The Securities and Exchange Commission (SEC) has charged Grant Thornton India LLP and Australia-based Grant Thornton Audit Pty Limited with auditor independence violations. The auditor independence rules are supposed to ensure that outside auditors remain independent from their clients both in fact and in appearance throughout the audit and professional engagement period.
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, without admitting or denying the findings.
The violations occurred, according to the SEC, 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.
The two Grant Thornton International LLP member firms allegedly 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. 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.
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 SEC 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 SEC’s Rules of Practice.
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