Deepak Kapoor, chairman of
PricewaterhouseCoopers India, can now put the past behind him. The
intensive oversight by an independent monitor that PwC India's
accounting practices had to submit to after it got embroiled in the Satyam scandal has finally been withdrawn.
In 2011, the US Securities and Exchange Commission and Public Company Accounting Oversight Board in
its investigation found the India unit of the auditor in violation of
the quality control standards. It said PW India, which looks after PwC
India's accounting business, failed to conduct
procedures to confirm
Satyam's cash and cash equivalent balances that resulted in the "fraud
at Satyam going undetected" for a long time.
In 2009, Satyam CEO
Ramalinga Raju confessed
to misstating accounts to the tune of Rs 7,136 crore by inflating cash
and bank balances and suppressing information on liabilities of the
company he founded in 1987. Raju was arrested soon after, while Satyam
was hit by a crisis of confidence that led to a flight of employees and
clients.
Following an internal investigation, the US regulators imposed a penalty
of $7.5 million on PW India and required it to submit to an independent
monitor to oversee improvement in quality control standards.
"At the end of it, I feel very proud that we actually took the
challenges head on and decided to deal with it. We were not in denial
and worked on it relentlessly," says Kapoor.
The independent monitor worked with the firm for three years and
conducted surprise checks, attended training sessions and watched
interactions.
The first thing that the monitor did at PW India was to ensure greater
accountability. The monitor increased the time a partner spent on audit
engagements by adding new partners and exiting several client
engagements.
The average portfolio size for each partner was also reduced by a third,
allowing more time for senior resources to spend on review, supervision
and delivery of high quality audit engagements.
Besides, it implemented a comprehensive plan to build training capacity
and create an accredited pool of instructors to deliver technical
training programmes. The curriculum was a mix of technical and
non-technical subjects such as professional scepticism and how to
understand people's behaviour.
"The order required us to do a lot of things, an overarching thing was
to have a functional quality management system in place," says Sharmila
Karve, partner and head (risk and quality practice), PW India.
It also increased the use of technology for effective project management
and greater transparency in audits. PW India has now created a secured
web based project management platform called 'CONNECT'. This is a common
web platform created for joint usage by client and PW India, and
contains all the information about a project including its status. As
the platform can be accessed by the entire project team, it gives a good
idea on how the audit is moving to all involved.
PW India is now also piloting a real time automated audit project that
will give advance warnings and raise red flags to enable its auditors to
investigate potential irregularities. In addition, the auditor has also
become more careful in signing up new clients.
The auditor has also set up a board to advise on matters of strategy,
governance and quality of professional services rendered by its network
of firms. The current members of the advisory board include former Tata
Sons director JJ Irani, former CAG VK Shunglu, HDFC Vice-chairman &
CEO KK Mistry and former Hindustan Unilever Chairman MK Dadiseth.
"The efforts we took in the last six years have resulted in the quality
being high which has been endorsed by independent monitor appointed by
the US regulators, and the fact that we have had 98 per cent plus
reappointment of clients each year since then has given us a lot of
confidence," says Kapoor.
However, despite the efforts to set its house in order, many believe PW
India still has some distance to cover. Amit Tandon, founder of
Mumbai-based proxy advisory firm Institutional Investor Advisory
Services, says, "Earlier, the global professional services giants had an
anything-goes-in-India attitude. That is changing now, but still there
is a difference in their practices in matured markets and that in
India."