PwC Takes Precautions After Email Scandal

The affiliates – Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta, and Price Waterhouse & Co. Calcutta – must pay $6 million to the SEC, $1.5 million to the PCAOB and are barred from accepting U.S.-based clients for six months. The SEC fine is the largest ever levied against a foreign-based accounting firm in an SEC Enforcement Action and the PCAOB fine is the largest in the regulator’s history. PW India must also “establish training programs for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.” The SEC’s press releasilures “were not limited to Satyam, but rather indicative of a much larger quality control failure throughout PW India.”

More from Bob Khuzami & Co.:

“PW India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Sataym audits. The result of this failure was very harmful to Satyam shareholders, employees and vendors,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

Cheryl Scarboro, Chief of the SEC’s Foreign Corrupt Practices Act Unit, added, “PW India failed to conduct even the most fundamental audit procedures. Audit firms worldwide must take seriously their critical gate-keeping duties whenever they perform audit engagements for SEC-registered issuers and their affiliates, and conduct proper audits that exercise professional skepticism and care.”

For the PCAOB, Chairman James Doty:

“The reliability of global capital markets depends on auditors fulfilling their obligation to investors to perform robust audits, resulting in well-founded audit reports. Two of the PW India firms, PW Bangalore and Lovelock, repeatedly violated PCAOB rules and standards in conducting the Satyam audits. These confirmation deficiencies contributed directly to the auditors’ failure to uncover the Satyam fraud.”

And Claudisu Modesti, the Director of Enforcement:

“Accounting firms that audit U.S. issuers, including affiliates of international accounting networks, provide an essential bulwark for investors against issuer clients that are committing fraud. PW Bangalore and Lovelock repeatedly failed to meet their obligation to comply with PCAOB standards, and these failures contributed to PW Bangalore and Lovelock failing to detect the fraud committed by Satyam management.”

You can see both the enforcement actions on the following pages. As for the firm, here’s a portion from PW India’s statement:

The SEC and PCAOB orders found that PW India’s audits of Satyam did not meet US professional standards and, as a result, did not discover the fraud underlying Satyam’s 2005-2008 financial statements. The orders make clear that Satyam management engaged in a years-long fraud, going so far as to create scores of fictitious documents for the purpose of misleading the auditors.

These settlements, in which PW India neither admits nor denies the U.S. regulators’ findings, apply only to the U.S. regulatory enquiries into Satyam. Neither of the orders found that PW India or any of its professionals engaged in any intentional wrongdoing or was otherwise involved in the fraud perpetrated by Satyam management. The settlements mark the end of the Satyam-related U.S. regulatory enquiries concerning PW India and are a positive step and important milestone in putting the Satyam issue behind PW India. PW India remains hopeful of resolving the outstanding enquiry with the Indian market regulator.

Sounds a little defensive, doesn’t it? Here’s what PwC International Ltd. had to say:

PricewaterhouseCoopers International fully supports PW India’s decision to resolve these issues with the US regulators and is hopeful that an agreed resolution will also be reached with the Indian market regulator. The PwC network will continue to work closely with PW India as it fulfils its commitments to its regulators, its clients, and to the Indian and global marketplaces.

PricewaterhouseCoopers International is committed to a PwC presence in the vibrant and fast growing Indian marketplace.

“India is a key market for PwC and we are committed to working with our colleagues in India to build on a successful practice with quality at the centre of everything it does,” said Dennis Nally, Chairman of PricewaterhouseCoopers International. “The last two years have been challenging for PW India but I believe that PW India has learned the lessons of Satyam, made the right changes and is on a sound footing to move forward, dedicated to quality work.”

This may be a foreign firm but it makes us wonder if the SEC and PCAOB are just getting warmed up. Mr Doty and SEC Chief Accountant James Kroeker will be on the tomorrow’s panel that we will be live-blogging and it will be interesting to hear what they have to say.

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