PwC arm's insurance cover under cloud
Pankaj Doval, TNN | Feb 29, 2012, 03.33AM IST
NEW DELHI: Price Waterhouse (PW) Bangalore, the tainted auditor of scam-hit Satyam, utilized over 95% of a $60-million (Rs 280 crore approximately) insurance cover available to all Price Waterhouse entities in India to meet post-fraud litigation expenses and damages without paying a single rupee towards the premium. The revelation raises questions about the arguments put forth by the global financial services company that each of its Indian firms is a separate legal entity and not responsible for the acts or omissions of any other member firm.
PW Bangalore, which had the mandate for the Satyam audit before the fraud came to light in 2009, did not contribute any money towards the Professional Indemnity Insurance (PII) of $60 million, but surprisingly enjoyed the cover when it faced trouble and litigation for the lax audit, documents accessed by TOI showed. PW Bangalore even used the cover to pay $15.5 million towards settlement of a class-action suit filed against it in the US. Till financial year 2011, various entities of PricewaterhouseCoopers India (PwC India)-including a private limited company which renders only non-audit related services-had a common insurance cover.
The insurance premium up to FY2011 was paid by PricewaterhouseCoopers Pvt Ltd (PwCPL), the tax and business advisory services company, and two audit firms - Price Waterhouse (PW) and Lovelock & Lewes (LL). While PwCPL paid 20% towards the premium amount, PW paid 52% and LL 28%. The insurance cover has been taken from Bajaj Allianz.
The usage of the insurance cover by the firm, despite not paying any premium, is in line with the 'one firm' approach adopted internally by PwC India, in contrast to its public stand before many agencies - including the Institute of Chartered Accountants of India, the regulator for auditors, and capital market regulator Sebi. Responding to a TOI questionnaire, a PwC India spokesperson said: "The documents The Times of India purports to have in its possession, if authentic, are private and confidential business documents, and their distribution and publication would constitute a breach of commercial confidentiality and a violation of our rights. While as a policy we do not comment publicly on our internal matters, we deny the allegations purportedly made in the questions being raised by
The Times of India. PW India firms have complied and will continue to comply with applicable laws, regulations and professional standards."
Documents seen by TOI show that the Satyam debacle led to a surge in the premium for the group's insurance cover, but PW Bangalore was not billed anything for this. While the annual insurance premium was approximately Rs 3 crore in FY09, it more than doubled to around Rs 7 crore in FY10. A year later, the premium almost trebled to around Rs 20 crore. As the premium amount kept rising, there was no contribution from PW Bangalore, the firm that was responsible for the increased risk profile of PwC India entities. Also, PwCPL paid the higher premium as part of its 20% share even when it had nothing to do with the audit business, the main reason for the higher premium.
Documents show that Deepak Kapoor, Chairman, PwC India, and Rajan Varma, the director finance, were aware of the matter and also of a new restructuring in the insurance policy from FY12 that divided the cover into two separate policies - $20 million for PwCPL and $40 million for 10 audit firms. The splitting of the insurance cover in two policies recognized the importance of separate business and risk profiles between advisory business and auditing practice. It also factored in the impact of the Satyam scam and quality control being followed in the auditing practice. This aspect was adversely commented upon in the orders of the US regulators SEC and PCAOB, which had imposed fines aggregating $7.5 million (around Rs 35 crore) on the audit firms.
The restructured insurance policy - despite charging a specific $2.07 million premium for PwCPL - saw the company contribute $870,000 in line with the 20% share it was paying earlier when there was a consolidated insurance cover. This again shows the 'one firm' approach adopted by the company and how internally most of the business went about as a single entity. However, when asked categorically whether all the audit firms as well as PwCPL are separate and distinct legal entities, as claimed, the spokesperson replied with a terse "Yes".
Pankaj Doval, TNN | Feb 29, 2012, 03.33AM IST
NEW DELHI: Price Waterhouse (PW) Bangalore, the tainted auditor of scam-hit Satyam, utilized over 95% of a $60-million (Rs 280 crore approximately) insurance cover available to all Price Waterhouse entities in India to meet post-fraud litigation expenses and damages without paying a single rupee towards the premium. The revelation raises questions about the arguments put forth by the global financial services company that each of its Indian firms is a separate legal entity and not responsible for the acts or omissions of any other member firm.
PW Bangalore, which had the mandate for the Satyam audit before the fraud came to light in 2009, did not contribute any money towards the Professional Indemnity Insurance (PII) of $60 million, but surprisingly enjoyed the cover when it faced trouble and litigation for the lax audit, documents accessed by TOI showed. PW Bangalore even used the cover to pay $15.5 million towards settlement of a class-action suit filed against it in the US. Till financial year 2011, various entities of PricewaterhouseCoopers India (PwC India)-including a private limited company which renders only non-audit related services-had a common insurance cover.
The insurance premium up to FY2011 was paid by PricewaterhouseCoopers Pvt Ltd (PwCPL), the tax and business advisory services company, and two audit firms - Price Waterhouse (PW) and Lovelock & Lewes (LL). While PwCPL paid 20% towards the premium amount, PW paid 52% and LL 28%. The insurance cover has been taken from Bajaj Allianz.
The usage of the insurance cover by the firm, despite not paying any premium, is in line with the 'one firm' approach adopted internally by PwC India, in contrast to its public stand before many agencies - including the Institute of Chartered Accountants of India, the regulator for auditors, and capital market regulator Sebi. Responding to a TOI questionnaire, a PwC India spokesperson said: "The documents The Times of India purports to have in its possession, if authentic, are private and confidential business documents, and their distribution and publication would constitute a breach of commercial confidentiality and a violation of our rights. While as a policy we do not comment publicly on our internal matters, we deny the allegations purportedly made in the questions being raised by
The Times of India. PW India firms have complied and will continue to comply with applicable laws, regulations and professional standards."
Documents seen by TOI show that the Satyam debacle led to a surge in the premium for the group's insurance cover, but PW Bangalore was not billed anything for this. While the annual insurance premium was approximately Rs 3 crore in FY09, it more than doubled to around Rs 7 crore in FY10. A year later, the premium almost trebled to around Rs 20 crore. As the premium amount kept rising, there was no contribution from PW Bangalore, the firm that was responsible for the increased risk profile of PwC India entities. Also, PwCPL paid the higher premium as part of its 20% share even when it had nothing to do with the audit business, the main reason for the higher premium.
Documents show that Deepak Kapoor, Chairman, PwC India, and Rajan Varma, the director finance, were aware of the matter and also of a new restructuring in the insurance policy from FY12 that divided the cover into two separate policies - $20 million for PwCPL and $40 million for 10 audit firms. The splitting of the insurance cover in two policies recognized the importance of separate business and risk profiles between advisory business and auditing practice. It also factored in the impact of the Satyam scam and quality control being followed in the auditing practice. This aspect was adversely commented upon in the orders of the US regulators SEC and PCAOB, which had imposed fines aggregating $7.5 million (around Rs 35 crore) on the audit firms.
The restructured insurance policy - despite charging a specific $2.07 million premium for PwCPL - saw the company contribute $870,000 in line with the 20% share it was paying earlier when there was a consolidated insurance cover. This again shows the 'one firm' approach adopted by the company and how internally most of the business went about as a single entity. However, when asked categorically whether all the audit firms as well as PwCPL are separate and distinct legal entities, as claimed, the spokesperson replied with a terse "Yes".
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