The Big 4 firms in the U.K. have been the target of repeated tongue-lashings from the Financial Reporting Council lately because, let’s face it, audits have been pretty damn bad. Things have gotten so desperate that EY is bringing in behavioral psychologists to improve audit quality.
But the U.K. accounting watchdog’s most recent tongue-lashing wasn’t directed toward PwC, KPMG, Deloitte, or EY. Nope. This time, it’s your turn, Grant Thornton.
The Financial Times reported today:
Grant Thornton has been fined £3m for “misconduct” relating to its audits of Vimto-maker Nichols and the University of Salford, after a partner joined the companies’ audit committees despite being employed to provide consultancy work, creating “serious self-interest threats”.
Both Nichols and the university were Grant Thornton’s audit clients at the time, and Eric Healey, then a senior partner at Grant Thornton, also was “engaged by the firm to provide services under a consultancy agreement,” the Financial Times reported.
This created “serious familiarity and self-interest threats” and led to “the loss of independence” over eight audits, conducted between 2010 and 2013, the watchdog said.
The FRC also said that the case “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.”
Healey was fined £200,000 by the FRC, which was reduced to £150,000 because he agreed to settle, and will be excluded from the Institute of Chartered Accountants in England and Wales for a recommended period of five years.
Grant Thornton was initially fined £4 million, but it was lowered to £3 million after the firm agreed to settle. In addition, the FRC is making Grant Thornton fork over an additional £165,000 to cover all of the investigation costs.
But that’s not all:
Three senior statutory auditors at Grant Thornton, Kevin Engel, David Barnes and Joanne Kearns were also reprimanded and fined between £45,000 and £75,000 each following settlement discounts. All four admitted their conduct “fell significantly short” of expected standards, the FRC said.
In a statement to the Financial Times, Grant Thornton called the whole misconduct thing “regrettable.”
“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,” Grant Thornton UK said on Wednesday.
“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,” it added.
The Big 4 should send Grant Thornton a fruit basket with a note that says, “Thanks for taking the heat off us, bro.”