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October 2, 2023

As a Result of Breaking SEC Rules, Deloitte Japan Is $2 Million Lighter In the Wallet

There was some bad decision-making going on at Deloitte Touche Tohmatsu in Japan. Dozens of its employees had bank accounts at the subsidiary of a client for which Deloitte Japan issued audit reports, which is a no-no because Securities and Exchange Commission rules don’t allow accountants to have bank accounts with audit clients that have balances exceeding insured limits. The SEC found out, and you can guess what happened next.

The Securities and Exchange Commission today announced that Deloitte Touche Tohmatsu LLC (Deloitte Japan) will pay $2 million to settle [auditor independence] charges.

The Feb. 13 SEC press release also states that Futomichi Amano, Deloitte Japan’s former CEO, and Yuji Itagaki, the firm’s former director of independence, who were among the employees with bank accounts at the unnamed audit client’s subsidiary and who you would think would have a somewhat firm grasp of the SEC’s audit independence rules, settled related charges.

Here’s the SEC’s explanation of the rule-breaking stupidity:

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 SEC’s order, Deloitte Japan knew [as early as March 2014] but failed to adequately disclose that Amano maintained bank account balances with the audit client’s subsidiary bank [from September through November 2013] that compromised his independence. 

Let me cut in with this: Deloitte Japan did voluntarily disclose Amano’s transgressions to the SEC but not until July 2015. The firm then hired a Japanese law firm to conduct an independent internal investigation into Amano’s violations and the causes of those violations.

OK, back to the SEC press release:

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.

Me again. These 88 other employees had bank accounts with the subsidiary at various times between 2012 and 2016.

Back to the SEC:

The SEC’s order also found 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 SEC’s order 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.

The fallout:

  • Deloitte Japan agreed to pay $2 million in monetary sanctions and be censured.
  • Amano and Itagaki were suspended two years and one year, respectively, from appearing and practicing before the SEC as accountants. They can apply for reinstatement after their suspensions are over.

This is the second fine a Deloitte firm has had to pay in recent weeks. On Jan. 29, Malaysia’s Securities Commission imposed a 2.2 million ringgit ($536,000) fine on Deloitte for breaches related to a bond issuance by 1MDB, becoming the first auditor of the scandal-plagued state fund to face penalties, according to Bloomberg.

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