Mumbai: The Institute of Chartered Accountants of India (Icai), which is investigating the role of audit firm Price Waterhouse in the Satyam Computer Services Ltd fraud, is unlikely to conclude this anytime soon if the body’s record on an earlier investigation—coincidentally involving the same audit firm—is any indication.
In 2004, the country’s banking regulator, the Reserve Bank of India (RBI), filed a complaint with Icai, the apex body that regulates accounting firms, after it found differences between the audit firm’s numbers and RBI’s own numbers in the case of Global Trust Bank (GTB).
“The Icai council in 2007 prima facie had found (the) partner of PwC guilty of professional negligence in underproviding for non-performing assets at the erstwhile GTB,’’ an Icai council member said over the phone on Wednesday. “The case was then referred to the (body’s) disciplinary committee.”
GTB almost collapsed after it was discovered that the bank was involved in the stock market scam engineered by Ketan Parekh. Price Waterhouse is an arm of audit and consulting firm PricewaterhouseCoopers and was the audit firm of Satyam, whose former chairman B. Ramalinga Raju disclosed last week that he had fudged the company’s books over the years to the tune of at least Rs7,136 crore.
Troubled house: The PricewaterhouseCoopers office in Hyderabad. PTI
The Icai member, who didn’t want to be named because of the sensitivity of the issue, said the body’s disciplinary committee was in advanced stages of its investigation.
“Once they formulate a view, they will pass on the recommendations to the Icai council, which will then take a final decision,” he said, but added that he couldn’t say how much longer that would take.
Price Waterhouse didn’t respond to an email questionnaire on the subject sent to it on Wednesday.
RBI had said in a statement issued in mid-2004 that GTB’s audited balance sheet as on March 2002 showed a net worth of Rs400.40 crore and a profit of Rs40 crore, while its own annual financial inspection of the bank’s position as on 31 March 2002 disclosed a negative net worth.
Lovelock and Lewes was GTB’s accounting firm in fiscal 2001-02, and Price Waterhouse in 2002-03. Following the collapse of GTB in 2003, the bank was taken over by Oriental Bank of Commerce the following year.
Lovelock and Lewes is also part of PwC.
“Subsequent to the events relating to erstwhile GTB, RBI had advised the entities under its regulation that they may consider not to engage PwC for any audit work till further advice,” RBI spokeswoman Alpana Killawala said in an email reply on Tuesday. “RBI had simultaneously referred the matter relating to deficiency in the conduct of statutory audit by PwC to Icai in August 2004 for taking suitable action against the audit firm. The disciplinary proceedings initiated by Icai are still in progress.”
RBI reinstated the audit firm effective 1 April 2008 after Price Waterhouse made a representation to the central bank in October 2007 “requesting for reinstatement as they had already been penalized by denial of audit for more than three years”, she added.
Explaining the time taken for the GTB probe, the Icai council member said, “Icai has been formed by an Act of Parliament and there are some laid down procedures to follow.” He listed some of these procedures: seeking replies from the accused and counters from the complainant (at least twice in the GTB case), calling the complainant and the accused and providing an opportunity for cross examination; and submitting recommendations to Icai’s council.
This person added that there were many parties involved in the GTB case and that getting information is “a time-consuming exercise... It will be wrong to say we didn’t take action in the last three years. The Icai has taken action against 122 auditors”.
Mint couldn’t immediately ascertain when investigations into these cases began.