The US accounting regulator has banned the two former chief executives of Deloitte’s Turkey practice for failing to prevent individuals at the firm from altering documents ahead of an inspection by the watchdog.
The Public Company Accounting Oversight Board said the partners, Hüseyin Gürer and Gökhan Alpman, had been “aware of an effort” within Deloitte Turkey to alter documents improperly ahead of a 2014 inspection by the regulator and “did not try to stop it”.
The watchdog fined Deloitte Turkey $750,000 over the incident in December. It said on Thursday that a third senior partner, Ömer Tanriöver, Deloitte Turkey’s former risk and reputation leader, had also been barred for failing to co-operate with its investigation.
“Audit firms and their personnel have a fundamental duty to act with integrity,” said William Duhnke, the regulator’s chairman. “That integrity begins with their senior leaders and the tone they set for the audit practices they oversee. When firm leadership fails in its responsibilities, the [PCAOB] will take appropriate action to hold that leadership accountable.”
The regulator said Mr Tanriöver’s ban was permanent as he had “refused to provide information in response to demands from PCAOB investigators”. Mr Gürer — who was additionally fined $25,000 — and Mr Alpman can apply to have their bars lifted after two and three years, respectively.
However, accounting experts questioned whether the regulator’s response had gone far enough given the seriousness of the wrongdoing exposed at the highest level of one of Deloitte’s international practices.
Prem Sikka, professor of accounting at the University of Sheffield, said: “The big firms and their partners show little respect for rules, ethics or regulators. They play cat-and-mouse games to enrich themselves and they seem to be quite willing to bend the rules for private gains. The puny fine of $25,000 will hardly worry anyone.
“This is not the first time that the PCAOB has taken action against Deloitte or its affiliates and it is appropriate to ask why the firm’s internal controls and ethics at the highest level are so poor. Deloitte is a global firm and claims to have identical practices and standards all over the world. What have its partners been doing in other countries?”
Deloitte said its Turkish practice “self-reported this matter to the PCAOB, fully co-operated with the PCAOB’s investigation, and is pleased that it is now concluded”.
The firm added that “the conduct of these three individuals was wholly incompatible with our culture, and they are no longer with the firm. We remain focused on adherence to the highest standards of professionalism in the work we do for our clients, and ensuring full confidence in the quality of our audits.”
The Deloitte decision follows a high-profile controversy involving “big four” accounting firm KPMG and the PCAOB. In January six accountants, including three former KPMG partners, were charged with fraud after the audit firm improperly received advance notice of inspections by the US regulator.
The Securities and Exchange Commission, the US finance watchdog, said two former PCAOB employees passed on information about inspections when they took up jobs at KPMG. A third PCAOB employee allegedly passed data to his former colleague in the hope of getting a job at the firm.
Karthik Ramanna, professor of business and public policy at Oxford’s Blavatnik School of Government, said the investigations at both KPMG and Deloitte were troubling.
“Sadly, this is not the first instance even this year of partners at a ‘big four’ accounting firm trying to manipulate their inspection outcomes,” he said. “The case exemplifies the deep ethical rot in auditing today.”
Erik Gordon, a professor at the University of Michigan’s business school, added: “The fact that the wrongdoing [at Deloitte Turkey] was intentional, not negligent, and at the top of the firm, means clients and regulators may question whether the firm’s culture will continue to produce serious, deliberate wrongdoing.”