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We went back to basics, says Deepak Kapoor, chairman of PwC India

Deepak Kapoor, chairman of PwC India, spoke to Suman Layak, taking all questions, including those relating to the aftermath of the Satyam scam.

Suman Layak        Last Updated: August 2, 2011  | 23:10 IST

Deepak Kapoor, chairman of PwC India
Deepak Kapoor, chairman of PwC India
Deepak Kapoor, chairman of PwC India, spoke to Suman Layak, taking all questions, including those relating to the aftermath of the Satyam scam.

On the settlements with US regulators: There are two parts in the issues with regulators. One is the US regulators - the SEC and PCAOB. The other part is the class action suits. It is good that we have them behind us. Surely we ended up paying some fines, but these are without prejudice, without admitting or denying the statements they are making. One good thing that has come out of that - the investigators who did the work did not find any evidence of any complicity of any of the people of PW India who were involved in the audits. Disciplinary proceedings are on by the Indian regulators, ICAI. But those are against individuals, the two partners and some other staff members. We are waiting for it to be concluded. We now look forward to put all this behind us.

On the independent monitor and training: PCAOB has appreciated the voluntary actions taken by PwC India.  The SEC is in the process of appointing a monitor. Whether it is training, the appointment of independent monitor, enhancing audit quality, enforcing risk management procedures, all that is happening and is actually a very positive development.

On the fear of a takeover of the PwC India by foreigners: Let me put it in two parts. Within the PwC network there is a whole lot of emphasis on sharing expertise and experience. We today have 37 people in the expat category who are here. But at the same time there are around 130 people who have gone from India to respective parts of the network. Very little of this has to do with Satyam or post-Satyam. This is part of PwC global running its network and global mobility is given a very high priority.

On Robert Morris: Bob Morris is the managing partner of the firm. I was managing partner for four years before I got elected as chairman. So Bob is helping me. His role as managing partner is to help the chairman and territory senior partner, which is myself to run the firm. So he is the number two, from a hierarchy point of view, if there are numbers. He concentrates on operations. As to the comment of taking over this firm, etcetra, let me retrace, that we have a legacy of 130 years plus, and like always this firm in India is run by Indians. It is owned, operated and managed by Indians.

I wanted somebody who had the experience of running large practices. Bob was somebody who was on the US governance board. He was in the tax practice there and was the number two. I was looking at a person who is well entrenched in the PwC network of firms and is a strong operations guy. The request was made to the network and the network came up with Bob Morris, and I spoke to him and looked at all that and I am very glad that six months down the line, this combo - if that is the term - is working very well.

On Satyam's aftermath: Satyam happened and we as the auditors could not contribute to catching that fraud.  We accept all that in humility. But then we have taken a whole lot of actions. We overhauled the management, the leadership; for assurance a new leader was appointed; a risk and management leader came down from the UK. We went back to basics. We had a whole lot of audit and technical training. Before accepting a client we are far more careful.  All those are leading this firm to be much stronger.

Partner exodus and profitability: Every time a partner leaves, it hurts. But the good thing is that as far as the business in both these segments is concerned, we have moved on and the business has not suffered. Say for instance, tax. The business has increased to the extent of 20-25 per cent. The firm also got recognized as the Tax Firm of the year by the International Tax Review for two years in a row.
Profitability does get affected in two ways. When revenues go up it helps. But we had some extra costs - which we think are necessary to ensure that the quality that we deliver to our clients. But think we have had enough growth in our business to take care of our extra expenses that comes because of these measures.  While profitability may not have increased tremendously, it is not lower than what it was earlier. So as a person running this firm, I am satisfied.

On the way ahead: The last two three years admittedly clearly challenging, and I think we as a firm and a group of firms have managed very well. We did two things. We accepted the fact that Satyam has happened. We concentrated on strengthening our processes on risk management and management of quality, talent up gradation and things like that.  I and the leadership team firmly believe that if you continue to provide high quality to your committed and loyal clients' and if you have absolutely top quality talent to deliver those, the rest of it that is growth and profitability come as a consequence.

Thankfully, the business and the three lines of business haven't suffered. In the audit side it is the third reappointment cycle - we are in the middle of it. In the two reappointment cycles in 2009 and 2010, actually resulted in 97-98 per cent reappointments happening in the audit side and that is as a record one could have in a normal year. And the businesses in advisory and tax have also gone up in the last two years.  I could say that these problems have resulted in businesses not having grown as much they could have in the last two years, but we have not had a year in which we did not have growth. I am quite satisfied with the way we have dealt with the issue.  There are opportunities for all firms in the market now and we will claim our fair share of it.

Do I expect all the three lines of services to grow equally - no I do not. We want to concentrate - as far as growth is concerned - on our tax and advisory businesses.  We want to concentrate building talent and resources in that. When it comes to audit, I think growth is not what my vision for our assurance practice is. Our leadership is in absolute agreement that we need to concentrate on quality - and as I said earlier, growth as a consequence will happen in that audit practice as well.  So growth percentages in our assurance practice will be smaller as compared to our audit and advisory practices.

We have a service delivery centre in Kolkata which largely serves the PwC network on various offshoring and backoffice kind of operations. PwC is growing globally, and if it has to grow, the offshoring business also has to grow. The Indian SDC is one of those four or five centres in the PwC network so I hope and trust that will grow as well.

On bank confirmations issues in the Satyam audit and problems in India:  Today we have all our bank confirmations independently. Yes it was a  learning and we have started doing this. But in the broader context - it is an accepted auditing step anywhere in the world that auditors should ask for independent bank confirmations from the bank. And I believe a whole lot of auditing firms in India and the Institute of Chartered Accountants of India also prescribes the same auditing standards.

I believe most auditing firms ask for these confirmations. Unfortunately, the statistics in India of the independent confirmations being received back by auditors in India is very poor. One of the presidents of the institute in India said that the percentage of confirmations received is in the single digits. So it is one of the work we are doing with the institute in India - how we can improve the whole system of receiving independent bank confirmations.

On the issue of old Price Waterhouse hands taking control the firm, pushing out the Coopers & Lybrands (Lovelock and Lewes in India) people: The word that comes to my mind is rubbish. After eleven years after the two firms merged, I am surprised that such questions are still there in the minds of peoples.  I suspect those people are not inside the firm but outside. Four years back, we were the first firm in India who decided that we will elect our chairman through elections. The elections happened and there was a tie. So we did a re-poll and Ramesh Rajan won by a few votes. This question I heard for the first time at that time and people said this is the Calcutta lobby or the Lovelock lobby. I gave a statement at that time, stating that I am the losing candidate and you cannot say that a Lovelock candidate has won, or there were lobbies at work.  And I am telling you that it was one of the fairest of professional elections.

This year, four years after that, the so-called election process was even more robust. The number of partners is larger this time.  Names were received from the partners. Our governance board, which is an elected body of seven people, introduced another couple of processes to make it even more robust. They went from office to office meeting different partners and they did a sounding of different partners, they the came up with a couple of candidates and then the soundings happened and then the ratification vote happened. This is the system that all PwC network firms follow and PwC is the only firm that follows such an elaborate process.  The same set of questions is being raised now and that is why I am using the same word - it is all rubbish.

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