Grant Thornton (GT) and two audit partners have been fined and reprimanded by the Financial Reporting Council (FRC) over fair value hedge accounting of portfolios of mortgage assets under IAS 39, Financial Instruments: Recognition and Measurement, carried out for the Manchester Building Society, after the regulator found their conduct fell significantly short of the standards reasonably to be expected
GT has been fined £975,000, asked to pay £85,000 costs and given a severe reprimand.
Former audit engagement partner Alastair Nuttall, who has since left GT, has been fined £39,000 and receives a reprimand, while the other audit engagement partner Marcus Swales is fined £45,500 and receives a severe reprimand.
An FRC investigation under the Accountancy Scheme looked at the fair value hedge accounting and auditing of interest rate swaps and related mortgages at Manchester Building Society, which gave rise to a prior period adjustment in its financial statements for the year ended 31 December 2012.
Paul Etherington, quality & professional affairs leader, Grant Thornton UK LLP, said: ‘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.’
Grant Thornton confirmed that this agreement does not affect the firm’s 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.
Paul George, FRC executive director of conduct said: ‘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.’
The FRC settlement agreement with Grant Thornton is available here
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