Grant Thornton UK fined $2.4M for ethical, independence failures

The fine was reduced from £3 million (U.S. $3.7 million) for “admissions and early disposal,” according to the FRC. The Conviviality audit covered the year ending April 30, 2014. Grant Thornton also received non-financial sanctions, including a severe reprimand and a declaration that the audit did not comply with relevant requirements.

Additionally, Grant Thornton agreed to a package of measures intended to improve the quality of future audits, including:

• Establishment of an ethics board to oversee the firm’s compliance with ethical standards and requirements with the board to provide reports to the FRC for three years;
• A review of its ethics function to identify any skills/resource gaps;
• Increased training to staff on relevant ethical issues; and
• Further improvement to the firm’s policies and procedures to ensure compliance with ethical standards and requirements.

The two main categories under which the breaches fall are described by the FRC in more detail below:

Deficiencies in the firm’s control environment and policies and procedures designed to ensure ethical standards. Grant Thornton admitted to breaching important standards designed to preserve the integrity, objectivity, and independence of audit.

Between 2014 and 2017, the FRC said, Grant Thornton failed to take responsibility for ensuring an appropriate control environment that placed adherence to ethical principles and compliance with ethical standards and requirements above commercial considerations—in particular, its policies and procedures designed to ensure compliance were defective, as well as being inadequately implemented and monitored.

Also, it failed to adequately resource its ethics team and did not have an appropriate enforcement regime in which individual breaches of ethical standards were identified. The failures occurred repeatedly over three years and resulted in numerous breaches of ethical standards and requirements by the firm’s partners and staff.

Breaches of ethical standards resulting in loss of the Conviviality audit’s independence. Grant Thornton seconded a senior manager who had performed limited work on the audit to assist in the preparation of Conviviality accounts, in breach of ethical standards, the FRC said. Grant Thornton completed the audit and provided an unqualified audit opinion to Conviviality when it should not have provided an audit opinion at all but rather should have resigned from the engagement.

The FRC added it “does not allege that Grant Thornton, in fact, lacked objectivity or that the accounts did not give a true and fair view of the company’s affairs.” It said its executive counsel recognizes Grant Thornton “took the matters identified in this investigation seriously and acknowledged its failings, and that the firm has recently been undertaking remedial action to address these issues.” The FRC further acknowledged that Grant Thornton “provided a good level of cooperation during the investigation.”

In a statement, Deputy Executive Counsel Claudia Mortimore said, “It is vital that audit firms comply with ethical standards and requirements and create the necessary culture and control environment so that their people really understand their importance. In this case, firmwide failures that took place over three years not only led to “numerous breaches of such requirements on individual audits, but also the real risk of more such breaches which have not been, and will never be, reported or identified.”

“The sanctions in this matter not only send a clear message as to how seriously the FRC views such failures,” Mortimore added, “but are also focused on ensuring that there is no repetition and the causes of the failures are effectively addressed at their roots.”

Individual liability

The FRC also levied sanctions against two former Grant Thornton UK employees for their actions during the aforementioned Conviviality audit.

Audit Engagement Partner Kevin Engel and Senior Manager Natasha Toy were each given severe reprimands; Engel was further permanently banned from signing audit opinions. The FRC acknowledged the cooperation of each individual in announcing the punishments.

In his role as audit engagement partner, Engel arranged for Toy to be seconded to Conviviality as described above in breach of ethical standards. Engel “should not have provided an audit opinion, and in signing an unqualified audit opinion confirming compliance with all relevant standards as he in fact did, he breached a number of standards designed to preserve the independence and objectivity of audit,” the FRC stated.

Engel also instructed Toy to remove a time entry on the original audit file in order to conceal the evidence of threats to independence, the FRC noted.