Sanctions against Grant Thornton
10 December 2019
The Financial Reporting Council (FRC) today announces sanctions against Grant Thornton UK LLP (Grant Thornton) and one of its Audit Engagement Partners in relation to the statutory audit of the 2016 financial statements of a publicly listed company (Company).
The sanctions are:
- A fine of £650,000 for Grant Thornton (discounted for admissions and early disposal to £422,500),
- A fine of £20,000 for the Audit Engagement Partner (discounted for admissions and early disposal to £13,000); and
- A declaration that the 2016 Audit report signed on behalf of Grant Thornton did not satisfy certain Relevant Requirements (summarised below).
Grant Thornton and the Audit Engagement Partner will also pay all of Executive Counsel’s costs of the investigation.
The admitted breaches of Relevant Requirements relate to the audit work carried out on the Company’s principal assets, and an area identified as a significant risk. The work done on the sampling of those assets was inadequate and failed to select an audit sample that was sufficient to reduce the sampling risk to an acceptably low level. The audit team also placed undue reliance on the Company’s externally appointed experts in the valuation of the assets and did not appropriately consider the use of an auditor’s expert. The breaches by the audit team led to a failure to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions about the valuation of the assets. There were also failures to exercise sufficient professional scepticism and to prepare adequate audit documentation. However, none of the breaches of Relevant Requirements were either intentional, dishonest, deliberate or reckless.
Notwithstanding the breaches of Relevant Requirements, the Final Decision Notice issued on 5 November 2019 does not question the truth or fairness of the Company’s 2016 financial statements, which have not been subject to any restatement. Executive Counsel notes that the Audit Engagement Partner had a hitherto unblemished disciplinary record. Executive Counsel further acknowledges the co-operation provided by Grant Thornton and the Audit Engagement Partner during the course of the investigation. Grant Thornton has also taken remedial action including the provision of appropriate training on the use of experts and the challenge of management estimates to all audit staff to prevent reoccurrence of breaches.
The FRC’s Final Decision Notice was issued two years after the opening of the investigation. The FRC Executive has decided not to publish the Final Decision Notice in accordance with the FRC Publications Policy
Notes to Editors:
- 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.
- Past FRC Enforcement Outcomes can be found here.
- To meet its responsibility as the competent authority in respect of audit enforcement, the FRC operates the Audit Enforcement Procedure. This procedure applies to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities (PIEs) and any other cases retained by the FRC including AIM companies with a market capitalisation in excess of €200m.
In brief, the stages of the Audit Enforcement Procedure are:
- Initial case examination and decision to investigate
- Decision by Executive Counsel as to whether to issue a Decision Notice (a notice with the findings and recommended sanction);
- Referral to Enforcement Committee and decision by the Enforcement Committee whether to issue a Decision Notice; and
- Referral to a Tribunal
- In order for a matter to be referred for investigation by the FRC’s Executive Counsel under the Audit Enforcement Procedure, the FRC’s Conduct Committee is required to decide whether there is good reason to investigate an Allegation in relation to a Statutory Auditor and/or a Statutory Audit Firm.
Investigations are usually conducted by Executive Counsel and the Enforcement division. The FRC’s Conduct Committee may direct that the investigation is delegated to a Recognised Supervisory Body (RSB) which will provide an investigation report to the Executive Counsel so that (s)he may decide whether to issue a Decision Notice.
- Paragraphs 15, 16 and 18 of the FRC Publication Policy set out provisions on the contents of Mandatory Announcements and the circumstances in which the identity of a person sanctioned is required to be withheld.