Mumbai: Nearly eight months after the deadline for a special peer review of auditors of the 50 Nifty-listed companies initiated by the market regulator, the exercise prompted by India’s biggest accounting scam is yet to be completed in five firms.

A Mint survey of top audit firms and the 50 Nifty companies found that the review, in fact, hasn’t even begun at the auditors of four entities—State Bank of India, Punjab National Bank, SAIL Ltd and Jindal Steel and Power Ltd. At Bharat Heavy Electricals Ltd’s auditors, the process has begun, but is yet to be completed.

Testing processes: The Securities and Exchange Board of India headquarters in Mumbai. The peer review was mandated by the markets regulator after the Rs7,136 crore scam at Satyam Computer Services. Abhijit Bhatlekar / Mint

Satyam’s founder chairman B. Ramalinga Raju, who has since been arrested, in January confessed to having doctored the company’s accounts over several years. Two accountants at Price Waterhouse, who had audited the company’s books, were among those arrested after the scam surfaced.

An exercise of this kind—a check of the work done by a company’s auditors by other auditors—was meant to test the robustness of India’s audit processes and instill confidence in global and local investors shaken by the scam that cast a cloud over corporate governance and auditing standards in India.

The review, covering fiscal 2008 and the first three quarters of fiscal 2009, was due to be completed by February this year, but there has been no update since on the peer review of any company. The Institute of Chartered Accountants of India (Icai) requires a peer review every three years.

Mint spoke to 17 audit firms who between them inspect the books of 47 of the 50 Nifty firms and audit departments/chief financial officers of at least 12 companies. Mint also spoke to officials at Oil and Natural Gas Corp. Ltd (ONGC), NTPC Ltd and Unitech Ltd, the three Nifty firms whose external auditors weren’t interviewed for this story.

Through their various associates, Deloitte Haskins and Sells, Price Waterhouse, Ernst and Young, and KPMG audit at least 31 Nifty firms.

Although an email questionnaire sent to Sebi remained unanswered, two senior Sebi officials, on condition of anonymity, said the process had been completed for auditors of most companies.

“A major portion of the process has been completed and the final report is expected to be compiled by the end of the year," said one of them.

Waiting to be counted

Navin Bansal, senior partner at ML Puri and Co., which audits Bharat Heavy Electricals, the country’s biggest power equipment maker, said last week that the peer review had begun on 7 October and expected it to take 7-10 days more for completion.

A senior official at SAIL, the biggest government-run steel maker, said Sebi had given it a list of auditors to choose from.

“We had chosen one but the auditor did not turn up. We have made a second choice but we have not heard from Sebi since," said the official, who didn’t want to be named.

TR Chanda and Co., SAIL’s auditor, said the process is stuck between “Sebi and the company".

The peer review process at the auditor of Punjab National Bank, the country’s second biggest public sector lender, hasn’t yet commenced, said Raghuraman, a senior partner at the bank’s auditor V Shankar Aiyar and Co. Raghuraman uses only one name.

A senior partner at Kolkata-based audit firm Dutta Sarkar and Co., the auditor of State Bank of India, the country’s biggest lender, said it had not been peer reviewed yet. The partner didn’t want to be named.

Jindal Steel and Power entered Nifty only in June, said J. Krishnan, a senior partner at SS Kothari Mehta and Co., the company’s auditor.

“By then, the peer review process had already started for many companies. We are expecting it to happen soon," Krishnan said.

All 30 companies that are listed on the Sensex, the benchmark of the Bombay Stock Exchange, are part of the 50-stock Nifty. Jindal Steel and Power replaced Reliance Petroleum Ltd, which was merged into Reliance Industries Ltd (RIL) on 17 June.

RIL, the country’s largest private sector company by market value, is jointly audited by Chaturvedi and Shah, Rajendra and Co., and Deloitte Haskins and Sells. The Nifty-listed Tata flagship firms are audited by Deloitte.

P.R. Ramesh, partner and national leader, audit and enterprise risk services, Deloitte Haskins and Sells, said: “The peer review of our working papers have been completed." Deloitte and its associates currently audit 13 Nifty-listed firms.

Krupal Kanakia, a partner at Chaturvedi and Shah, which audits at least six Nifty-listed firms, including companies of the Reliance-Anil Dhirubhai Ambani Group (R-Adag) and RIL, said: “We got an intimation about peer review in May and the review process has been completed successfully in September. Our audit papers have been peer reviewed up to the financial year FY07-08."

How it works

For the exercise, Sebi sends the names of three auditing firms it has selected to the company for approval. If the firm accepts one of them, it must inform its auditors. And after the existing auditors receive clearance from the company, the peer reviewer starts its checks.

The review process includes verification of the working papers related to the auditors’ reports vis-à-vis the company’s financials for a given period, verification of documents received from banks involved in any of the company’s deals, audit trails, closure of company books and so on.

If a company finds a conflict of interest with the peer reviewers suggested by Sebi, it can seek a change. A case of conflict of interest may arise if any of the peer reviewers audits a rival company or if any of the reviewers is already a part of internal audits of the company.

“This being the first-of-its-kind Sebi-initiated peer review, initially there was no clarity on the execution of the process. So, sometimes, it may take a month for the completion of the review," said Ramesh of Deloitte.

Depending on the size of operations of the company that is audited, the peer review process may take more than three months.

“Our papers have been reviewed by the review party and have been given a clean chit," said Jairaj Purandare, executive director at Price Waterhouse.

Ashvin Parekh, national leader at Ernst and Young, said its peer review had been completed satisfactorily. Ernst and Young and its associates audit eight Nifty companies.

A senior KPMG official who didn’t want to be named also said the review process had been completed at his firm. “The peer reviewer has asked (for) some clarifications, which we have responded to. The process has been completed for most companies." KPMG’s associates audit five Nifty companies.

Laying out consequences

Vishesh Chandiok, partner at Grant Thornton India, which audits two Nifty companies, said it had been peer reviewed.

“The process needs to be improved in terms of qualifications of the partners who conduct the review and the consequences of this review need to be clearly laid out," Chandiok said.

V. Nagaraju, chief financial officer of Unitech, said the peer review of its auditors had been completed before the end of the last fiscal. “We have not been given any report. But whether any report was to be published or was it for consumption of Sebi needs to be checked," he said.

D.K. Saraf, director of finance at ONGC, said: “The peer reviewer has conducted an audit of the working paper of our auditors. They have done it for FY08 and FY09."

A.K. Rastogi, company secretary, NTPC, said the peer review has been completed in July.

According to one auditor, the outcome of completed peer reviews had been positive. “I know from the number of boards I sit (on) that the peer review of the audit process has been completed in many of them," said Shailesh Haribhakti, managing partner, Haribhakti and Co., which audits HDFC Bank Ltd.

“These reports suggest that the quality of financial accounting is robust and Satyam was a one-off case," he added. “Some companies are still pending because each of the appointments were made at different points of time keeping in mind the conflict of interest issues. So there was no uniform deadline. The process will be completed very soon."