The Securities and Exchange Board in India has banned PwC from auditing listed companies in India for 2 years. This will go into effect on March 31, 2018. This ban does not include audits for the 2017 or 2018 as those are audits are already in progress.
What’s at stake for PwC
- 2 year ban
- $2 million fine
- Could lose 75 clients including – (Tata Steel, Hindalco, Ashok Leyland, IDFC, Sterlite)
- Could impact over 2,000 employees in PwC’s India Audit practice
- 40% of PwC India’s revenues come from Audit
- PwC India enjoyed over 19% in their most recent fiscal year
So what happened. This ban relates to the collapse of Indian firm called Satyam. The collapse of Satyam occurred in 2009 cost investors $2 billion. Satyam collapsed due to a huge accounting scandal. Analysts have said that its collapse was the biggest fraud in listed company history in India
The Securities and Exchange Board said that PwC overlooked several red flags which were all too obvious for any reasonable professional auditor to miss.
Indian authorities said that PwC ignored warnings from 2003 up until the moment the Company crashed. There were over 7,000 fake invoices that PwC ignored. The Chairman of the company was Ramalinga Raju. He confessed that the company’s accounts were falsified. He manipulated the accounts of the company by $1.47 billion USD.
PwC will also have to pay back wrongful fees that they earned as part of the audit. They will have to return 130 million rupees which is equivalent to $2 million USD plus 12% interest for the past eight years.
PwC audits over 75 listed indian companies that could be impacted by the order. Auditing represents 40% of PwC’s India business.
PwC had 19.3% growth in India in 2017 it is estimated
This is a huge blow for PwC. PwC India had been enjoying almost 20% growth per year and now they will face a 2 year ban will they face potentially losing 75 audit clients. This has danger of ruining PwC’s brand in the region. This comes at a bad time for PwC as they are facing pressure in the U.S. related to their audit of Colonial Bank. Additionally, the big 4 are facing pressure all around the world as Deloitte has already been banned in Korea and KPMG could face a ban in South Africa. The big 4 are going to have to figure out how to audit better, but they are also going to have to figure out how to manage their international brands in a more controlled manner.