After India’s securities regulator SEBI banned the global accountancy firm Price Waterhouse from auditing for two years, after it failed to spot a $1.7bn fraud by Satyam Computer Services Limited, there have been a lot of questions and apprehensions about the prevailing auditing practices, their efficacy and rivals’ stance to it. SEBI believes that Price Waterhouse showed disregard for auditing practices indicating its complicity, albeit Price Waterhouse has been negating the stern charges and looking forward to procuring a stay order.
The ban has a far-reaching impact on a multitude of aspects – including marketplace, the firm itself, key clients, stakeholders, competitors, and employees. This will also have some impact on the attractiveness index of the firm in terms of hiring and recruitment as candidates would be more willing to join other auditing firms at least for some time. This ban can put at risk jobs of over 3,000 employees involved in the firms' audit practice, reports India Today. If this happens, it will be a major setback for the employees giving rise to uncertainty. This also reminds us of Satyam case where employees had to lose jobs and other benefits - Satyam had around 50,000 employees before the scam was unearthed. The new management, however, cuts this down to around 30,000 a year later. Sources from Price Waterhouse, however, say that it is premature to say this as the audit firm is going to appeal against the order and is expecting to get a stay against the ban.
The ban will also impact some independent firms which come under Price Waterhouse network – these firms will be barred to act as agents of any other member firm. Furthermore, Price Waterhouse has a marquee client list in India which includes names like Tata Steel, Hindalco, United Spirits, Ashok Leyland, IndusInd Bank and Colgate and news sources say that companies are already working on appointing new auditors to replace Price Waterhouse. Though most of these clients will wait till March 2018 to finish the existing auditing process by Price Waterhouse. The firm’s chairman in India, Shyamal Mukherjee, meanwhile, has requested to all clients to wait till the final verdict comes in and he is hoping to receive a positive outcome . The firm also said in a statement that “the audit firm has learned lessons from Satyam scam and invested heavily over the past nine years in building a 'robust and high-quality audit practice”.
This ban has brought the conversation on ethics back to the forefront. However, it also raises a lot of questions like, who should be held accountable for this and if it should cover the whole Price Waterhouse group responsible for auditing in India? There are few acts which deal with the issue like the Companies Act, 2013 which clarifies that in case of a firm of auditors, it is the firm and the partners who committed the fraud or colluded will be liable for fraud. The Companies Act 2017 (provisions not yet notified) adds a provision that says that in case of criminal liability other than fine, only the partners involved in the fraud would be liable .
Elements of ethics and integrity are like DNA for any firm, without which no organization can survive.
Despite the fact that there are plenty of programs/ training which address these issues, irregularities raise several questions around leadership, culture, and efficacy of existing practices such as how will this ban affect the firm’s potential to attract talent? Are there going to be leadership implications because of this ban? How will this impact the culture within the company? Hopefully, coming years will see fewer of such cases with organizations focusing more on improving their leadership, culture, and practices.