(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Una Galani
MUMBAI, Jan 11 (Reuters Breakingviews) - India’s securities regulator is cracking the whip. It has banned a PricewaterhouseCoopers affiliate from auditing listed companies in the country for two years over its role in the 2009 Satyam scandal, widely known as “India’s Enron”. Such bans are rare because of the sheer dominance of the Big Four in many places around the world. The move shows Ajay Tyagi, the new-ish chairman of the Securities and Exchange Board of India, is willing to endure a level of chaos to send a strong signal to the market.
Once the country’s fourth largest IT services firm, Satyam remains India’s biggest accounting debacle. In 2009, Chairman Ramalinga Raju confessed to cooking the company’s books in a $1.1 billion fraud scheme. 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 Price Waterhouse partners were jailed.
That makes SEBI’s action look overdue. Two years in the penalty box also seems harsh given nearly a decade has passed. PwC’s affiliate has shed accounts and tightened practices since. The ban might also prompt multi-national companies in India to dump the auditor in other jurisdictions too, just to make it easier to file their global accounts.
In the United States, the Big Four audit almost all large companies, but in India they are not yet too big to fail. A study in 2012 by Institutional Investor Advisory Services showed around 55 percent of 286 sizeable Indian companies availed the services of the Big Four or their affiliates. Though the industry continues to consolidate, SEBI can feel more comfortable with the draconian punishment and market concentration risk than its peers in developed economies.
Yet the ban is controversial because it comes just after a committee on corporate governance, under the direction of the regulator, recommended giving SEBI more power to act against auditors. The PwC affiliate, which says it did not play a part in the fraud and is seeking a stay against the punishment, earlier questioned the regulator’s jurisdiction. Whatever the outcome, Tyagi is making it clear that he will aggressively go after misbehaviour.
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- India’s capital market regulator on Jan. 10 banned Price Waterhouse from auditing any companies for two years after a probe into a nearly decade-old accounting fraud case involving an IT firm called Satyam.
- The Securities and Exchange Board of India also ordered Price Waterhouse 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 Chairman Ramalinga Raju overstated 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.
- Price Waterhouse was Satyam’s auditor during the period in which the fraud perpetrated. It is an affiliate to the broader PricewaterhouseCoopers entity in India, which handles consulting, tax advisory, and other businesses.
- In 2015, Raju and several others – including two former Price Waterhouse partners - were found guilty and sentenced to seven years in prison.
- Price Waterhouse said in a statement they were disappointed with the decision and were confident of getting a stay on the order. The statement said Price Waterhouse “played no part and had no knowledge of” the fraud. - For previous columns by the author, Reuters customers can click on
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Editing by Pete Sweeney and Sharon Lam