Deloitte Under Growing Scrutiny: What’s Behind The Increased Penalties?

Over the past few years, Deloitte has found itself under increasing scrutiny across multiple countries, facing penalties and sanctions for lapses in auditing standards. From misrepresenting financial records to failure in maintaining professional scepticism, the global auditing giant has faced multiple regulatory challenges.

The recent fine imposed by India’s National Financial Reporting Authority on Deloitte Haskins & Sells LLP for mishandling the audit of Zee Entertainment is just the latest in a series of legal setbacks that raise important questions about the firm’s practices.

The case comes four years after NFRA took action against Deloitte's former chief executive Udayan Sen for his alleged role in connection to the audit of the crisis-hit IL&FS Financial Services Ltd. Sen was, in July 2020, slapped with a Rs 25-lakh penalty and a seven-year ban.

Deloitte’s issues are not limited to India. In April 2024, the Public Company Accounting Oversight Board fined Deloitte affiliates in Indonesia and the Philippines $1 million each for violations related to exam cheating and audit misconduct. The firm’s Chinese affiliate was hit with a $20 million fine in 2022 by the U.S. Securities and Exchange Commission for asking clients to perform their own audits, which is a clear breach of auditing standards. Similarly, the PCAOB also fined Deloitte’s Colombian arm $900,000 in 2023 for quality control failures and violations of independence standards.

These global cases reflect a concerning pattern for Deloitte, a firm that has long been considered one of the “Big Four” accounting firms, known for its large global reach and expertise in handling complex audits. The repeated regulatory fines and sanctions raise serious concerns over the consistency of Deloitte’s internal audit controls and its commitment to upholding professional standards.

One of the key issues that emerged from the NFRA’s recent investigation into Deloitte’s audit of Zee Entertainment was the firm’s failure to report misrepresentations involving unauthorised guarantees and misuse of funds. The auditors’ lack of scepticism and due diligence in examining management’s assertions led to the NFRA imposing a hefty fine on Deloitte and banning two senior partners from audit work for several years.

This growing wave of penalties across various jurisdictions is likely to impact Deloitte’s global reputation and its client base. As regulators tighten their grip, it is expected that the firm will face increasing pressure to overhaul its auditing practices to regain the trust of clients, regulators, and investors.

The growing scrutiny on Deloitte is not just a matter of financial penalties but a reflection of the broader issues facing the auditing industry, with regulators holding auditors accountable for their role in ensuring financial transparency and corporate governance.

The firm’s next steps will be crucial in determining whether it can restore its standing in the industry or whether this pattern of misconduct will continue to haunt its reputation.