs.
The OSC said it will consult with the CPAB as it undertakes its work in this area.
“CPAB will continue to address ethics issues through its inspection and enforcement processes,” the OSC said.
The securities regulator also noted that, at this point, its review won’t involve examining individual audits of specific issuers’ financial statements.
“As gatekeepers of Ontario’s capital markets, auditors play a critical role in investor protection by ensuring that audited financial statements can be reasonably relied upon when making investment decisions. Any actual or perceived issues related to the integrity of financial reporting can undermine investor confidence,” the OSC noted.