The Public Company Accounting Oversight Board has disciplined a Grant Thornton auditor in Japan for failing to address numerous red flags that revenue could be overstated in the 2010 audit of Baldwin-Japan Ltd.
The PCAOB settled an order with Akiyo Yoshida, a partner at Grant Thornton Taiyo and the partner in charge of the BJL audit, that prohibits Yoshida from being associated with a firm registered with the PCAOB and limiting Yoshida’s activities on any public company audit engagement for an additional year. The order, in which Yoshida neither admits nor denies the PCAOB charges, also requires the auditor to complete professional education coursed related to public company audits.
BJL is a Japanese subsidiary of Baldwin Technology Co., which at the time was a U.S. public company. Baldwin restated its 2010 financial statements due to financial irregularities at BJL leading to the acceleration of revenue associated with equipment sales. The SEC did not pursue any kind of enforcement action.
The PCAOB says Yoshida was aware of numerous risks of material misstatement, but failed to adjust the audit plan to respond to those risks. According to the PCAOB, Yoshida knew the subsidiary had a 40-percent error rate in the results of its end-of-year sales cutoff testing, and saw that all material sales for the last month of the fiscal year occurred on the last day of the year, but failed to question those discoveries. The PCAOB says Yoshida didn’t know that late-entered transactions at the end of a fiscal reporting period suggested potential fraud.
Grant Thornton in the U.S. had no comment on the action, except to distance itself from the issue. “The disciplinary action related to this matter pertains to a specific partner at Grant Thornton Japan and does not involve Grant Thornton LLP, the U.S. firm,” a spokesman said in a prepared statement. Grant Thornton Japan is a member of the Grant Thornton International Ltd. network of firms, according to the PCAOB. Grant Thornton in the U.S. audited Baldwin Technology’s U.S. financial statements. The PCAOB has not published any inspection report for any Grant Thornton affiliate in Japan.
The PCAOB has called on audit firms to get tougher on revenue recognition. "Revenue often is a key metric for public company investors and is a financial reporting area prone to manipulation by management," said Claudius B. Modesti, director of enforcement for the PCAOB, in a statement. "Investors rightly expect the PCAOB to hold both foreign and domestic auditors accountable when they fail to meet PCAOB auditing standards.”