BDO Canada, which offers accounting, tax and advisory services, has agreed to pay an administrative penalty of $3.5m to the Ontario Securities Commission (OSC) for substandard auditing of Crystal Wealth.

The accounting firm admitted to having failed in the effective auditing of the “2014 and 2015 financial statements of two privately-offered investment funds”.

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BDO has also been ordered to pay $500,000 for the expenses related to the watchdog’s probe.

The accounting firm is said to have strengthened its policies since the occurrence of the failures.

BDO served as the auditor of Crystal Wealth as well as its investment funds, which were put into receivership in 2017.

A year later, it was revealed that former Crystal Wealth head Clayton Smith misappropriated $11.8m from two Crystal Wealth funds.

As a result, Smith was banned from the market and asked to pay $250,000 in administrative penalty along with costs of $50,000.

BDO also signed a settlement agreement with Grant Thornton, the receiver and manager of Crystal Wealth assets.

OSC will recommend allocation of $2.5m of the fine amount to investors of Crystal Wealth after securing the court nod for the settlement.

OSC director of enforcement Jeff Kehoe said: “Investors rely on auditors to carry out their work with professional skepticism and proper oversight. When auditors fall short, investors lose confidence in the integrity of financial reporting, a cornerstone of our capital markets.

“This settlement holds BDO accountable for failing to adequately carry out its role as a gatekeeper.”