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SEC charges two Grant Thornton firms with violating auditor independence rules

The Securities and Exchange Commission Thursday charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations.

Two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients. The partners performed non-audit services prohibited under the SEC’s auditor independence rules.

GT India and GT Audit were members of Grant Thornton International LLP. They represented in audit reports that they were independent of their respective audit clients. But the audit clients paid fees to a consulting firm owned by two Grant Thornton Mauritius partners who served as board members for the audit clients. 

The Grant Thornton Mauritius partners provided prohibited services for the audit clients, including controlling bank accounts and having authority to act on the audit client companies’ behalf, the SEC said.

GT India agreed to disgorge audit fees of $128,905 plus prejudgment interest of $8,977, and pay a penalty of $50,000.

GT Audit agreed to disgorge $88,683 plus prejudgment interest of $13,520, and pay a penalty of $75,000.

The firms resolved the enforcement action without admitting or denying the SEC’s findings. The SEC didn’t go to court but used internal administrative orders to bring the charges.

GT India and GT Audit failed to follow Grant Thornton International’s compliance control procedures, the SEC said. GT Audit failed to obtain independence relationship checks and confirmation letters from member firms in countries where its audit clients had business operations, as required by Grant Thornton International. GT India failed to obtain the confirmation letter. 

The two firms didn’t discover the independence violations until several months or years following the violations. 

The SEC said GT Audit’s violations occurred during four consecutive fiscal years, from 2008 through 2011. GT’s India’s violations occurred for the 2013 fiscal year.

“The integrity of the financial reporting process relies on auditors to preserve and protect the independence of their audits,” Andrew Ceresney, chief of the SEC’s enforcement division, he said.

“The two Grant Thornton firms undermined this process by failing to ensure that its audits were free from prohibited non-audit services,” he said.

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The SEC’s Securities Exchange Act of 1934 Release No. 76065, Accounting and Auditing Enforcement Release No. 3710, and Administrative Proceeding File No. 3-16879 (October 1, 2015) In the Matter of Grant Thornton India LLP is here (pdf).

The SEC’s Securities Exchange Act of 1934 Release No. 76066, Accounting and Auditing Enforcement Release No. 3711, and Administrative Proceeding File No. 3-16880 (October 1, 2015) In the Matter of Grant Thornton Audit PTY Limited is here (pdf).

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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