FRC fines Grant Thornton £4m for independence failings
Grant Thornton has been fined £4m and reprimanded for misconduct by the Financial Reporting Council (FRC) in relation to a lack of independence in the audits of Nichols plc and the University of Salford, with additional sanctions for a former senior partner and three former senior statutory auditors
29 Aug 2018
The firm’s fine was discounted for settlement to £3m and it will pay the executive counsel’s costs of £165,000.
Eric Healey, a former senior partner and an ICAEW member, was given a five-year ban and a fine of £200,000 discounted for settlement to £150,000.
Kevin Engel was given a severe reprimand and a fine of £100,000 (discounted for settlement to £75,000); David Barnes a reprimand and a fine of £70,000 (discounted for settlement to £52,500); and Joanne Kearns a reprimand and a fine of £60,000 (discounted for settlement to £45,000).
They all made admissions of misconduct in relation to the audits of the financial statements of Nichols and the University of Salford for the years ending 2010, 2011, 2012 and 2013.
The misconduct related to Healey joining the audit committees of both entities which at the time were audit clients of Grant Thornton, while he was also engaged by the firm to provide services under a consultancy agreement.
The FRC said this created serious familiarity and self-interest threats and resulted in the loss of independence in respect of eight audits over the course of four years.
According to the settlement agreement: ‘The standards were breached on a number of occasions over a long period and in a significant way; given the nature of the risks posed, the breaches required the resignation of Grant Thornton as auditors of both Nichols and the University but as set out in the particulars, they did not in fact so resign but signed off on all of the audits with unqualified opinions.
‘The firm obtained audit fees in respect of the audits totalling approximately £560,000 in circumstances where it has admitted it should not have undertaken the relevant audit engagements and that doing so constituted misconduct.’
The regulator said the case also revealed widespread and serious inadequacies in the control environment in Grant Thornton’s Manchester office over the period as well as firm-wide deficiencies in policies and procedures relating to retiring partners.
The settlement papers noted that Grant Thornton has introduced changes and improvements to its procedures and policies relating to retiring partners since the misconduct occurred, effectively preventing consultancy agreements being entered into or continued with former partners who join audit clients.
Healey admitted that his conduct was in certain respects reckless, that it fell significantly short of the standards reasonably to be expected of a member and that he failed to act in accordance with, inter alia, the ICAEW’s fundamental principle of objectivity.
Grant Thornton, Mr Engel, Mr Barnes and Ms Kearns have admitted that their conduct fell significantly short of the standards reasonably to be expected and that they failed to act in accordance with the fundamental principle of competence.
A spokesperson for Grant Thornton UK LLP said: 'Grant Thornton has reached a settlement agreement with our regulators on this matter, which relates to audits dating up to eight years ago. Whilst the focus of the investigation was not on our technical competence in carrying out either of these audit assignments, the matter of ethical conduct and independence is equally of critical importance in ensuring the quality of our work and it is regrettable that we fell short of the standards expected of us on this occasion.
'As we have since made significant investments in our people and processes and remain committed to continuous improvement in this regard, we are confident that such a situation should not arise in the future.'
Report by Pat Sweet