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accounting practices had to submit to after it got embroiled in the Satyam scandal has finally been withdrawn.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."
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."
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