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India bans PwC from auditing for two years

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India’s market regulator has banned PricewaterhouseCoopers’ affiliates from auditing listed companies for two years as punishment for their failure to detect a billion-dollar fraud at outsourcer Satyam Computer Services Ltd.

PwC was in charge of Satyam’s accounting in a 2009 scandal, widely known as “India’s Enron”. Chairman Ramalinga Raju confessed to overstating assets, bank loans, and cash at the company by more than $1 billion over a period of several years. The company has since been acquired by Tech Mahindra.

The Securities and Exchange Board of India (SEBI) also ordered PwC Bangalore and two of its partners to jointly forfeit “wrongful gains” of about 131 million rupees ($2.1 million) plus interest within 45 days.

Satyam and PwC – whose affiliate was the auditor during the misdeeds – agreed to pay almost $18 million to the U.S. Securities and Exchange Commission in 2011 to settle probes. Subsequently, Raju and two former PwC partners were jailed for seven years.

In its order, the SEBI said any entities or firms practicing as chartered accountants in India under the brand and banner of PwC, shall not directly or indirectly issue any certificate of audit of listed companies, or their intermediaries that are registered with the regulator for a period of two years.

“The network structure of operations adopted by the international accounting firm should not be used as a shield to avoid legal implications arising out of the certifications issued under the brand name of the network,” SEBI said in a 108-page order.

In India, all audit functions within the group are conducted under the Price Waterhouse (PW) brand, with a network of local firms operating under the banner. The broader PwC entity handles consulting, tax advisory and other businesses.

“The SEBI order relates to a fraud that took place nearly a decade ago in which we played no part and had no knowledge of,” Price Waterhouse said in a release.

“There has been no intentional wrongdoing by PW firms in the unprecedented management perpetrated fraud at Satyam, nor have we seen any material evidence to the contrary,” said PW, adding it was confident of getting a court to stay the order before it becomes effective.

To avoid operational difficulties, SEBI said its order will not impact audit assignments relating to the ongoing 2017-18 financial year, already undertaken by firms forming part of the PW network.

Indian IT firm Tech Mahindra, part of the Mahindra Group, bought control of Satyam in an auction in April 2010.

https://uk.reuters.com/article/pwc-india-sebi/indian-regulator-bars-price-waterhouse-from-auditing-listed-firms-for-2-years-idUKL4N1P54JY

https://www.breakingviews.com/considered-view/india-gets-tough-on-auditors-with-pwc-ban/