Deloitte Faces Credibility Concerns Amid Global Accounting Lapses

Deloitte Touche Tohmatsu Ltd. recently failed to detect a significant fraud at Nigeria's Tingo Group Inc.

In June 2023, the group was accused of fabricating its financials by short-seller Hindenburg Research. Tingo's books, audited by Deloitte, showed a cash balance of $462 million. However, an investigation by the Securities and Exchange Commission revealed the group only had $50.

This has brought the accounting firm under scrutiny and put spotlight on a larger pattern of accounting controversies and lapses globally. Here is a look at the legal challenges the 'Big 4' constituent faced across the world.

In December 2023, the Securities and Exchange Commission charged Mmobuosi Odogwu Banye and three affiliated U.S.-based entities, including Tingo Group, with alleged scheme to inflate financial performance metrics and defraud investors.

The SEC sought emergency relief to prevent the dissemination of false information and protect assets. The complaint alleges that since 2019, Mmobuosi fabricated financial statements, making false representations about business operations and financial success.

Apart from this, in 2018, Deloitte & Touche LLP agreed to pay $149.5 million to settle allegations under the False Claims Act.

The Justice Department claimed that, as the independent auditor for Taylor, Bean & Whitaker Mortgage Corp., Deloitte's audits knowingly deviated from standards, failing to detect TBW's fraudulent conduct involving fictitious or double-pledged mortgage loans.

TBW's financial statements, audited by Deloitte for fiscal years 2002-2008, did not accurately reflect its severe financial distress.

The multinational professional services firm faced consequences in Malaysia due to its involvement in the 1Malaysia Development Berhad scandal, according to a Forbes report.

The scandal is a high-profile corruption, bribery, and money laundering conspiracy involving the Malaysian sovereign wealth fund. The fund was systematically embezzled, and the assets were diverted globally by those orchestrating the scheme.

In 2021, Deloitte settled with the country, agreeing to pay $80 million as part of the resolution process.

In 2022, the UK’s Financial Reporting Council imposed sanctions on Deloitte LLP and Simon Manning for breaches related to the audit of SIG Plc's financial statements for 2015 and 2016.

The firm received a financial sanction of £1.25 million, a severe reprimand, and an order to take specified action. Manning was fined £50,000 and also received a Severe Reprimand.

The breaches involved insufficient audit evidence for supplier rebates and cash transactions, with a lack of professional skepticism in investigating potential overstatements. Deloitte and Manning admitted the breaches, resulting in a discounted penalty.

In October 2023, CPA Ontario, the regulatory body overseeing accountants, resolved a disciplinary matter with Deloitte, which admitted to violating CPA Ontario Code of Professional Conduct rules.

Deloitte paid $1.59 million in fines and costs, for auditors in Ontario manually backdating over 930 audit working papers between November 2016 and May 2018.

The firm acknowledged lacking policies to ensure compliance with professional standards, failing to address audit quality issues promptly, and inadequately considering ethical risks during its investigation. The violation also included a failure to meet Canadian Standards on Quality Control 1 requirements.

In March 2023, China suspended Deloitte Touche Tohmatsu Ltd.'s Beijing office for three months and imposed a substantial fine of 212 million yuan ($30.8 million) due to serious audit deficiencies in its work with China Huarong Asset Management Co.

The Ministry of Finance in China found that Deloitte neglected to properly assess Huarong's underlying assets, overlooked compliance approvals on significant investments, and lacked skepticism in its audit work from 2014 to 2019.

Huarong's internal failures and distorted accounting, which Deloitte failed to detect, led to this unprecedented fine, which was 25 times higher than combined fines imposed on accounting firms in the previous year.

The Federal Court of Australia ruled against the legal professional privilege claim for Deloitte's forensic investigation report on the cyberattack on Singtel Optus, in November 2023.

The court found that the Deloitte Report, initiated after the well-publicised cyberattack, had multiple purposes, including formulating Singtel Optus' response and preventing a recurrence.

Despite Optus' contention that the engagement was recommended for legal considerations, the court noted that communications and board resolutions lacked clear support for the dominant purpose of obtaining legal advice.

The rejection of legal professional privilege emphasised the report's broader scope of objectives beyond legal consultation.

In May 2023, the Supreme Court of India ruled against audit firms Deloitte Haskins and Sells LLP and BSR and Associates LLP, stating that an enquiry against an auditor should not be terminated simply because the auditor has resigned.

The decision came in response to a criminal complaint by the Serious Fraud Investigation Office against the former auditors of Infrastructure Leasing and Financial Services Ltd.

The Supreme Court overturned the Bombay High Court's ruling, which claimed that no enquiry could be maintained against auditors upon their resignation.

The apex court emphasised that an enquiry should continue to its logical end, and even if an auditor resigns during an enquiry, a final order on their conduct must be determined regarding any fraudulent actions.