SEC Charges Two Grant Thornton Firms With Violating Auditor Independence Rules

The Securities and Exchange Commission today charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations that occurred when two Grant Thornton Mauritius partners served on the boards of Mauritius-based subsidiaries of companies that were Grant Thornton audit clients and performed non-audit services prohibited under the SEC’s auditor independence rules.

According to the SEC’s orders instituting settled administrative proceedings, 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.  According to the SEC’s orders, 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’s orders also finds that GT India and GT Audit failed to follow Grant Thornton International’s compliance control procedures.  According to the SEC’s orders, 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, while GT India failed to obtain the confirmation letter.  According to the orders, the Grant Thornton firms failed to discover the independence violations until several months or years following the violations.  The orders found GT Audit’s violations occurred with audits of four consecutive fiscal years, from 2008 through 2011, while 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,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.   “The two Grant Thornton firms undermined this process by failing to ensure that its audits were free from prohibited non-audit services.”

The orders censure the audit firms for violating the auditor independence standards and sanctioned the audit firms for causing the issuers to violate the requirement to file annual reports with the Commission that include financial statements audited by independent public accountants.  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. 

Without admitting or denying the findings, each respondent agreed to cease and desist from future violations.  GT India agreed to pay disgorgement of audit fees in the amount of $128,905, plus prejudgment interest of $8,977, and a penalty of $50,000.  GT Audit agreed to pay disgorgement of $88,683, plus prejudgment interest of $13,520, and a penalty of $75,000.

The SEC’s investigation was conducted by Cory C. Kirchert, Nancy E. McGinley, and Kam Lee and was supervised by Anita B. Bandy.  The SEC appreciates the assistance of the Public Company Accounting Oversight Board.