PwC – FINALLY JUSTICE IS DELIVERED!

By Ruma Dubey

This is such a big joke! In 2015, the Govt of India employed the services of an external agency – Price Waterhouse to carry out periodic audits of Aadhaar's infrastructure as well as that of its partners for any security hazards. It role was to monitor agencies that are securing the UID infrastructure along with other third party agencies such as ministries and companies using the UIDAI database for verification of data.

And today, the business headline screams all over – SEBI bars Price WaterHouse (PwC) 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.

So on one hand, after almost 10 years of investigation, SEBI concluded that PwC was complicit with the main perpetrators of the accounting fraud and did not comply with auditing standards. And then we could not help but recollect this news of PwC and UIDAI as currently breach of identity is a much bigger news than Satyam.

SEBI has barred all the 11 firms of PwC from auditing any listed company  and intermediaries like brokers for a period of two years, barring the current fiscal of FY18.  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.

PwC has stated, “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”. And here we were all along thinking that if an auditor signs off a balance sheet, it is after he has ascertained that there has been no hanky panky in the company. We did think that auditors are financial detectives! But now PwC has enlightened us – they are mere signatories.

The entire Satyam scam was about overstatement, fabrication, falsification and misrepresentation in the books of account and financial statements of the company. How can the audit firm abdicate its role?

Take a look at the various anomalies which SEBI detected with regard to PwC:

In case of the non-existent cash/bank balances of Rs 5,040 crore SEBi found PwC relied solely on the monthly bank statements provided by  the  company  which  had  several  additional  entries.  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.

They ignored the daily bank statement which has been found to be true.

PwC did not follow-up directly with banks for balance confirmations in complete disregard of the Auditing and Assurance Standards (AAS) prescribed by ICAI.

The auditors received the monthly  statement  and  FDRs  from  the  office  of  the  chairman  of  Satyam through  company officials.  During  investigation,  they  failed  to  produce  even  a  single  copy  of  balance  confirmation request sent by them directly to the Bank of Baroda, New York Branch (which as per books of Saytam held approximately 75% of all current account balances) or any original balance confirmations received from them. They chose to rely on the balance confirmations received from Satyam which had glaring anomalies and huge differences without any further examination  or  inquiry  into  the  matter  and  ignored  the  balance  confirmations  received directly from banks which were showing true balances.

PwC did not record in their  working  papers  that  they  are  deviating  from  the  stipulated  norms  and practices  of balance confirmations in its audit papers as mandated.

PwC did not expressly acknowledge in their audit reports that internal audit did not conduct verification of bank balances.

Satyam’s sales revenues in the audited accounts were inflated by accounting for 7,561  fake invoices raised in respect of fake transactions and 27 invoices with respect to non-existent customers since the first quarter of 2003 onwards. PwC had the Admin ID and password through which they could have detected that these invoices were fake – but they did not verify even once.

Fictitious receipts were recorded in the books as sales and were reflected as revenues in the books of Satyam.  The  overstatement  of  revenue  also  had  an  impact  on  the  actual  margins earned  by  the  company  vis-à-vis  the  margins  published  in  the  financial  statements.  PwC allowed receipts represented by non-existent additional transactions in the monthly bank  statements  to  be  reported  in  the  books  of  accounts  without  there  being  supporting invoices in the IMS database of Satyam.

The debtors’ position  was  overstated  by  hundreds  of  crores  of  rupees  in  the  financial statements. PwC did not seek external confirmation of debt from the debtors in violation of its own audit manual and various provisions in AAS and the Guidance Note on Audit of debtors, loans and advances. A total disregard of such stipulated auditing practice indicates complicity of PwC in the manipulation.

There was a variance between TDS shown in the books and what was collected – PwC did not bother to physically verify the TDS certificates.

A whistleblower, on 23rd Dec’08, an independent director of Satyam forwarded an email to S.Gopalakrishnan but he did not take any action.

Well, forget being detectives, PwC was not even being the auditor it was supposed to be!  One cannot blame this whole thing on the two corrupt partners – they are PwC employees so they represent PwC; they cannot be independent from the organization they represent.

Kudos to SEBI for taking such a bold action! Almost 10 years but at least justice was delivered!

PS: the only good thing which happened is that Satyam Computers has got resurrected as Tech Mahindra and the new management is doing very well. This is a tremendous achievement of the new management and if there is one Satyam to sully the name of India Inc, there is another Tech Mahindra to compliment.

For a look at the 180-page SEBI order on PwC - https://www.sebi.gov.in/enforcement/orders/jan-2018/order-in-respect-of-m-s-price-waterhouse-bangalore-m-s-price-waterhouse-and-co-bangalore-m-s-price-waterhouse-and-co-kolkata-m-s-lovelock-and-lewes-hyderabad-m-s-lovelock-and-lewes-mumbai-m-s-p-_37354.html