US SEC charges Grant Thornton India for auditor independence violation
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US markets regulator Securities and Exchange Commission (SEC) on Thursday charged Grant Thornton India LLP and Australia-based group firm Grant Thornton Audit Pty Ltd with auditor independence violations that occurred when two partners served on the boards of Mauritius-based subsidiaries of their clients.
These partners served on the boards of the companies that were Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules, the regulator said in a statement.
Without admitting or denying the findings, both entities have agreed to cease and desist from future violations. However, the names of the clients were not disclosed.
“GT India agreed to pay disgorgement of audit fees in the amount of $128,905, plus prejudgement interest of $8,977, and a penalty of $50,000.” “GT Audit agreed to pay disgorgement of $88,683, plus prejudgement interest of $13,520, and a penalty of $75,000,” SEC said.
The watchdog has censured the two audit firms for violating the auditor independence standards besides sanctioning them for causing the issuers to violate the requirement to file annual reports with the Commission.
“The orders also found that the audit firms engaged in improper professional conduct in violation of federal securities laws and the Commission’s Rules of Practice,” SEC noted. Andrew J Ceresney, director of the SEC’s division of enforcement, said the integrity of the financial reporting process relies on auditors to preserve and protect the independence of their audits. “The two Grant Thornton firms undermined this process by failing to ensure that its audits were free from prohibited non-audit services,” he added.
The SEC said the two Grant Thornton International LLP member firms represented in audit reports that they were independent of their respective audit clients when the audit clients paid fees to a consulting firm owned by two Grant Thornton Mauritius partners who served as board members for these audit clients.
“The objective of auditor independence rules is to ensure that outside auditors remain independent from their clients both in fact and in appearance throughout the audit and professional engagement period,” it added.
GT India and GT Audit violated the independence rules because 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 also found that GT India and GT Audit failed to follow Grant Thornton International’s compliance control procedures. GT Audit failed to obtain independence relationship checks and confirmation letters from member firms in countries where its audit clients have business operations, as required by Grant Thornton International. GT India failed to obtain the confirmation letter.
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