Deloitte Japan accept $2 million fine over audit independence breaches

Deloitte Japan has settled for $2 million with the US Securities and Exchange Commission over breaches of auditing independence.

Fresh from the firm’s $540,000 fine in Malaysia in the wake of the IMBD scandal, Deloitte’s Japanese arm has been stung to the tune of $2 million in a settlement agreement with the United States Securities and Exchange Commission (SEC) over charges brought against it for violating auditing independence regulations. According to the charges, Deloitte failed to disclose personal bank accounts held by employees with audit client Mitsubishi UFJ Financial Group.

Among those accused of maintaining undisclosed accounts exceeding depositary insurance limits (of approximately $100,000) were former CEO Futomichi Amano and former reputation and risk leader Yuji Itagaki, who also served as the firm’s director of independence – while altogether some 88 other Deloitte partners and employees were alleged to have had financial interests with a banking subsidiary of Mitsubishi UFJ Financial.

While Amano and Itagaki (who have both since left the firm) settled separate related charges, and agreed to a two and one year suspension from appearing and practicing as accountants before the SEC, Deloitte Japan was alleged to have known but failed to disclose Amano’s bank balances, with the firm also censured for inadequate quality controls – such as having an under-resourced and poorly supervised office of independence.

“Auditor independence is critical to the integrity of the financial reporting process,” said SEC Enforcement Division Associate Director Melissa Hodgman, who heads the International Division. “The auditor independence rules addressing bank account balances that exceed deposit insurance limits are clear, and audit firms must devote adequate resources to ensuring the independence of the firm and its personnel.”

Deloitte hasn’t admitted or denied the SEC order in agreeing to the sanctions, yet the US regulator noted the firm’s cooperation in the investigation and remedial steps taken since the bringing of the order. According to the SEC for example, Deloitte Japan’s Office of Independence had less than eight full-time equivalent staff at the time (2014) of the breaches, compared with over 40 today.

“We are pleased to have resolved this matter,” Deloitte Japan said through a spokesperson. “Since this issue came to light, Deloitte Japan has taken definitive action to enhance the firm’s independence processes and controls. We remain committed to delivering the highest quality services to our clients in accordance with professional standards and regulatory requirements.”