In: Accounting
AUDIT CASE: In the SEC case against Grant Thorton over the Audit of ALC and Broadwind, what were the "red flags" that the auditors should have identified? Please explain!
In the SEC case against Grant Thorton over the Audit of ALC and Broadwind wrongdoings was found that Grant Thornton LLP and two of its partners ignored red flags and fraudlent risks while conducting audits of ALC and alternative energy company Broadwind Energy, both publicly traded companies in the US.
The firm and both partners were aware of repeated red flags surrounding ALC’s claim for a lease agreement with the lessor to meet lease covenants that it should treat ALC employees and other non-residents as occupants of its senior housing facilities. However Grant Thorton failed to determine the validity of such an agreement to compute the non-residents. By not taking the appropriate action, it violated professional auditing standards and other violations. It failed to determine that an agreement with the lessor existed or that ALC employees whom ALC claimed to be occupants of the facilities were actually staying there. Grant Thornton admitted wrongdoing; and penalty amount of a $3 million and forfeited about $1.5 million in audit fees and interest