Deloitte Japan fined $2m over independence failings
Deloitte’s firm in Japan is to pay $2m (£1.56m) to settle charges from the Securities and Exchange Commission (SEC) that it issued audit reports for a client at a time when dozens of its employees maintained bank accounts with the client’s subsidiary, in violation of the regulator’s audit independence rules
14 Feb 2019
Futomichi Amano, the former CEO of Deloitte Touche Tohmatsu (Deloitte Japan), and Yuji Itagaki, former reputation and risk leader and director of independence, settled related charges.
Under the SEC’s rules, accountants are not considered to be independent if they maintain bank accounts with an audit client with balances greater than FDIC or similar depositary insurance limits. According to the regulator, Deloitte Japan knew but failed to adequately disclose that Amano maintained bank account balances with the audit client’s subsidiary bank that compromised his independence.
A subsequent investigation by the firm revealed that 88 other Deloitte Japan employees had financial relationships with the audit client that compromised their independence as well.
The SEC also alleged that Deloitte Japan’s system of quality controls did not provide reasonable assurances that the firm and its auditors were independent from audit clients. For example, the regulator found that Deloitte Japan failed to adequately staff and supervise its office of independence and caused certain independence violations by making deposits to partners’ bank accounts that exceeded the deposit insurance limits.
Melissa Hodgman, associate director of the SEC’s division of enforcement said: ‘Auditor independence is critical to the integrity of the financial reporting process. The auditor independence rules addressing bank account balances that exceed deposit insurance limits are clear, and audit firms must devote adequate resources to ensuring the independence of the firm and its personnel.’
Deloitte Japan, Amano, and Itagaki consented to the SEC’s order without admitting or denying the findings and were ordered to cease-and-desist from future violations. The firm agreed to pay $2m in monetary sanctions and be censured.
Amano and Itagaki agreed to be suspended from appearing and practicing before the SEC as accountants, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Amano and Itagaki to apply for reinstatement after two years and one year, respectively.
Report by Pat Sweet