Ban on Price Waterhouse could cause trouble for business in the country

Securities and Exchange Board of India has recently banned Price Waterhouse for two years. This could spell trouble for its business in the country and is also a signal to the auditing profession to pull its socks up. The auditing arm of consultancy firm PwC India, Price Waterhouse is an auditor for 77 companies which are listed on the NSE.

SEBI banned 11 firms in Price Waterhouse’s Indian network from auditing the books of listed companies for two years for the complicity in the manipulation of accounts at Satyam Computer Services Ltd. It also showed disregard for the stipulated auditing practices like independently verifying the company’s bank statements. The ban came after nine years after the confession of Satyam founder B. Ramalinga Raju to cooking the firm’s books in a fraud.

Experts believe this is the beginning of an end of the auditing business in India for Price Waterhouse. The buck stops at the desk of the auditor and if auditing does not detect a $1 billion fraud, there is not much the auditor can say in defence. Some companies will have to look for replacement auditors. A total of fifty four firms hired Price Waterhouse as their auditor in 2017-18 due to the mandatory auditor rotation requirement as per the Companies Act. Another fifteen had appointed them in 2016-17. The Companies Act states that the auditor has to be hired for a fix term of five years and he can be reappointed for another five. The impact will not be seen in the current fiscal year since the ban exempts audits undertaken for 2017-18.

Amarjeet Chopra, former president of the ICAI, mentioned that Sebi wanted to deter audit firms and not just individual partners from gross negligence. Through the ban, it could deter the Big Four firms from expanding in the country. Price Waterhouse stated that it was disappointed with the ban and had no knowledge of the scam. It said it would obtain a stay from a higher court before the ban becomes effective.

The order also asked Price Waterhouse Bengaluru and the two senior partners who had certified the audit reports, S. Gopalakrishnan and Srinivas Talluri to disgorge INR 13 crore including interest. The partners have been barred from auditing listed firms for three years. The order could also have an impact on the insolvency resolution business of its affiliate PwC. The insolvency proceedings are underway against 12 debt ridden firms at the National Company Law Tribunal. But practically they are two different businesses so it may not have an impact.