10/23/2018 Why did SEBI ban Price Waterhouse?

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Why did SEBI ban Price Waterhouse?

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Ashish Rukhaiyar
JANUARY 20, 2018 18:50 IST
UPDATED: JANUARY 20, 2018 19:13 IST

What led to decision?

In January 2009, Satyam Computer Services’ chairman B. Ramalinga Raju wrote a letter
admitting that the company’s balance sheet was fudged and included inflated and non-

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10/23/2018 Why did SEBI ban Price Waterhouse? - The Hindu

existent cash and bank balances. Price Waterhouse (PW) was the auditor. Satyam Computer
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Services was later acquired by news
Tech Mahindra.
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The letter led to the SecuritiesOur
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Price Waterhouse, among the top four consultancy and audit firms known as the ‘Big Four’ in
industry parlance, was issued the first show causeNOT notice
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February
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On January 10 this year, nine years after the fraud came to light, the capital market regulator
issued a 108-page order, barring Price Waterhouse from auditing any Indian-listed company
for two years.
Further, the regulator directed the firm and its two former partners, S. Gopalakrishnan and
Srinivas Talluri, to pay up ₹13.09 crore along with 12% interest a year since January 2009.

How did the audit go wrong?

While Mr. Gopalakrishnan signed the Satyam accounts between April 2000 and March 2007,
Mr. Talluri did it between April 2007 and September 2008. According to the regulator, Price
Waterhouse based its audit on documents (such as bank account statements and fixed
deposits) sourced from the company without trying to get direct confirmation from the banks.
The regulator felt that if the auditor had sought confirmation from the banks, the accounting
fraud could have been unearthed much earlier. “A common investor’s reliance on the audit
certifications of Satyam Computers at the relevant point of time was dependent on the fact
that it was attested by one of the internationally reputed firms called Price Waterhouse. The
public had no reason to believe that the audit reports were false and misleading,” the SEBI
order said.
“The impact of accounting frauds is far more adverse in dimension that the investors feel
cheated on realising that they were led along the garden path all along. It strikes at the very
root of the regulatory fabric which ensures protection of their interest and secures market
integrity,” the order said.

What is Price Waterhouse’s record?

SEBI is not the first regulator to act against Price Waterhouse in the Satyam matter. The order
by the Indian regulator comes almost seven years after the U.S. Securities and Exchange
Commission (SEC) agreed to a $6 million settlement over charges against the Indian affiliates
of Price Waterhouse related to deficient auditing of Satyam. Incidentally, in 2011, it was the
then largest-ever penalty levied on a foreign-based accounting firm in an SEC enforcement
action. The Price Waterhouse affiliates had also agreed to refrain from accepting any U.S.-
based clients for six months and revise audit policies and procedures. In a related

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10/23/2018 Why did SEBI ban Price Waterhouse? - The Hindu

development, Satyam Computer also agreed to settle fraud charges by paying $10 million in
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penalty and undertake a seriesnews
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Price Waterhouse has filed an appeal against the SEBI order at the Securities Appellate
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Tribunal (SAT), which heard the matter on Friday, but refused to stay the two-year ban. It,
however, allowed it to continue servicing clients whose financial year started on January 1,
2018. The tribunal has posted the matter for February. If Price Waterhouse loses its appeal, it
can file a writ petition in the High Court on the grounds that the capital market regulator
exercised jurisdiction beyond its powers. Incidentally, the auditing major has appealed to the
SAT on similar grounds.

In the past, during the investigation and in a petition filed at the Bombay High Court, Price
Waterhouse said SEBI did not have the power to act against auditors since auditing firms were
regulated by the Institute of Chartered Accountants of India (ICAI).

Price Waterhouse said in a statement that it was “disappointed with the findings of the SEBI
investigations and the adjudication order and the order relates to a fraud that took place
nearly a decade ago in which we played no part and had no knowledge of.” It said it was
“confident of getting a stay...”
Printable version | Oct 23, 2018 12:59:01 PM |
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waterhouse/article22480995.ece
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