The Public Company Accounting Oversight Board said Wednesday it has imposed a $1.5 million civil penalty against Grant Thornton LLP and censure the firm for violations of quality control standards and for audit failures. The PCAOB also imposed a separate $750,000 penalty against Deloitte's firm in Turkey.

GT’s quality control violations occurred in connection with its assignment, support and monitoring of two engagement partners in its Philadelphia-based financial services practice during 2013 audits. The PCAOB also found that, in one of those audits, the 2013 audit of The Bancorp, Inc., Grant Thornton violated the board’s auditing standards.

“A firm’s system of quality control should reasonably assure that personnel with the right skills and experience are assigned to public company audits,” said PCAOB Chairman James Doty in a statement. “When quality controls concerning personnel assignment and oversight fail, serious violations of auditing standards can result, as they did here, to the detriment of investors.”

PCAOB Chairman James Doty
PCAOB Chairman James Doty

The PCAOB sanctioned a former Grant Thornton partner, David M. Burns, who was the engagement partner for the 2013 Bancorp audit, for violating PCAOB auditing standards in that audit. The PCAOB barred him from associating with a PCAOB-registered accounting firm. He has the right to petition to remove the bar after one year. The PCAOB also ordered further limits on his auditing activities for an additional year. He was censured and ordered to pay a $15,000 penalty. Neither Grant Thornton nor Burns admitted or denied the PCAOB’s findings in the order. Burns could not be reached for comment.

“This matter is related to two audit engagements from fiscal-year-end 2013 and, as indicated in the order, Grant Thornton LLP has made efforts since then to address the issues connected with this settlement,” said Grant Thornton spokesman Jon Rucket. “We appreciate the work done by the PCAOB, and are pleased to have this matter resolved. We are committed to delivering the highest standards of quality.”

The PCAOB contended that the firm knew Burns and another partner had failed to properly perform audits in prior years, yet continued to allow them to serve as engagement partners, without sufficient support or monitoring when it assigned them to serve as engagement partners in connection with two separate 2013 public company audits.

It also found that during the 2013 audit of Bancorp's allowance for loan and lease losses, Grant Thornton and Burns didn’t adequately consider red flags indicating that some of the bank’s commercial loans were impaired and relied on management representations without obtaining relevant and reliable evidence to corroborate those representations.

Deloitte Turkey Penalty

Separately on Wednesday, the PCAOB also announced a $750,000 settlement with Deloitte Turkey over charges including failure to cooperate with an inspection, quality control, ethics, and audit documentation violations. It said the firm, whose full name is DRT Bagimsiz Denetim ve Serbest Muhasebeci Mali Musavirlik A.Ş. would pay the $750,000 civil money penalty to settle charges that it devised and implemented a plan to improperly alter documents in advance of a PCAOB inspection in 2014.

Deloitte Turkey confirmed the settlement Wednesday. "Deloitte Turkey can confirm that the firm and US Public Company Accounting Oversight Board have agreed to settle a matter related to allegations that certain working papers concerning one audit engagement were improperly modified in advance of a PCAOB inspection carried out in 2014," said a statement emailed by spokesperson Leyla Gülyurt. "The matter had no bearing on the client’s financial statements, the nature and quality of the audit procedures performed, or the audit opinion. Related to this matter, it is important to note that, as the PCAOB recognized in its order, the firm self-reported the issue and provided extraordinary cooperation to the PCAOB in the inspection. Additionally, the firm has already taken extensive remedial action. We take our client and professional responsibilities to deliver services of the highest quality extremely seriously and unethical behavior is not tolerated in our firm. All the individuals involved in this matter exited the firm months ago."

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.