The Securities and Exchange Commission has charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations.
The violations occurred, according to the SEC, when two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules.
The two Grant Thornton International LLP member firms allegedly represented in audit reports that they were independent of their respective audit clients when the audit clients paid fees to a consulting firm owned by two Grant Thornton Mauritius partners who served as board members for these audit clients. The auditor independence rules are supposed to ensure that outside auditors remain independent from their clients both in fact and in appearance throughout the audit and professional engagement period. But according to the SEC’s orders, GT India and GT Audit violated the independence rules because the Grant Thornton Mauritius partners provided prohibited services for the audit clients, including controlling bank accounts and having authority to act on the audit client companies’ behalf.
The SEC’s orders also finds that GT India and GT Audit failed to follow Grant Thornton International’s compliance control procedures. GT Audit failed to obtain independence relationship checks and confirmation letters from member firms in countries where its audit clients have business operations, as required by Grant Thornton International, while GT India failed to obtain the confirmation letter, according to the SEC. Both Grant Thornton firms failed to discover the independence violations until several months or years following the violations, said the SEC. The orders found GT Audit’s violations occurred with audits of four consecutive fiscal years, from 2008 through 2011, while GT’s India’s violations occurred for the 2013 fiscal year.
“Grant Thornton member firms in Australia and India have reached separate agreements with the Securities and Exchange Commission to settle proceedings with regard to an independence breach by each of those firms,” said a Grant Thornton International Ltd. spokesperson in a statement emailed to Accounting Today. “Both firms cooperated fully throughout the investigation, and both have implemented additional processes and procedures to mitigate the risk of future incidences.”
The orders censure the audit firms for violating the auditor independence standards and sanctioned the audit firms for causing the issuers to violate the requirement to file annual reports with the SEC that include financial statements audited by independent public accountants. The orders also found that the audit firms engaged in improper professional conduct in violation of federal securities laws and the SEC’s Rules of Practice.
“The integrity of the financial reporting process relies on auditors to preserve and protect the independence of their audits,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement in a statement. “The two Grant Thornton firms undermined this process by failing to ensure that its audits were free from prohibited non-audit services.”
Without admitting or denying the findings, each firm agreed to cease and desist from future violations. GT India agreed to pay disgorgement of audit fees in the amount of $128,905, plus prejudgment interest of $8,977, and a penalty of $50,000. GT Audit agreed to pay disgorgement of $88,683, plus prejudgment interest of $13,520, and a penalty of $75,000.
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