The Ontario Securities Commission (OSC) announced late last week that it has accepted a settlement agreement between the OSC and BDO Canada LLP, wherein the firm admits it failed to comply with generally accepted auditing standards (GAAS) when it audited financial statements for Crystal Wealth Management Systems Limited and its funds.
As part of the settlement, BDO has paid the commission a $3.5-million administrative penalty and has paid $500,000 towards the cost of the OSC’s investigation.
BDO has entered into a separate agreement with Grant Thornton Limited, the court-appointed receiver for Crystal Wealth and its funds. Upon court approval of that settlement, the OSC says it will recommend that $2.5-million of the firm’s penalty be allocated to Crystal Wealth’s investors.
Crystal wealth and its “directing mind,” Clayton Smith, were put into receivership by the Ontario Superior Court of Justice in April 2017 and Smith has since admitted to fraud in the case. Some of the firm’s fraudulent investments were recorded in the fund’s financial statements that were audited by BDO.
The OSC says the firm’s audit of Crystal Wealth did not meet GAAS in three principal ways: The firm did not obtain sufficient and appropriate audit evidence of the existence and valuation of the fund’s assets, it did not undertake its work with sufficient professional skepticism, and it did not complete quality control reviews of the audits that were required.
“Investors rely on auditors to carry out their work with professional skepticism and proper oversight,” says Jeff Kehoe, the OSC’s director of enforcement. “This settlement holds BDO accountable for failing to adequately carry out its role as a gatekeeper.”
