Sebi bars Price Waterhouse: What is the firm’s role in the Satyam scam?
The Sebi held that the firm was complicit with the main perpetrators of the accounting fraud and did not comply with auditing standards.business Updated: Jan 11, 2018 10:40 IST
The Securities and Exchange Board of India (Sebi) late on Wednesday banned Price Waterhouse (PW) network from auditing listed companies for two years, after finding it guilty in the nearly decade-old Rs 7,136 crore fraud case in Satyam Computer Services Ltd.
The market regulator held in its 180-page order that the firm was complicit with the main perpetrators of the accounting fraud and did not comply with auditing standards.
Strictures against PW
PW and the audit firms in its network (PwC India) cannot audit listed companies and intermediaries (such as brokers) for a period of two years, however, this will not impact audits undertaken for the financial year 2017-18.
Price Waterhouse, Bangalore and two of its erstwhile senior partners—S Gopalakrishnan and Srinivas Talluri—who had certified Satyam’s audit reports in 2000-2008, to forfeit Rs 13 crore in ill-gotten gains including interests.
The order has been passed under the Prevention of Fraudulent and Unfair Trade Practices (PFUTP) regulations and Section 11 of Sebi act which empowers it to pass directions in the interest of investors.
What did PW say?
“We are disappointed with the findings of the Sebi investigations and the adjudication order. The Sebi order relates to a fraud that took place nearly a decade ago in which we played no part and had no knowledge of,” the accounting firm’s spokesperson said in an emailed response.
“As we have said since 2009, there has been no intentional wrongdoing by PW firms in the unprecedented management perpetrated fraud at Satyam, nor have we seen any material evidence to the contrary,” the spokesperson said.
“We believe that the order is also not in line with the directions of the Hon’ble Bombay High Court order of 2010 and so we are confident of getting a stay before this order becomes effective,” the spokesperson added.
PW was referring to an August 2010 order of the high court where it had ruled that no directions can be issued against them if there is only some omission without proof of connivance and intent to fraud.
During the course of Sebi quasi-judicial proceedings, PW argued that ‘an auditor is not required to be a detective in the process of audit and it is sufficient to show that reasonable care and due diligence was administered by the auditor’.
What is the scam and role of PW?
The fraud surfaced in January 2009 when B Ramalinga Raju, the then chairperson of Satyam Computers, admitted in a letter to the company’s board and stock exchanges to have inflated revenue and profit over several years in an accounting fraud to the tune of Rs 7,136 crore, making it India’s biggest accounting scam.
The promoters allegedly inflated revenue, fabricated invoices, falsified accounts and income tax returns, and forged fixed deposit receipts to paint a rosy picture of the company’s financials.
Sebi was probing the audit firm’s role in the accounting fraud. PW was acting as the auditor of the company between 2000-2008. Main objectives were to prove fraud or connivance of the PW’s partners with the promoters of Satyam in fudging the company’s books.
Why the strictures
According to Sebi, PW showed a total disregard of stipulated auditing practice which indicated their complicity in the manipulation.
“A common investor’s reliance on the audit certifications of Satyam Computers at the relevant point of time was dependent on the fact that it was attested by one of the internationally reputed firms called PW. The public had no reason to believe that the audit reports were false and misleading,” Sebi’s whole time member G Mahalingam said.