Nine years after India's then tech major Satyam brought shame to the country, and left the entire global corporate community shocked by manipulating accounts to the tune of over Rs 9,000 crore, the memory of the India's biggest corporate scandal were refreshed on Wednesday after the market regulator Sebi (Securities and Exchange Board of India) barred the network entities of global auditing firm guilty Price Waterhouse from issuing auditing certificates for the next two years, finding it guilty of colluding with Satyam. In addition to ordering the disgorgement of over Rs 13 crore from Price Waterhouse and two of its former partners, the capital regulator assured the present order would not affect the firm's audit works taken up during 2017-18 fiscal year.
This is also one of the most stringent orders passed by any regulator against a Big Four auditor. Pertinent that Price Waterhouse had previously tried twice to settle the case through the consent mechanism. "We are disappointed with the findings of the Sebi investigations and the adjudication order... we are confident of getting a stay before this order becomes effective," PwC said in a statement.
In a 108-page order, Sebi has imposed a two-year ban on entities/ firms practicing as chartered accountants in India under the brand and banner of PwC from directly or indirectly issuing any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with the regulator.
Sebi noted that the order would not impact audit assignments relating to the fiscal year 2017-18 undertaken by the firms forming part of the PwC network. Besides, Price Waterhouse Bangalore and its two erstwhile partners-S. Gopalakrishnan and Srinivas Talluri-have been directed to jointly and severally disgorge the wrongful gains of "Rs13,09,01,664 with interest calculated at the rate of 12 per cent per annum from January 7, 2009 till the date of payment". They have to pay the amount within 45 days.
Further, Gopalakrishnan and Talluri have been restrained from directly or indirectly issuing any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with Sebi for three years.
After consent pleas were rejected, PwC had approached the Supreme Court challenging Sebi's jurisdiction over auditors. The apex court had asked the regulator to expeditiously pass the order in the matter after giving due opportunity, including access to documents, to the parties concerned.
Sebi said the objective of insulating the securities market from such fraudulent accounting practices perpetrated by an international firm of repute will be ineffective if the directions do not bring within its sweep the brand name PwC. The network structure of operations adopted by the international accounting firm should not be used as a shield to avoid legal implications arising out of the certifications issued under the brand name of the network, the order said.
"A common investor's reliance on the audit certifications of Satyam Computer 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. In this context, the long period during which the falsification of account books took place, without the same drawing the attention of PWCIL or other PW entities in India, points to a systemic problem in the audit processes carried out by the PW entities," Sebi said.
"As we have said since 2009, there has been no intentional wrong doing by PW firms in the unprecedented management perpetrated fraud at Satyam, nor have we seen any material evidence to the contrary. We believe that the order is also not in line with the directions of the Bombay High Court order of 2011 and so we are confident of getting a stay before this order becomes effective," PwC said in the statement.
It also noted that the order relates to a fraud that took place nearly a decade ago in which it played no part and had no knowledge of. Further, the statement said that Price Waterhouse Network firms in India has learnt the lessons of Satyam and invested heavily over the last nine years in building a robust and high quality audit practice.
With PTI inputs