Sanctions against Grant Thornton – audits of Nichols Plc and the University of Salford
29 August 2018
The Financial Reporting Council (“the FRC”) has fined and reprimanded Grant Thornton UK LLP (“Grant Thornton”) and three senior statutory auditors (Mr Kevin Engel, Mr David Barnes and Ms Joanne Kearns) following their admissions of Misconduct in relation to the audits of the financial statements of Nichols Plc (“Nichols”) and the University of Salford (“the University”) for the years ending 2010, 2011, 2012 and 2013. In addition, it has fined and excluded Mr Eric Healey (a former senior partner in Grant Thornton) from the ICAEW for a period of five years.
The following terms of settlement have been agreed by the FRC’s Executive Counsel and approved by a legal member of the independent Tribunal Panel:
- Grant Thornton to receive a Severe Reprimand and a fine of £4,000,000 (discounted for settlement to £3,000,000). In addition, Grant Thornton will pay £165,000 in respect of the entirety of the Executive Counsel’s costs.
- Mr Healey to be excluded from the ICAEW for a recommended period of five years and to receive a fine of £200,000 (discounted for settlement to £150,000).
- Mr Engel to receive a Severe Reprimand and a fine of £100,000 (discounted for settlement to £75,000).
- Mr Barnes to receive a Reprimand and a fine of £70,000 (discounted for settlement to £52,500).
- Ms Kearns to receive a Reprimand and a fine of £60,000 (discounted for settlement to £45,000).
The Misconduct relates to a former senior partner in Grant Thornton (Mr Healey) joining the Audit Committees of Nichols and the University, 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. 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. 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.
Mr Healey has 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 of a Member Firm and Members respectively and that they failed to act in accordance with the Fundamental Principle of Competence.
Notes to editors:
1. The FRC’s mission is to promote transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
2. The FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme are:
- Decision to investigate
- Decision whether to bring enforcement proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
- Tribunal hearing
- Determination and imposition of sanction and/or costs orders
Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.
The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.
Investigations are conducted by Executive Counsel and the Enforcement division.
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