Grant Thornton has been hit with a £3m fine by the FRC for its audits of Nichols, a drinks maker, and the University of Salford.
The fine is just the latest entry in the ever expanding catalogue of audit gaffes and failures. It’ll do little to assuage swelling fears that the audit market is no longer fit for purpose.
This particular case relates to a former senior partner named Eric Healey. Healey retired from GT in 2009, but his services retained under a consultancy agreement. At the same time, Healey joined the Nichols and the University’s audit committees, both existing audit clients of Grant Thornton.
In its damning verdict, the FRC said the situation 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”.
The FRC fined Healey £200,000 – discounted to £150,000 on settlement – and excluded him from the profession for five years. Grant Thornton received a severe reprimand and a fine of £4m, which was discounted to £3m. It was also ordered to pay £165,000 to cover the FRC’s legal costs.
The watchdog also imposed penalties on three senior statutory auditors – Kevin Engel, David Barnes and Joanne Kearns – following their admissions of misconduct over the audits.
According to the FRC, the case “revealed widespread and serious inadequacies” in the control environment in Grant Thornton’s Manchester office and “firm-wide deficiencies in policies and procedures relating to retiring partners”.
In a statement, Grant Thornton expressed remorse and distanced itself from the scandal. “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.
“We have since made significant investments in our people and processes and [we] are confident that such a situation should not arise in the future.”
The verdict marks the end of a litigious summer for GT. The firm survived a scrape with the FRC about its disastrous audit of Globo, a Greek telecoms firm. But of course, it’s not just been GT’s auditing that’s fallen under the microscope. The entire audit profession is on the hook – in particular the Big Four.
A litany of scandals has seen nationalisation of the audit function become a serious prospect. The FRC’s chief exec has called for the breakup of the Big Four and the creation of audit only firms. While a recent op-ed in the Evening Standard opined that “We can restore the status of auditing by nationalising it”.