• In early August 2019, KPMG withdrew their audit reports for the 2018 annual and the 2019 first-quarter financial statements of CannTrust Holding Inc., stating they could no longer be relied upon. KPMG decided to withdraw their audit reports following the disclosure that CannTrust was halting sales and shipments of cannabis products after being notified by the Canadian regulator, Health Canada, of the discovery of a manufacturing facility that had operated between October 2018 and March 2019 without proper licensure.
• According to a statement made by CannTrust, “KPMG was not aware of the information recently shared by the company when it issued the KPMG reports and had relied upon representations made by individuals who are no longer at the company.”
• Health Canada was tipped off that CannTrust was growing cannabis in an unlicensed room by a former company employee, Nick Lalonde. According to Mr. Lalonde, CannTrust went to great lengths to hide the unlicensed room, including hanging white poly walls to hide the greenhouse room in photos submitted to Health Canada for licensing.
• Upon receiving the tip, Health Canada began investigations and seized five metric tons of the company’s cannabis. CannTrust voluntarily held back an additional 7.5 metric tons of cannabis and halted all medical and recreational cannabis sales and response. In addition, the company announced on July 25, 2019, that CEO Peter Aceto and President Eric Paul were leaving the company after reports they were aware of the illegal facility.
• At the time of KPMG’s withdrawal of their audit reports in August, the CannTrust interim CEO Robert Marcovitch stated “We will continue cooperating with our auditor and regulators, and take whatever steps are necessary to restore full trust in the company’s regulatory compliance. Our medical patients, customers, shareholders, and employees deserve nothing less.”
• The violations triggered a major decline in the value of CannTrust Holding Inc. stocks, which had been trading at just over $3 per share prior to the announcement. On February 27, 2020, CannTrust received notice from the New York Stock Exchange that they were no longer in compliance with the NYSE share price rule, as the value of common shares was less than $1 per share for over 30 days.
• CannTrust filed for creditor protection in Canadian courts in late March. By mid-May 2020, CannTrust was officially delisted from both the NYSE and the Toronto Stock Exchange.
• In January 2021, CannTrust agreed to a $50 million trust to settle class-action claims related to the growth of unlicensed cannabis. CannTrust is currently undergoing restructuring with E&Y acting as the monitor.

Consider the role of written representations (also known as management representations): What is the auditor’s responsibility with regard to written representations?

Answer rating: 100% (QA)

Written representations are statements made by a client representing certain themes or supp... View the full answer