Grant Thorn­ton fined £3m for ‘mis­con­duct’ linked to pair of au­dits

The Malta Business Weekly - - NEWS -

Se­nior part­ner was on clients’ au­dit com­mit­tees and was pro­vid­ing con­sul­tancy work

Grant Thorn­ton has been fined £3m for “mis­con­duct” re­lat­ing to its au­dits of Vimto-maker Ni­chols and the Univer­sity of Sal­ford, af­ter a part­ner joined the com­pa­nies’ au­dit com­mit­tees de­spite be­ing em­ployed to pro­vide con­sul­tancy work, cre­at­ing “se­ri­ous self-in­ter­est threats”.

The Fi­nan­cial Re­port­ing Coun­cil said yes­ter­day that it had is­sued Grant Thorn­ton, the UK’s fifth-largest ac­count­ing firm by rev­enues, with a “se­vere rep­ri­mand” and an ini­tial sanc­tion of £4m, re­duced to £3m fol­low­ing a set­tle­ment dis­count.

The com­pany will pay an ad­di­tional £165,000 to cover all of the FRC’s in­ves­ti­ga­tion costs, the FRC said, while the watch­dog also im­posed penal­ties on sev­eral former Grant Thorn­ton staff.

Ac­cord­ing to the FRC, Eric Healey, then a se­nior part­ner at the firm, joined the au­dit com­mit­tees of Ni­chols and the univer­sity – both Grant Thorn­ton’s au­dit clients at the time — when he was also “en­gaged by the firm to pro­vide ser­vices un­der a con­sul­tancy agree­ment”.

This cre­ated “se­ri­ous fa­mil­iar­ity and self­in­ter­est threats” and led to “the loss of in­de­pen­dence” over eight au­dits, con­ducted be­tween 2010 and 2013, the watch­dog said.

The news comes as au­di­tors in­creas­ingly face con­cerns that they are too close to clients – of­ten a source of prof­itable con­sul­tancy work – throw­ing into ques­tion the ob­jec­tiv­ity of their au­dit work.

It fol­lows a string of scan­dals re­lated to con­flicts of in­ter­est at large pro­fes­sional ser­vices firms. These in­clude KPMG’s work for South Africa’s bil­lion­aire Gupta busi­ness fam­ily, which has been at the cen­tre of a high-pro­file govern­ment cor­rup­tion scan­dal, over a 15-year pe­riod.

Mean­while, PwC came un­der fire from the FRC re­cently for its work for col­lapsed re­tailer BHS, par­tic­u­larly af­ter it emerged that the firm had earned eight times more from con­sult­ing work for BHS than it did from au­dit­ing.

The FRC, which has it­self come un­der pres­sure for be­ing too “light touch” in its mon­i­tor­ing of ac­coun­tancy firms, has urged an in­quiry into whether the Big Four — Deloitte, EY, KPMG and PwC — should be bro­ken up, with au­dits di­vi­sions spun off en­tirely.

The FRC said in its rul­ing yes­ter­day that the case “re­vealed wide­spread and se­ri­ous in­ad­e­qua­cies in the con­trol en­vi­ron­ment in Grant Thorn­ton’s Manch­ester of­fice over the pe­riod as well as firm-wide de­fi­cien­cies in poli­cies and pro­ce­dures re­lat­ing to re­tir­ing part­ners”.

Mr Healey was fined £200,000, dis­counted for set­tle­ment to £150,000, and will be ex­cluded from the In­sti­tute of Char­tered Ac­coun­tants for a rec­om­mended pe­riod of five years, the FRC said.

Three se­nior statu­tory au­di­tors at Grant Thorn­ton, Kevin En­gel, David Barnes and Joanne Kearns were also rep­ri­manded and fined be­tween £45,000 and £75,000 each fol­low­ing set­tle­ment dis­counts. All four ad­mit­ted their con­duct “fell sig­nif­i­cantly short” of ex­pected stan­dards, the FRC said.

“Whilst the fo­cus of the in­ves­ti­ga­tion was not on our tech­ni­cal com­pe­tence in car­ry­ing out ei­ther of these au­dit as­sign­ments, the mat­ter of eth­i­cal con­duct and in­de­pen­dence is equally of crit­i­cal im­por­tance in en­sur­ing the qual­ity of our work and it is re­gret­table that we fell short of the stan­dards ex­pected of us on this oc­ca­sion,” Grant Thorn­ton UK said yes­ter­day. “As we have since made sig­nif­i­cant in­vest­ments in our peo­ple and pro­cesses and re­main com­mit­ted to con­tin­u­ous im­prove­ment in this re­gard, we are con­fi­dent that such a sit­u­a­tion should not arise in the fu­ture,” it added.

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