Aftermath of Price Waterhouse ban: Accounting firms to now face stiff gaze

All those firms that either retained or signed on PW may now have to look for fresh auditors soon but again they will mostly search among the big four

Though Price Waterhouse has said Sebi has taken an inordinately long time to hand out its order in the Satyam case, commentators have attributed part of the delay to the firm’s challenge of the regulator’s ambit in the Supreme Court.

It was just a year ago that a three-judge Bench of the Supreme Court ordered Sebi to conclude the case against Price Waterhouse within six months. Sebi has completed its task in a year. The case datelines highlight the rocky road the Big four audit firms, including the Price Waterhouse network but also Deloitte, Ernst & Young, and KPMG, have faced since the Satyam saga of 2009. Price Waterhouse is part of the network of tax and consultancy firms that make up PriceWaterhouseCoopers (PwC).

In the intervening period, one of its rivals, Deloitte, had to withdraw its audit report of the National Spot Exchange Ltd though commentators have questioned why it was not able to figure out the payments crisis before the crisis broke. There were also allegations of window dressing of the accounts of kidswear company Lilliput by another rival, Ernst & Young, and the ministry of corporate affairs has decided to look into this. And the Serious Fraud Investigation Office, in the same ministry, charge sheeted one of KPMG’s audit arms, involving Reebok India. In all cases the charges are broadly similar — falsifying the accounts and financial statements of the companies concerned.

As a result of these travails, in financial year FY18 almost half of India’s top listed companies to feature on the BSE 500 list had to change their auditors. The changes are mandated by the Companies Act of 2013, a stiff response to the weak regulatory environment that prevailed under the older Companies Act of 1956. The permissive environment took down not only Satyam chief SB Ramalinga Raju but also its Bengaluru-based auditor, one of the network of 11 Price Waterhouse partnerships in India. After having learned from the scandal, the new Act mandated that firms had to rotate their auditors after two terms of five years each.

After Wednesday’s Sebi order, all those firms that either retained or signed on Price Waterhouse in the rotation may now have to look for fresh auditors soon. But again they will mostly search among the big four. According to an Economic Times report, these firms audit at least half the companies on the BSE 500 list. Of those, Price Waterhouse audits 43 while Deloitte leads the list at 89. A source in PwC said they were being penalised without recognising the sharp improvements they had made in the nine years since Satyam, including diligent oversight mandated by the global audit oversight body Public Company Accounting Oversight Board. “The Securities and Exchange Commission of the USA took note of the improvement in capabilities that has been made. We find no reference to those in the Sebi order.”

Yet there is lingering disquiet over the quality of audit by these global top firms. Former Delhi High Court chief justice AP Shah has written to the ministry of finance, alleging some “highly disconcerting” issues involving PwC, which, he alleged, posed threats to national security, safety of investments of the common man, and losses to the public exchequer. He referred to the group being auditors of not just Satyam but also of failed Global Trust Bank and United Spirits, which was led by Vijay Mallya till last year, again accused of siphoning off funds. PwC has denied the accusations. There are now fresh concerns that because of stiff bidding at low prices by the rivals, there could be “auditor buyout” by firms being audited, said an independent source.

Possibly because of these reasons, speaking at the annual event of the Institute of Chartered Accountants of India late last year, Prime Minister Narendra Modi said it was time the Indian audit landscape dominated by these firms changed, and some Indian firms should rival them. “People talk of the Big Four accounting firms. Sadly, there is no Indian firm there. By 2022, let us have a Big Eight, of which four firms are Indian,” he said.