Grant Thornton and partners fined over Manchester Building Society audit

GRANT THORNTON has been forced to pay over £1m in fines and costs as part of a settlement with the profession’s watchdog over failings in its audit of Manchester Building Society.

In a deal struck with the FRC, the firm was slapped with a severe reprimand, fined £975,000 and told to pay £85,000 in costs, while audit engagement partners Alastair Nuttall and Marcus Swales were fined £39,000 and £45,500, respectively. Nuttal received a reprimand and Swales was severely reprimanded.

In a separate settlement, the building society’s former finance director Christopher Gee was fined £25,000, ordered to pay £5,000 costs and was hit with a reprimand.

All parties admitted their conduct had fallen “significantly short” of the standards reasonably to be expected of a member of the ICAEW, following an FRC investigation into the fair value hedge accounting and auditing of interest rate swaps and related mortgages at Manchester Building Society.

In August 2013, the FRC said it would investigate Grant Thornton’s auditing of the arrangements, which gave rise to a prior period adjustment in the financial statements for the year ended 31 December 2012.

Manchester Building Society later filed a £49m lawsuit against the firm over claims it was negligent when auditing its accounts between 2006 and 2013. Grant Thornton resigned as auditors in 2013.

Paul George, FRC executive director of conduct said of the settlements: “This outcome sends a clear message to accountants and accountancy firms involved in the audit of hedge accounting of their responsibility to carry out professional work diligently and in accordance with the applicable technical standards.

“These results demonstrate our commitment to ensure the standards of the profession are upheld so that it can justifiably secure public confidence.”

Paul Etherington, quality and professional affairs leader, Grant Thornton UK, commented: “Grant Thornton UK LLP regrets the errors in Manchester Building Society’s financial statements that arose from hedge accounting. Grant Thornton’s audit team identified the issue and brought it to the attention of the society and the Prudential Regulation Authority. We have cooperated fully throughout the Financial Reporting Council’s investigation and we are pleased that we have reached agreement to resolve it. As a firm we remain supportive of the individuals involved.

“This agreement does not affect our defence of a civil claim that the society has brought regarding its decisions to enter into long-dated swaps prior to the financial crisis in 2008.”