A week after an Outlook cover story on chartered accountants and auditors, the government has told parliament that it is prosecuting partners of Pricewaterhouse Coopers (PwC).
While the regulator (ICAI) had told Outlook that it does not prosecute firms (only individual CA-members), the minister of state for corporate affairs has clarified that the law says that both individuals and firms are jointly and severably responsible.
This reply was written in response to questions raised by MPs Poonam Mahajan (BJP) and Tej Pratap Singh Yadav (Samajwadi Party).
Mahajan had specifically asked what action the government was taking against PwC and its partner firms for violations over the last 10 years “that pose serious threats to public interest and national security”.
“Prosecutions under the provisions of the Companies Act, 1956 have been filed against the partners of Pricewaterhouse Coopers (PwC) in nine companies,” Union Minister Of State for Corporate Affairs Arjun Ram Meghwal wrote in his reply.
“I am very glad that the Government undertook decisive action by filing prosecutions under the provisions of the Companies Act, 1956 against the partners of Pricewaterhouse Coopers (PwC) in nine companies,” Mahajan, MP for Mumbai North Central, tells Outlook.
It is not clear which “nine companies” Meghwal spoke of. The minister was unavailable for a comment.
In a recent cover story, Outlook wrote how the audit firms of PwC had failed to report massive financial irregularities in several cases. These cases were later dubbed 'financial scams' and 'frauds' such as the 2001 Global Trust Bank scam, the 2009 Satyam scam and more recently the United Spirits Ltd (USL/ Vijay Mallya) scams.
In some of these cases, partners of Price Waterhouse India (PW India) had signed off on the audit reports.
The Institute of Chartered Accountants of India (ICAI) had debarred six accountants of PW India but not taken action against the firm or firms in the 2009 Satyam scam. An ICAI spokesperson had told Outlook that as per the statute, it can take action only against the individual auditors and not accountants.
“…(b) whether the Government considers to amend the Companies Act to make auditing firms also liable to prosecution and if so, the details thereof.” the question had asked.
“The Explanation II to section 140 of the Companies Act, 2013 provides that for the purposes of Chapter X, the word “auditor” includes a firm of auditors,” the minister has clarified.
He has also said that “if an audit is conducted by an audit firm and there is any fraud or collusion in fraud, concerned partners of the audit firm as well as the audit firm are jointly and severally liable.”
The law says that if an auditor has wilfully or knowingly deceived a company, its shareholders or the authorities, they can be penalised with an imprisonment of up to five years and a fine of up to Rs 25 lakh.
In the Satyam scam, the US Securities Exchange Commission and its Public Company Accounting Oversight Board (PCAOB) had pulled up the PW India firms for their role in the Satyam scam.
Despite the permanent disbarment of its partners and associates who audited Satyam for those years, PW India has said that the regulators have not found any wrongdoing on the part of the firm.
The firm has also said that in 2015, the US regulator said it was satisfied that the firm had put in place all recommended mechanisms as per the PCAOB quality standards and the conditions mentioned in its order on the Satyam scam.
Mahajan says that media reports and a letter to union finance minister and union minister for corporate affairs, Arun Jaitley, set off her question. The letter was written by former Chief Justice of Delhi High Court and former Chairman of the Law Commission of India, Justice AP Shah on behalf of Citizens Whistle Blowers Forum “stating several instances of violations by auditor PwC and its partner firms.”
“Justice Shah, wrote “…violations by PwC member firms in India perhaps represents only the tip of the ice-berg and if left un-addressed will pose serious threats to public interest and national security.’’ Furthermore, he pointedly questioned PwC’s integrity and competence to render audit and advisory services to clients, including the government. So, I asked the question and am glad to get a positive response,” Mahajan said.