Price Waterhouse firms banned for role in Satyam scam: Why SEBI found the audit firm guilty

With SEBI barring all all the firms in the Price Waterhouse network from auditing listed companies for two years, the verdict is undoubtedly going to send shockwaves in auditing circles. Sebi has also directed the auditing firm to pay Rs 13.090000000 along with 12% interest per annum since January 2009. Sebi’s order on PW's role in Satyam scam The capital market regulator observed that the whole episode spread over eight years could not have been possible without the knowledge and involvement of the statutory auditors. The promoters purportedly exaggerated revenue, faked invoices, falsified accounts and income tax, and forged fixed deposits returns to paint a healthy picture of the company’s financials. According to SEBI, PW did not crosscheck bank statements with the banks and nor did it verify the details of fixed deposit receipts. The order said that auditor should have applied an attitude of professional skepticism and got carried away by the company’s reputation. PW was also complacent on not effectively implementing the accounting standards that laid considerable importance on effectiveness of internal audit and the need for an external audit to place trust on internal audit for collaborating, increased coverage and optimal usage of time. The auditors did not act upon the whistle blower’s letter warning them about company’s bank balances being inflated and also failed to respond which a prudent auditor would have done on sudden exposure of fraud.