The Public Company Accounting Oversight Board (PCAOB) has revealed that Deloitte’s Turkish firm, DRT Bagimsiz Denetim ve Serbest Muhasebeci Mali Musavirlik AS, agreed to a fine of $750,000 (£0.56m) over charges that it planned to improperly alter audit documents ahead of an inspection by the US audit watchdog and then failed to cooperate with the inspectors.
The settlement reached with the firm also saw two audit partners – one of whom was the firm’s national professional practice director – censured and banned. Both have now left the firm.
The PCAOB said that the fine would have been significantly larger and it would have imposed more severe sanctions given the severity of the charges against Deloitte Turkey and the two partners, Berkman Özata and Şule Firuzment, but all three had provided “extraordinary cooperation” during the later investigation.
“The decision of the firm to self-report and the decisions of the partners to assist in our investigation were wise and saved them from much more severe consequences,” said PCAOB chairman James Doty.
When the firm heard that the PCAOB was coming to inspect some of its audit work for the first time in 2014, several of its senior partners hatched a plot to provide the three teams that had carried out the audit work with the opportunity to improperly alter their audit documentation.
The group of partners planned to download archived documentation on to laptops that were not connected to the firm’s network which the teams would then be able to access.
As a result, one audit partner on one engagement was able to change the date and time settings on the laptop as well as altering numerous documents. These were then given to the PCAOB inspectors who were not told of the alterations.
Özata at the time was one month into a new role as the firm’s risk and reputation leader, having spent six years as national professional practice director. He participated in the discussion about the plan and provided one of the laptops to the engagement partner for one of the three audits that had been selected for inspection.
He also participated in a test to ensure that any improper alterations could not be detected and facilitated the transfer of the file containing the improperly altered work papers to the firm’s IT department so that it could be replaced on the Deloitte Turkey network and made available to the PCAOB inspectors.
For his part in the plan, he was censured and banned for two years. In August 2016, he was placed on administrative leave and in January this year he turned down the offer of a non-audit related position within the firm and left.
Firuzment was the engagement partner who made the improper alterations. She did so after a senior partner told her that deficiencies in the engagement work papers would lead the PCAOB to issue negative comments that could affect her career and lead to monetary sanctions and reputational damage to the firm.
Once she had received the laptop, she altered numerous memoranda relating to various topics including the accounting for a particular acquisition, goodwill impairment, the involvement of information technology specialists in the audit work and discussion of certain litigation.
She then denied that any changes had been made to the documentation when she signed the completed work sheets in the engagement profile.
Firuzment was censured, banned for a year and had restrictions imposed on any further work on audits she may carry out thereafter, including serving as an engagement partner and working as an engagement quality reviewer.
Under the settlement, none of the respondents admitted or denied the PCAOB’s findings.
Doty added that the case represented “another troubling instance of a firm and its senior personnel trying to thwart PCAOB oversight through deception”.
Earlier this year the PCAOB fined and banned Michael Morrell, the former chairman of Deloitte’s governing body in Brazil, and Juarez Lopes de Araújo, Deloitte Brazil’s former CEO and managing partner.
The pair were found to have contributed to the firm’s failure to cooperate with a PCAOB investigation. This resulted in the board taking out an enforcement order against Deloitte Brazil which revealed that the firm and several individuals had attempted to cover up audit violations – including improper alteration of documents and provision of false testimony to investigators.
In December 2016 the firm was fined $8m in a separate settlement with the PCAOB over the scandal.