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Grant Thornton fined £3m and former partner banned for audit failings

Wine bottles
Wine bottles

The accounting watchdog fined Grant Thornton £3m and banned one of its partners from signing off on company accounts after it breached ethical rules for three years and compromised its independence as auditor of collapsed Bargain Booze owner Conviviality.

The penalty is a fresh blow to Grant Thornton, which had hoped to position itself as the primary challenger to the Big Four but has been hit with a series of regulatory fines. It also announced 70 redundancies last month as the pandemic recession hit business.

The Financial Reporting Council (FRC) is forcing the Big Four - Deloitte, EY, KPMG and PwC - to ringfence their audit divisions from the rest of their operations in an effort to boost audit quality and help mid-sized firms such as Grant Thornton to compete.

Grant Thornton, the UK’s sixth-largest accountant, sent a senior manager on secondment to Conviviality, which the FRC said created such a threat to the auditor’s independence that it should not have signed off on the accounts.

In addition, Kevin Engel, the audit engagement partner, told the manager to transfer a four-and-a-half hour time entry she had recorded on the audit file to conceal her involvement in the audit.

City Intelligence newsletter (SUBSCRIBER) Article
City Intelligence newsletter (SUBSCRIBER) Article

The watchdog found that Mr Engel was aware of the threat to his firm’s independence when he made the order and banned him from signing off on audit opinions.

The FRC said Mr Engel gave exceptional co-operation to investigators but noted that he was previously fined and reprimanded for his role in the audits of drinks maker Nichols and the University of Salford over which Grant Thornton was fined £4m in 2018. That penalty was reduced to £3m for early settlement.

The firm’s £3m fine for the breaches in its work for Conviviality was reduced to £1.95m because it admitted the breaches. Grant Thornton must also pay £207,000 of the regulator’s costs.

Natasha Toy, the senior manager who moved the time entries, was issued a severe reprimand, a sanction that recognised her co-operation, contrition and unblemished disciplinary record. Both Mr Engel and Ms Toy have since left Grant Thornton.

As well as a loss of independence on the 2014 audit of Conviviality, the watchdog said there were “firm-wide failures to ensure compliance with ethical standards and requirements between 2014 and 2017”. The breaches threatened the firm’s integrity and objectivity, the FRC said.

City Intelligence newsletter (SUBSCRIBER) Article
City Intelligence newsletter (SUBSCRIBER) Article

The FRC said it “does not allege that Grant Thonton in fact lacked objectivity or that the accounts did not give a true and fair view of the company’s affairs.”

A spokesman for Grant Thornton said it was “disappointed with the outcome” but “pleased to have now concluded this historic matter”.

He added: “Whilst we accept there were previously shortcomings in our processes and procedures at the time, we are confident that such a situation should not arise again, owing to the significant improvements and investments we’ve made in the years since the period to which these findings relate.”

Grant Thornton was fined £650,000 in December for errors in an audit of an unnamed company. It is also being investigated for its audit of collapsed café chain Patisserie Valerie.