Audit watchdog flags 'significant' problems in Big Four's work in review that actually names names
Canada’s audit watchdog found “significant” problems with the work of all four major accounting firms that audit Canadian companies in an annual review that for the first time identified them by name.
The Canadian Public Accountability Board (CPAB), which bases its inspections on higher-risk audit areas of more complex companies and areas where the audit firm may have less expertise, revealed at least one “significant finding” at each of Deloitte LLP, Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP .
A significant finding by CPAB is generally a deficiency in the application of auditing standards or other relevant professional standards on items that are material to the company being audited. When a significant finding is identified by the regulator, the audit firm must perform additional audit work to support its audit opinion and could be required to make significant changes to its audit approach.
In the 2025 review, the largest single sample was 24 files from KPMG, and the independent audit regulator flagged significant findings in five, or just over 20 per cent. Half of these findings were in the area of revenue and related accounts, with single issues found in the areas of inventory and business combinations.
The portion of sample files with “significant findings” at the Big Four accounting and audit firms averaged 16 per cent in 2025, higher than the 12 per cent average a year earlier but on par with the 16 per cent share of files inspected in 2023.
Each year, the regulator looks at specific firms and the Canadian market as whole when selecting files to be inspected. The number of files is based on variables including the volume and size of companies audited by the firm, the relative risk of specific industries, and an evaluation of how the audit firm responded to prior inspection findings.
CPAB, which began identifying individual audit firms by name in its review this year to increase transparency, said its findings should not be extrapolated to the firm’s entire audit portfolio because its inspection process is not designed to select a representative sample of a firm’s audit work.
On the other hand, inspections don’t look at every aspect of a file, so the absence of significant findings should not be taken to mean that all aspects of the audit were fully compliant with professional standards.
Following the annual review process, an accounting and audit firm is given 180 days to submit evidence or otherwise demonstrate to CPAB that it has implemented recommendations to improve its system of quality management.
If a firm does not address weaknesses, deficiencies or recommendations to the satisfaction of the regulator, CPAB can make that fact and the relevant portions of their inspection public.
“In this situation, the firm will be notified of our intent to publish and has an opportunity to request a review of this decision before publication is made,” the regulator said.
The inspection of last year’s work at Ernst and Young included 11 files and flagged two with significant findings in the areas of “long-lived” assets and revenue and related accounts.
At PricewaterhouseCoopers, the 2025 inspection looked at 14 files and flagged two with significant findings in the areas of business combinations and inventory.
Deloitte’s inspection last year looked at 12 files and flagged one with significant findings in the area of business combinations.
In response to the CPAB findings, the audit firms wrote letters that were appended to the annual reports for each.
“We have reviewed the significant findings related to the files identified in the Report and are addressing them in a manner that is consistent with the applicable auditing standards, as well as our own policies and procedures,” Benjie Thomas, chief executive of KPMG, wrote in a letter that was also signed by Sebastian Distefano, Canadian managing partner of audit for the firm.
“We are also making substantial investments and taking important actions to ensure we are set up to drive sustainable quality and improvement.”
Nicolas Marcoux, CEO of PricewaterhouseCoopers, and national assurance leader Anita McOuat said their firm has taken appropriate actions to respond to the matters raised, including updates to relevant training, policies and guidance, and enhancements to existing processes.
“We recognize that the inspection process provides a valuable opportunity to further enhance audit quality,” they wrote.
Anthony Viel, chief executive at Deloitte, wrote that the CPAB’s inspection team’s insights and observations were valuable in helping the firm identify areas for improvement.
“We have carefully considered the recommendations, started implementing targeted actions to address them, and remain committed to completing any ongoing measures in a timely and effective manner,” he wrote.
Alycia Calvert, chair of Ernst & Young, and Zahid Fazal, managing partner of assurance services in Canada, wrote that the firm is modernizing audits by streamlining processes and giving employees access to an AI platform.
“We have thoroughly evaluated the results of the 2025 inspections and are taking actions to address the findings considering CPAB’s recommendations,” they wrote.
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