Even as the tainted auditors of scam-hit Satyam Computer Services (now Mahindra Satyam) are languishing in jail (Andhra Pradesh High Court on Monday rejected the bail pleas of two former auditors of PriceWaterhouse, S Gopalakrishnan and his deputy Talluri Srinivas), the stock markets regulator Securities Exchange Board of India (Sebi) is all for prohibiting Price Waterhouse and the jailed auditors from any furtherissuance of compliance certifications to listed companies in the country.
The regulator is also of the view that PW and auditors should be restrained from accessing the securities market henceforth.
In an investigation report on the Satyam scam, which has been sent to the CBI, the stock markets regulator has taken serious view of the discrepancies in the performance of the auditors and the auditing firm while certifying the documents of Satyam.
"Action may be taken against Price Waterhouse and its two partners in accordance with the provisions of Section 11, 11B and 11 (4) of the Sebi Act, 1992 and Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 2003," the report said.
Sebi has recommended two actions against PW and the auditors, including "prohibiting PriceWaterhouse and both the partners (S Gopalakrishnan and Srinivas Talluri) from issuing any certificate with respect to compliance of obligations of listed companies and intermediaries registered with Sebi and requirements of those made under securities laws (Sebi Act 1992, the Securities Contracts (Regulations) Act, 1956, the Depositories Act, 1996 and the provisions of the Companies Act, 1956, which are administered by SEBI under Section 55A thereof), the rules, regulations, guidelines made under these Acts, and the listing agreement for a certain period."
In addition, the investigation report has also called for "restraining PriceWaterhouse and both the partners from accessing the securities market and prohibiting them from buying, selling or dealing in the securities of Satyam and its associate listed companies in any manner or whatsoever for a particular period".
The 30-page report, extracts of which are available with DNA, observed several violations on part of the auditors in verifying the documents. "PW has overlooked such starkly visible indicators that should have aroused the suspicion of any prudent person but more so that of a professional auditor which has intimate access to all the records of the company that is being audited, at its disposal," the report observed.
According to the report, "there are grave professional lapses on the part of the auditors revealed (in the investigation), which are inseparably a part of the fraud perpetrated in the capital market."
The regulator has found the violations on four counts including the failure on part of the PW India and the two partners to be vigilant in the conduct of their professional duties for performing mandatory procedures with regard to dispatch of letters and receipt of external confirmations of balances from the banks in which Satyam had claimed to have maintained deposit accounts.
The report also felt that the auditors failed to obtain sufficient information and give due regard to the significant materiality of the particular item of assets as mandated by AAS 13 that warranted careful scrutiny before expression of opinion.
"The gross negligence displayed during the conduct of their audits in Satyam for the period of March 2001 to September 2008 has led to accumulation of false balances in deposit accounts in the books of the company. This led to certification to false financial statements which threw a veil over the overstated assets in the form of bank balances and debtors, fictitious sales revenues and inflated profits. This resulted in publication of substantially incorrect annual financial statements. The role of the auditors in failing to be vigilant and perform their duties as per their mandate has caused untold loss in the confidence of investors and irreparable damage to the integrity of the market," the report said.
Holding PW and auditors totally responsible for the Satyam scam, the Sebi report felt that the auditors' negligence in verifying the material facts before certifying the accounts led to false and misleading price discovery for the Satyam scrip in the stock market.
When asked to comment on the recommendations of the regulator against PW, the auditing firm said, "Price Waterhouse can confirm that it received a notice from Sebi some months ago as part of its investigation into the situation at Satyam Computer Services Ltd. We are actively responding to Sebi in relation to its enquiries. This is an ongoing investigation that is some way from being completed. We are not aware of any Sebi report making any recommendations."
However, it said, PW is committed to cooperate with various agencies looking into the Satyam scam including Sebi.