A Canadian audit regulator has fined Deloitte C$1.59m after partners and audit staff tampered with time and date settings on computers to change hundreds of audit signoffs
At least 35 auditors, including partners, in Deloitte’s Ontario office changed the date and time settings on their computer clocks to manually override controls in Deloitte’s audit software and backdate audit working paper signoffs between November 2016 and May 2018.
More than half of the identified backdating took place after the issuance of the relevant independent auditor’s report, adding working paper sign-off dates to a date prior to the date of the report.
In most cases, the date selected for backdating was either on or before the date of the auditors’ report, or a date at a point in time when the individual thought the work would have been completed, or was consistent with a colleague’s signoff.
This was not an isolated incident; some 930 audit working papers were backdated in 39 audits for listed companies, said regulatory body CPA Ontario. At the time, Deloitte had around 800 audit clients.
The tampering came to light when a whistleblower came forward. In February 2018, an audit partner raised a concern with senior Deloitte personnel about auditors altering the dates on their computers to backdate work paper signoffs at a Deloitte office in another province of Canada.
In March 2018, Deloitte removed the ability for staff to change the date and time on their computers but the investigation found that one audit partner continued to do it until May 2018. The firm concluded that the backdating was ‘not unethical’, but rather staff ‘tried to do the right thing but in the wrong way’.
Deloitte has paid a $900,000 fine and legal fees of $695,000 totalling $1.59m (£940,000) and admitted it failed to have the necessary policies and procedures in place to ensure its services were performed in accordance with generally accepted standards of practice of the profession. Deloitte has also disciplined 12 partners and 12 employees for backdating.
More than a year after discovering the backdating, in September 2019, Deloitte reported the misconduct to CPA Ontario which launched an investigation into the firm and 42 members of the professional staff.
But CPA Ontario said that when Deloitte discovered the problem internally, it failed to take appropriate action to address potential issues of audit quality and did not address the risk of ethical issues arising from deliberate backdating.
One of the responsibilities of auditors is to maintain accurate and timely audit documentation, and to ensure that the firm’s audit practitioners conduct themselves in a manner that ‘maintains the good reputation of the profession and serves the public interest’.
‘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, CPA, CA, executive vice-president, regulatory and standards, CPA Ontario.
‘Holding firms and members accountable for their actions with admissions-based discipline is just one way we achieve our mandate to protect the public and uphold the reputation of the profession.’
Deloitte failed to satisfy the requirements of Canadian Standards on Quality Control 1 by failing to establish and maintain a system of quality control to provide it with reasonable assurance that signoffs were not backdated in contravention of Canadian Audit Standards.
CPA Ontario has taken into account remediation by Deloitte including measures to strengthen the firm’s systems of quality control, internal discipline and mandatory training. Under the terms of the settlement, Deloitte will pay a fine of $900,000 and costs of $695,000 to CPA Ontario for its investigation and prosecution.
This marks the final phase in the backdating investigation after Deloitte was fined $350,000 by the US audit regulator, PCAOB, and censured by the Canadian Public Accountability Board (PCAB) in 2021.