Marcum Didn’t Let a Little License to Practice Stand in the Way of Providing Professional Services in Ontario

We didn’t get around to writing up this September 25 news release from CPA Ontario last week, better late than never.

Here’s what happened: Ontario public accounting licensing body CPA Ontario reached an out-of-court settlement with Marcum LLP resolving allegations of multiple instances of US Marcum partners performing work in Ontario — including issuer audits — without said partners being licensed to practice in the province. Thus concludes CPA Ontario’s investigation and prosecution of offences under the Chartered Professional Accountants of Ontario Act, 2017, and the Public Accounting Act, 2004.

A Public Accounting License (PAL as in “Who you calling PAL, friend?!“) is required by CPA Ontario if you:

• practice public accounting as described in section 2 of the Public Accounting Act and are the lead engagement person responsible for signing reports or statements regarding:
  • assurance engagement (including an audit or review engagement) relating to a financial statement or any part of a financial statement or any statement attached to a financial statement
  • any compilation engagement in respect of which it can be reasonably expected that the services will be relied upon or used by a third party and the prescribed wording for the Compilation Engagement Report is not used

You do NOT need a PAL if:

• are not the lead engagement person responsible for signing the report or statement (members of the engagement team who are not the lead engagement person, including the quality control review partner, are not required to be licensed)
• do not provide any assurance services (including audit or review engagements) but do provide other services including:
  • compilations in which the services may be relied upon or used by a third party and the prescribed wording for the Compilation Engagement Report is used
  • taxation
  • accounting
  • internal audit
  • controllership
  • insolvency services
  • business advisory services

The settlement cost Marcum $1.2 million CDN (approx. $877,300 USD) of which $1 million went to the Ontario Government and $200,000 went to CPA Ontario to cover costs of investigation and prosecution.

This wasn’t the first time Marcum got reprimanded by the Canucks this year. The Canadian Public Accountability Board (their version of the PCAOB) censured Marcum earlier this year, prohibiting the firm from taking on new “high risk” clients in Canada, including those clients resulting from initial public offerings, reverse takeovers, or other transactions. Canadian Accountant on the March 2023 enforcement action, the CPAB’s first of 2023:

CPAB inspected two of Marcum’s audit files in 2022 and identified nine significant inspection findings. Each of the deficiencies represents a breach of one or more professional standards and constitutes a “violation event.” CPAB does not specify the findings, only the breaches of nine Canadian auditing standards, and the Canadian Standard on Quality Control 1 (CSQM 1), which is adapted from International Standards on Auditing. Also, the firm was not registered or licensed by the relevant provincial CPA body to perform audits of the financial statements in the respective jurisdiction.

It is an unusual and rare censure by CPAB. Unusual because the limited information provided may lead some to speculate that the accounting firm was not using Canadian audit standards at all in the engagements inspected by CPAB. Rare because CPAB has averaged just one public censure per year in the last two years.

The CPAB violations [PDF] involved breaches of the following Canadian Auditing Standards (CAS):

i. CAS 230, Audit Documentation.
ii. CAS 250, Consideration of Laws and Regulations in an Audit of Financial Statements.
iii. CAS 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment.
iv. CAS 330, The Auditor’s Responses to Assessed Risks.
v. CAS 402, Audit Considerations Relating to an Entity using a Service Organization.
vi. CAS 500, Audit Evidence.
vii. CAS 520, Analytical Procedures.
viii. CAS 530, Audit Sampling.
ix. CAS 701, Communicating Key Audit Matters in the Independent Auditor’s Report.
x. Canadian Standard on Quality Control 1 – quality control for firms that perform audits and reviews of financial statements, and other assurance engagements.

“CPA Ontario’s mandate is to protect the public and uphold the high standards of the CPA profession in the province. Unregistered and unlicensed foreign accounting firms operating in Ontario do so without the critical regulatory oversight that ensures public protection and confidence in public accounting,” said Janet Gillies, CPA, CA, executive vice-president, Regulatory and Standards, CPA Ontario. “This settlement underscores that foreign accounting firms must comply with CPA Ontario’s regulatory requirements if they wish to practice in the province.”

Don’t mess with Canada!