The Financial Reporting Council (FRC) said the fines relate to accounts for Sports Direct International, now Frasers Group, in 2016 and 2018.
It also sanctioned Philip Westerman, the partner in charge of the audit at the time, with an almost £80,000 fine.
The punishment is the latest sanction for Grant Thornton, after it was fined £2.3 million last year over failings in its accounting for Patisserie Valerie and fined almost £2 million in 2020 over the audit of drinks group Conviviality.
Grant Thornton is now expected to report back to the regulator on its work improve its auditing standards.
The finding relates to failures by the auditor and Mr Westerman to establish that “delivery company A”, a group involved in some of Sports Direct’s transactions, was a related party in its 2016 accounts.
The regulator said Grant Thornton failed to use “professional scepticism” to recognise that the delivery company was a related party.
The FRC said it had planned to fine Grant Thornton £2.05 million for the failings, but reduced this to around £1.3 million after early admission to errors by the company.
A spokesman for Grant Thornton said: “We are pleased to now conclude these long-running matters, which date back to 2016.
“Having invested significantly in the quality of our audits since this time, we have seen a marked improvement in our results and are confident that the issues identified by the FRC’s investigations, whilst limited to discrete areas of the audits, are not reflective of the work we produce today.
“Today’s announcement marks the final outcome of legacy FRC investigations, all of which have been in the public domain for some time.”