India's market regulator hits PwC with 2-year auditing ban

India's market regulator hits PwC with 2-year auditing ban

Previously PwC, had made two attempts to settle the case through the consent mechanism.

Over nine years after the Rs 7136 crore Satyam Scam rocked India, Securities and Exchange Board of India (Sebi), late on Wednesday night (January 10) banned worldwide auditing giant Pricewaterhouse Coopers (PwC) and its network entities from issuing audit certificates to any listed company in India for a period of two years.

While making it clear that it will appeal against the Sebi order next week, Price Waterhouse (PW) also comforted around 3,000 auditors, saying that it will take care of their interest and there was no reason to worry.

However, it added it has learnt the lessons of Satyam and invested "heavily" over the last nine years in "building a robust and high quality audit practice".

"It is possibly the beginning of the end of the Price Waterhouse's auditing business in India as the clients will turn elsewhere. Though a two-year ban seems a bit harsh, it could deter the Big Four firms from expanding in India and affect their momentum", said Amarjeet Chopra, former president of the Institute of Chartered Accountants of India. The Satyam promoters inflated revenue and profits to showcase a healthy picture of the company when PwC was its auditor. The appointment of an auditor requires a shareholder resolution and board approval. "Satyam was egregious even by the standards of Indian accounting", said R. Narayanaswamy, professor of finance and control at the Indian Institute of Management Bangalore.

Sebi said PW firms benefited from the relationship with Satyam Computers by having collectively received a fee of Rs 23.31 core during 2000-08.

SEBI had in February 2009 issued a show-cause notice to Price Waterhouse, among other entities, after it emerged that Satyam's accounts were falsified. Companies may also not want to go through a removal process and appoint a new auditor, especially if the appointment is still fresh.

"The audit work for the current financial year will go on until September-October, but employees have nothing to worry about".

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Price Waterhouse has, expectedly, rejected the charges brought out against it by Sebi while expressing its disappointment on the ban. The Corporate Affairs Ministry (MCA) will examine SEBI's order, Union Minister PP Chaudhary said on January 11.

Many of these companies have large balance sheets, and comprise 4.4% of the 1,692 companies listed on the National Stock Exchange, India's largest exchange by transaction value.

"Why should they resign?"

The audit firm stands a better chance of getting a stay if it approaches the Securities Appellate Tribunal (SAT) instead of a court, said Sandeep Parekh, founder, Finsec Law Advisors and a former SEBI law officer. The event shocked the Indian markets and triggered investigations by several agencies.

The top global accountancy firms include PwC, Deloitte, EY and KPMG.

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.

The affair, however, may make it hard for Price Waterhouse to win new clients because of the damage to its reputation, and the uncertainty that a court proceeding for a stay order would bring.

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