Canadian Accounting Firm Smythe Settles with PCAOB for Using Unregistered Firms

Canada-based accounting firm Smythe has agreed to pay a $175,000 penalty to settle with the Public Company Accounting Oversight Board (PCAOB) for its use of unregistered firms in four issuer audits. The PCAOB stated that Smythe relied excessively on the work of PKF Audisur and PwC Malta, violating PCAOB rules. As part of the settlement, Smythe is required to review and assess its quality control policies and procedures.

Smythe used the services of PKF Audisur in its audits of wireless infrastructure company Tower One's financial statements for the fiscal years 2020 and 2021 and relied on PwC Malta for its audits of merchant bank Scully's financials for fiscal years 2020-2021. In both cases, the unregistered firms conducted over 20 percent of the total audit hours and fees, constituting substantial role participation. The PCAOB mandates that firms must register with them before substantially participating in issuer audits.

Smythe faced criticism for failing to adequately plan the audits, coordinate activities with the unregistered firms, perform sufficient analysis to determine its eligibility as the principal auditor, and establish and implement effective quality control policies and procedures related to using the work of other accounting firms.

Robert Rice, Director of the PCAOB's Division of Enforcement and Investigations, emphasized the importance of the principal auditor's role in planning and coordinating with registered firms when an audit involves multiple audit firms.

The PCAOB has been increasingly stringent in its enforcement against auditors using unregistered firms over the past two years.

In response, Smythe's Managing Partner Bob Sanghera explained, "The fine issued by the PCAOB solely relates to our interpretation of the rules relating to our use of external firms not registered with the PCAOB for two of our 2020/2021 U.S.-registered public company clients. There was no impact on the financial statements or audit opinions. We have since clarified and addressed this issue moving forward."

By fLEXI tEAM