US authorities have ordered PwC’s Indian
affiliates pay $7.5m in fines for deficiencies in its audits of
Satyam Computer Services. The ruling is the first punishment handed
down to an audit firm in connection to India’s largest corporate
The US Securities and Exchange Commission
(SEC) has ordered Price Waterhouse firms pay $6m in fines while the
US Public Company Accounting Oversight Board (PCAOB) dished out a
penalty of $1.5m for violations in connection to the Satyam
audit. In a related settlement with the SEC, Mahindra Satyam
(previously Satyam Computer Services) agreed to settle fraud
charges by paying a $10m penalty and undertaking a series of
The PCAOB has settled disciplinary orders
against Lovelock & Lewes, Price Waterhouse Bangalore, Price
Waterhouse & Company Bangalore, Price Waterhouse Calcutta and
Price Waterhouse & Company Calcutta, known collectively as
Price Waterhouse (PW) India. Only two of these firms were ordered
to pay a $1.5m fine.
Quality control failure
The PCAOB investigation found the jointly
administered quality control systems of the five firms failed to
detect a general practice in the cash confirmation process that was
not in accordance with PCAOB standards.
The oversight body said the deficient cash
confirmation procedures contributed to the failure of PW India to
detect Satyam’s cash balance was materially overstated. Satyam
management used these bank confirmations as part of a cover up of
its scheme to inflate the company’s reported cash balance by
As a result, the affiliates will not be able
to accept new engagements to audit US issuers until an independent
monitor determines PW India has made significant progress toward
completing the actions. PW India will also not be able to accept
new referred US issuer audit work for six months.
The SEC ordered all five of PwC’s Indian
affiliates to pay a $6m fine, which it said is for repeatedly
conducting deficient audits of Satyam’s financial statements and
enabling a massive accounting fraud to go undetected for several
The SEC said it found audit failures by the
affiliates were not limited to Satyam, but rather symptomatic of a
much larger quality control failure throughout PW India.
PW India is also required to:
- Establish training programs for its officers
and employees on securities laws and accounting
- Implement new pre-opinion review
- Revise its audit policies and procedures;
- Appoint an independent monitor to ensure
these measures are implemented.
PW ‘regrets’ fraud
PW India said while it neither admits nor
denies the US regulators’ findings, its agreements with both the
PCAOB and the SEC were important steps towards building upon the
efforts it has made over the past two years to enhance its audit
quality. The firm also hopes it can reach an agreed resolution with
“Our settlements with the SEC and PCAOB are
positive steps and important milestones for PW India. The
confession of fraud at Satyam by its chairman was a shock to the
Indian business community and to all concerned,” PW India chairman
Deepak Kapoor said.
“We regret the Satyam fraud occurred. We have,
however, worked hard to learn the lessons of the Satyam matter. We
made significant changes to our audit processes and to the
operation and oversight of our audit practice. While we began to
implement those changes immediately after Satyam’s fraud came to
light, we believe the orders provide an effective framework for us
to continue enhancing our own corporate governance and audit
PwC committed to India
PwC International chairman Dennis Nally
described India as a key market for the network and said it is
committed to working with its colleagues in India to build on a
successful quality practice.
“The last two years have been challenging for
PW India but I believe it has learned the lessons of Satyam, made
the right changes and is now on a sound footing to move forward,
dedicated to quality work,” Nally said.
The Satyam Computer Services fraud unfolded in
January 2008, when financial irregularities totalling about $1.44bn
– the largest corporate fraud in India’s history – were discovered.
PW India was Satyam’s statutory auditor at the time the
irregularities took place.
PCAOB bans CPAs involved in Satyam scandal