Deloitte's Brazil Affiliate Fined $8 Million
06 December 2016 - 3:00AM
Dow Jones News
The Brazil affiliate of accounting firm Deloitte Touche Tohmatsu
agreed Monday to pay $8 million to settle a U.S. regulator's
allegations it issued false audit reports and tried to cover it
up.
The fine for Deloitte Touche Tohmatsu Auditores Independentes,
Deloitte's Brazilian member firm, is the largest ever imposed by
the Public Company Accounting Oversight Board, the U.S.
audit-industry regulator. Twelve former Deloitte Brazil partners
and other personnel were sanctioned as well in the case, which was
announced Monday by the PCAOB.
In one instance, one of the Deloitte auditors told another that
"everything we discussed, never happened," according to the
PCAOB.
In settling, Deloitte Brazil admitted it violated quality
control standards and failed to cooperate with the PCAOB's
inspection and investigation. That is the first such admission by
an affiliate of a Big Four accounting firm.
The PCAOB insisted on the admissions because "it demonstrates
the seriousness, the egregiousness of what happened here," said
Claudius Modesti, the PCAOB's enforcement and investigations
director. The 12 employees settled without admitting or denying
wrongdoing.
Separately, Deloitte's Mexico affiliate agreed Monday to pay
$750,000 to settle PCAOB allegations it hadn't taken proper steps
in documenting its audits.
The two cases spotlight the challenges involved in supervising
companies and auditors in emerging-market countries that may not
have the same business norms and standards of financial reporting
as more-developed markets. The PCAOB, which oversees audit firms
outside the U.S. if they audit U.S.-traded companies, has cautioned
in the past that auditors in emerging markets should have a
"heightened awareness of risks."
Audit firms like Deloitte have "a key gatekeeper role" to
protect U.S. investors, and "we have a responsibility to hold
accountable those who don't play by the rules," said the PCAOB's
Mr. Modesti. If auditors want to do business in emerging markets,
they "have to take on the responsibilities too."
Deloitte Brazil, Deloitte Mexico and a spokeswoman for
Deloitte's global network couldn't immediately be reached for
comment.
The two affiliates are legally separate from Deloitte's U.S.
firm; Deloitte and other major accounting firms are structured as
international partnerships with free-standing member firms in each
country in which they do business.
According to the PCAOB, Deloitte Brazil's 2010 audit of
Brazilian airline Gol Linhas Aereas Inteligentes SA was deficient
in several ways—the auditor failed to obtain sufficient evidence
the airline was accurately accounting for its maintenance deposits,
for instance. But Deloitte Brazil gave the company a clean bill of
health nonetheless.
The firm later altered dozens of documents to conceal the audit
deficiencies when the PCAOB scrutinized the Gol Linhas audit as
part of a regular inspection of Deloitte Brazil's work, the board
said. Deloitte Brazil personnel also lied to the PCAOB after it
launched an investigation of the audit, the PCAOB said.
In a March 2014 conversation cited in the PCAOB's documents, a
Deloitte Brazil senior partner told a senior manager to remove
documents from his computer and his office to prevent them from
being given to the PCAOB as it was conducting its investigation.
The senior partner wasn't aware the senior manager was recording
the conversation, the PCAOB said.
"Any evidence that you have of this…keep it somewhere else, but
not in your machine, not in the office. OK?" the senior partner
said. Since the partner in charge of the airline's audit had agreed
to assume responsibility for the problems if they were discovered
to protect other members of the firm's leadership, "everything you
told me, everything we discussed, never happened," the senior
partner said.
Gol Linhas isn't charged with any wrongdoing. The company
couldn't immediately be reached for comment.
The 12 former Deloitte Brazil employees who the PCAOB sanctioned
include the firm's former audit practice leader and former national
professional practice director. Most of them have been suspended or
barred from working for firms that audit U.S. public companies.
In addition to the fine, Deloitte Brazil also agreed to other
sanctions including appointment of an independent monitor and a ban
on accepting certain new audit work until the monitor confirms the
firm has made progress in remedying its problems.
In the Mexico case, the PCAOB said, Galaz Yamasaki Ruiz Urquiza
S.C., Deloitte's Mexican firm, was repeatedly late in archiving its
documentation of audits, increasing the risk that audit work papers
might be improperly altered. Three former Deloitte Mexico auditors
improperly altered work papers on an audit of mining company
Southern Copper Co. and were also sanctioned, the PCAOB said. Both
the firm and the three former auditors settled without admitting or
denying wrongdoing.
Southern Copper isn't charged with any wrongdoing. The company
couldn't immediately be reached for comment.
Write to Michael Rapoport at Michael.Rapoport@wsj.com
(END) Dow Jones Newswires
December 05, 2016 10:45 ET (15:45 GMT)
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