Counting on crypto and cannabis
Crypto, cannabis, Caribbean, Canada, cutting-edge technology, Big Four, challenger firms and government — the plot elements of a Netflix thriller or waypoints of an accountancy and finance career?
The profession’s global mobility and its evergreen role at the heart of virtually every organisation on the planet make for some truly colourful career paths. Take Reshma Mahase CPA, CA, FCCA CIA as an example. She spent 15 years moving up the audit ranks at PwC, initially in her native Trinidad and Tobago, but mostly in Vancouver, Canada.
Mahase is a self-described ‘born-and-bred accountant/auditor’ who has ‘audit and accounting standards in my DNA’ and genuinely loves new approaches and methodologies. Her passion for audit combines with an equal passion to improve it. During her time in PwC and a brief spell at Deloitte, she endeavoured to challenge audit teams on the design of the audit and how the audits were executed, often for large clients in the telecom and oil and gas sectors.
Her research led to the possibilities offered by new tools built on artificial intelligence (AI), robotics and blockchain. However, beyond a few big data-laden blue chips, the tools are still being developed and are yet to be deployed.
A rule of thumb is that the more digitised a company’s systems, the more data it has, so the more appropriate and worthwhile it is to employ new technology in audits. This usually relates to large, well-established companies that have made transformations to become more technologically advanced and data-driven, or high-growth start-ups built from the ground up on new technology and innovation.
Mahase’s career took a fortuitous turn when a former colleague got in touch to let her know about a move he’d made to the Canadian Public Accountability Board (CPAB). ‘He described the role and it was exactly what I wanted to do — to effect change in the audit environment,’ says Mahase.
‘It would allow me to take everything I’d learned, flex muscles, devise new approaches, and find innovative solutions to drive audit quality.’
Mahase spent four years at CPAB as a director of inspections performing regulatory reviews at audit firms, but also as leader of the CPAB’s cannabis working group and as a member of its crypto-asset working group. These technology-first, data-rich burgeoning sectors are moving so fast, the challenge is for auditors and regulators alike to keep up.
‘A challenge the cannabis market faces is how quickly it’s moving from a black market to mainstream in Canada and the multiple variations of legitimacy worldwide. These companies are essentially start-ups, but unlike start-ups in established sectors they do not yet have a defined regulatory environment. Similarly, with crypto currencies (ie, digital assets) and blockchain technology, which have really just been born and are already disrupting the capital markets, causing a huge push internationally to institute regulatory infrastructure and frameworks to facilitate this evolutionary industry. These frameworks will have to be dynamic and evolve as the technology and markets evolve,’ she says.
‘This is a unique opportunity for auditors to flex their “audit muscle”. With the sector evolving, auditors need to be agile and continue to be innovative and develop audit approaches to this nascent industry. Traditional approaches usually work in mature and well-established industries once executed appropriately, but as the industries change so should audit strategies and execution. This was highlighted in a recent publication by CPAB (CPAB Exchange Auditing the cannabis sector), which highlighted that there is a lot of room for improvement on how audits are conducted in this sector. One of the first steps towards this is to have a robust understanding of the sector, which in itself presents unique challenges, with technological advancements such as app based retail and lighting technology, and other social and economic factors which directly impact and influence the industry,’ she says.
‘Then you have to layer on different regulatory environments that exist worldwide. Canada and Uruguay are among the few countries to have legalised the recreational use of cannabis, while the US has a version of it state-by-state; then put Covid-19 on top of that, not to mention the various international audit standards, and it’s a very challenging audit environment.’
Though Mahase left CPAB in June this year to move back into practice with mid-tier firm Davidson & Company LLP, she will continue the work she started at the regulator, supporting the firm’s commitment to audit quality across its client portfolio with a specific focus on clients in the crypto and cannabis industries. ‘In my role as the firm’s audit quality and regulatory consultant, I’m taking everything I’ve seen from a regulatory perspective and bringing it back to the audit.’
In Canada, medium-sized firms such as Davidson are taking on some of the larger cannabis companies, challenging the Big Four for market share in these emerging sectors. Meanwhile, on the crypto side, the audit challenges are becoming ever more complex in an industry that was born just over 10 years ago, and where the auditing and accounting standards are now starting to evolve to facilitate this newest of sectors. Auditors, regulators, securities commissions, investors and standard setters to name a few continue to work together to achieve audit quality and build credibility for these new sectors.
With the knowledge and experience acquired through her years as a regulator and work in these unique sectors, Mahase is working on a tool that will provide a holistic view of audit risks in both industries and for the different types of crypto and cannabis companies. The tool is still in its developmental stages, and is dynamic to reflect real time changes in both industries. ‘It’s a tool that will better facilitate an effective audit plan when designing and executing audits,’ she says.
Cannabis – a growing Canadian market
CA$918m (US$738m) was spent on regulated cannabis products in Q420, CA$204m (US$164) more than on the black market. At the beginning of 2020, Toronto had seven regulated cannabis stores; by the end of the year this had increased to 87. Extracts and concentrates sales tripled in 2020 to CA$324m (US$260m). Edibles sales grew from CA$12.7m (US$10.2m) to CA$42.2m (US$34m).
Author: Neil Johnson, journalist
This article was first published in Accounting and Business magazine August 2021