A former client of BDO Dunwoody LLP has filed a $10 million lawsuit against the accounting and consulting firm. Toronto-based BDO is Canada's sixth-largest accounting firm. Also named in the lawsuit was BDO Capital, a 75 percent-owned subsidiary of BDO, and Brian Clarence, a partner in BDO's accounting and auditing division.
Kensington Venture Inc. (KVI), a venture capital company based in Toronto, brought charges related to BDO's audit of the company's 1997 financial statements. It claims that an unprofessional audit cost the firm $7.7 million. KVI, which was formerly known as Coventry Financial Corp., was formed in June 2000. It oversees the day-to-day operations of its business entities in the field of entertainment, business services, and investments.
KVI claims that in the course of the 1997 audit, Clarence failed to detect $2 million of improper loans from Peter Coleman, the former president of Coventry, to Soapberry Financial Corp. and two other companies. At the time, Ron Ovenden, the managing director of BDO Capital, was also a director, officer, creditor and significant shareholder of Soapberry. KVI alleges there was conflict of interest because Mr. Ovenden worked with Mr. Clarence to win the Coventry audit.
Last year, the Institute of Chartered Accountants of Ontario (ICAO) investigated the actions of Mr. Clarence. The ICAO, which is the regulatory body for Ontario's 33,000 chartered accountants and accounting students, faulted Mr. Clarence's work and fined him $10,000. KVI is using the ICAO's findings to bolster their case against BDO and Mr. Clarence.
In other action, the police have brought fraud charges against Mr. Coleman and Soapberry insiders.