SEBI on January 10, 2018, has barred all 11 Price Waterhouse (PW) firms practicing as Chartered Accountants in India from issuing audit certificates and compliance certificates for listed companies and intermediaries for two years.
SEBI has also imposed penalty of Rs.13 crores along with 12% interest in wrongful gains by Price Waterhouse and its two erstwhile partners S Gopalakrishnan & Srinivas Talluri
Few findings from the investigation carried out by SEBI in Satyam Computers Services Limited (SCSL) wherein “systemic problem” in the audit processes were noted, have been excerpted below:
- Inflated cash/bank balances of Rs 5,040 crores:
- The auditors did not carry Independent verification of bank statements and fixed deposit.
- The auditors did not maintain necessary control over the process of sending and receiving balance confirmations from banks directly in complete disregard of the Auditing and Assurance Standards (AAS) prescribed by ICAI.
- Even a single copy of balance confirmation request was not sent by them directly to the Bank of Baroda, New York Branch (75% of all current account balances).
- They chose to rely on the balance confirmations received from SCSL which had glaring anomalies and huge differences without any further examination or inquiry into the matter and ignored the balance confirmations received directly from banks which were showing true balances.
- Inflated sales revenues using 7,588 fake invoices: Sales revenues in the audited accounts were inflated by accounting for 7,561 fake invoices raised in respect of fake transactions and 27 invoices with respect to non-existent customers.
- Overstated debtors’ position by Rs.490 crores: The auditors, while conducting the audit of SCSL did not seek external confirmation of debt from the debtors in violation of its own audit manual and various provisions in AAS and the Guidance Note on Audit of debtors, loans, and advances.
SEBI’s order comes into force with immediate effect but for removal of operational difficulties, the order will not impact audit assignments for FY 2017-18. However, Price Waterhouse has said that it is confident of obtaining a stay against the SEBI order.
SEBI has set a strong message that wrong practices and market abuse would not be tolerated in India. We at Firmway strongly believe in supporting auditors in complying to the Auditing Standard as external confirmations are extremely powerful audit practice and are more reliable audit evidence. Over past two years, we have built a robust high-quality audit tool which helps auditors in getting direct confirmation from the parties. Further, to identify and fake entities we also provide verification service. To know more about our services please visit https://firmway.in