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 Rs 9,000 crore, the memory of the India's biggest corporate scandal was refreshed on Wednesday after the market regulator Sebi (Securities and Exchange Board of India) barred the network entities of international auditing firm guilty Price Waterhouse from issuing auditing certificates for the next two years, finding a "systemic problem" in the audit processes carried out by the PW entities at the time of Satyam scam.
In addition to ordering the disgorgement of over Rs 13 crore from Price Waterhouse (PwC) 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. Price Waterhouse, however, seems perturbed and 'disappointed' with the adjudication order.
By passing a stringent order against one of Big Four auditors in the world, Sebi seems to have set a strong message that wrong practices and market abuse would not be tolerated in India, say experts. Sebi says it carried out the investigation into the affairs of SCSL (Satyam Computer Services Limited) to ascertain whether the provisions of the SEBI Act were violated, and it found that certain directors and employees of SCSL connived and collaborated in the overstatement, fabrication, falsification and misrepresentation in the books of account and financial statements of SCSL, whose statutory auditor from April 1, 2000, was Price Waterhouse (PwC).
"There has been no intentional wrong doing by PW firms in the unprecedented management perpetrated fraud at Satyam, nor have we seen any materialevidence 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 areconfident of getting a stay before this order becomes effective," said PwC in a statement, as PTI reported.
10 major points extracted from Sebi 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.
- The capital market regulator has confirmed the published books of account of Satyam contained false and inflated current account bank balances, fixed deposit balances, fictitious interest income revenue from sales and debtors' figures, and for several years.
- Price Waterhouse Bangalore and its two erstwhile partners - S Gopalakrishnan and Srinivas Talluri Noticee - have been asked to jointly disgorge the wrongful gains of over Rs 13 crore with interest calculated at the rate of 12% per annum from January 7, 2009, till the date of payment.
- The noticees have been asked to pay the said amount in the next 45 days. These two partners can't also issue any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with Sebi for the next three years.
- The order says the noticees were granted an opportunity by Sebi to conduct an inspection of all the documents collected during the investigation, and PwC entities and the representatives of engagement partners took out separate inspection of records. The order says the auditors did not independently check the veracity of the monthly bank statements and fixed deposit receipts (FDRs) and relied upon them for their certification process.
- PW firms benefited from the relationship from SCSL by having received a fee of over Rs 23 crore during 2000-2008. Of this, over Rs 13 crore was paid towards PW Bangalore for the audit of SCSL, says the order.
- 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 Sebi order said.
- Highlighting that common investors were, in a way, fooled as Satyam's audit certifications - which they fully trusted as it was attested by internationally reputed firm Price Waterhouse - were false and misleading, the order says the long period during which the falsification of account books took place points to a systemic problem in the audit processes carried out by the PW entities.
- Sebi has also 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.
- Sebi points out that it is important for it to take stern view of the market abuse and fraudulent practices, particularly when persons tasked with protecting the interest of investors are themselves hand-in-glove with the main perpetrators of the fraud.